10-Q 1 orex-10q_20160930.htm 10-Q orex-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number: 001-33415

 

OREXIGEN THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

65-1178822

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

3344 North Torrey Pines Court, Suite 200, La Jolla, CA

 

92037

(Address of Principal Executive Offices)

 

(Zip Code)

(858) 875-8600

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

As of November 1, 2016, the registrant had 14,586,771 shares of Common Stock ($0.001 par value) outstanding.

 

 

 

 


 

OREXIGEN THERAPEUTICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015

3

Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and September 30, 2015

4

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and September 30, 2015

5

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and September 30, 2015

6

Notes to Unaudited Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3. Quantitative and Qualitative Disclosures about Market Risk

34

Item 4. Controls and Procedures

35

PART II. OTHER INFORMATION

36

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3. Defaults Upon Senior Securities

67

Item 4. Mine Safety Disclosures

67

Item 5. Other Information

67

Item 6. Exhibits

68

SIGNATURES

69

 

 

EXHIBIT 31.1

 

EXHIBIT 31.2

 

EXHIBIT 32.1

 

EXHIBIT 32.2

 

EXHIBIT 101

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Orexigen Therapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except share and par value amounts)

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

(See Note below)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,427

 

 

$

155,422

 

Accounts receivable

 

 

2,098

 

 

 

6,828

 

Investment securities, available-for-sale

 

 

1,495

 

 

 

58,589

 

Restricted cash and investments

 

 

165,082

 

 

 

 

Inventory

 

 

23,999

 

 

 

10,802

 

Prepaid expenses and other current assets

 

 

6,080

 

 

 

2,254

 

Total current assets

 

 

273,181

 

 

 

233,895

 

Property and equipment, net

 

 

1,260

 

 

 

1,284

 

Intangible assets

 

 

78,032

 

 

 

 

Other long-term assets

 

 

3,152

 

 

 

1,013

 

Restricted cash

 

 

188

 

 

 

138

 

Total assets

 

$

355,813

 

 

$

236,330

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,970

 

 

$

6,485

 

Accrued clinical trial expenses

 

 

8,518

 

 

 

5,820

 

Accrued expenses

 

 

29,229

 

 

 

10,323

 

Contingent consideration

 

 

13,500

 

 

 

 

Deferred revenue, current portion

 

 

2,256

 

 

 

9,613

 

Total current liabilities

 

 

65,473

 

 

 

32,241

 

Long-term contingent consideration

 

 

6,300

 

 

 

 

Long-term convertible debt

 

 

91,319

 

 

 

87,870

 

Long-term convertible debt, at fair value

 

 

109,600

 

 

 

 

Deferred revenue, less current portion

 

 

6,361

 

 

 

82,691

 

Other long-term liabilities

 

 

 

 

 

150

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Series Z preferred stock, $.001 par value, 219,994 and no shares issued and outstanding at

   September 30, 2016 and December 31, 2015, respectively

 

 

3,343

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 10,000,000 shares authorized at September 30, 2016 and

   December 31, 2015; 219,994 and no shares issued and outstanding at September 30,

   2016 and December 31, 2015, respectively

 

 

 

 

 

 

Common stock, $.001 par value, 300,000,000 shares authorized at September 30, 2016

   and December 31, 2015; 14,586,771 and 14,554,592 shares issued and outstanding at

   September 30, 2016 and December 31, 2015, respectively

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

695,759

 

 

 

653,835

 

Accumulated other comprehensive income (loss)

 

 

(1,755

)

 

 

215

 

Accumulated deficit

 

 

(620,602

)

 

 

(620,687

)

Total stockholders’ equity

 

 

73,417

 

 

 

33,378

 

Total liabilities and stockholders’ equity

 

$

355,813

 

 

$

236,330

 

 

See accompanying notes.

Note: The Balance Sheet at December 31, 2015 has been derived from the audited financial statements at that date.

 

 

3


 

Orexigen Therapeutics, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaborative agreement

 

$

895

 

 

$

7,411

 

 

$

5,689

 

 

$

11,525

 

Royalties

 

 

866

 

 

 

2,563

 

 

 

5,961

 

 

 

8,002

 

Net product sales

 

 

5,241

 

 

 

 

 

 

8,176

 

 

 

 

Total revenues

 

 

7,002

 

 

 

9,974

 

 

 

19,826

 

 

 

19,527

 

Cost of product sales

 

 

1,940

 

 

 

 

 

 

3,724

 

 

 

 

Operating (income) expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,254

 

 

 

8,817

 

 

 

31,304

 

 

 

35,166

 

Selling, general and administrative

 

 

35,103

 

 

 

12,103

 

 

 

76,645

 

 

 

31,502

 

Pre-existing settlement gain

 

 

(80,229

)

 

 

 

 

 

(80,229

)

 

 

 

Amortization expense of intangible assets

 

 

1,408

 

 

 

 

 

 

1,408

 

 

 

 

Change in fair value of contingent consideration

 

 

1,000

 

 

 

 

 

 

1,000

 

 

 

 

Total operating (income) expenses

 

 

(37,464

)

 

 

20,920

 

 

 

30,128

 

 

 

66,668

 

Income (Loss) from operations

 

 

42,526

 

 

 

(10,946

)

 

 

(14,026

)

 

 

(47,141

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

239

 

 

 

65

 

 

 

525

 

 

 

195

 

Interest expense

 

 

(1,988

)

 

 

(1,872

)

 

 

(5,878

)

 

 

(5,544

)

Change in fair value of financial instruments

 

 

6,100

 

 

 

 

 

 

17,700

 

 

 

 

Foreign currency gain (loss), net

 

 

786

 

 

 

1,612

 

 

 

1,764

 

 

 

1,612

 

Total other income (expense)

 

 

5,137

 

 

 

(195

)

 

 

14,111

 

 

 

(3,737

)

Net income (loss) - basic

 

$

47,663

 

 

$

(11,141

)

 

$

85

 

 

$

(50,878

)

Net income (loss) - diluted

 

$

40,963

 

 

$

(11,141

)

 

$

85

 

 

$

(50,878

)

Basic net income (loss) per share

 

$

3.27

 

 

$

(0.86

)

 

$

0.01

 

 

$

(4.03

)

Diluted net income (loss) per share

 

$

1.12

 

 

$

(0.86

)

 

$

0.01

 

 

$

(4.03

)

Basic shares used in computing net income (loss) per share

 

 

14,587

 

 

 

12,975

 

 

 

14,570

 

 

 

12,630

 

Diluted shares used in computing net income (loss) per share

 

 

36,615

 

 

 

12,975

 

 

 

14,570

 

 

 

12,630

 

 

See accompanying notes.

 

 

4


 

Orexigen Therapeutics, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

47,663

 

 

$

(11,141

)

 

$

85

 

 

$

(50,878

)

Other comprehensive gain (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(830

)

 

 

(1,643

)

 

 

(1,984

)

 

 

(1,643

)

Unrealized gain (loss) on investment securities

 

 

(43

)

 

 

(6

)

 

 

14

 

 

 

29

 

Other comprehensive gain (loss)

 

 

(873

)

 

 

(1,649

)

 

 

(1,970

)

 

 

(1,614

)

Comprehensive income (loss)

 

$

46,790

 

 

$

(12,790

)

 

$

(1,885

)

 

$

(52,492

)

 

See accompanying notes.

 

 

5


 

Orexigen Therapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

85

 

 

$

(50,878

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of premium on securities available-for-sale

 

 

200

 

 

 

694

 

Accretion of debt discount

 

 

3,413

 

 

 

3,135

 

Change in fair value of financial instruments

 

 

(17,700

)

 

 

 

Gain from pre-existing settlement

 

 

(80,229

)

 

 

 

Change in fair value of contingent consideration

 

 

1,000

 

 

 

 

Amortization of intangible assets

 

 

1,408

 

 

 

 

Depreciation

 

 

310

 

 

 

157

 

Stock-based compensation

 

 

7,894

 

 

 

12,357

 

Deferred revenue

 

 

(3,643

)

 

 

9,746

 

Unrealized foreign currency gain

 

 

(1,301

)

 

 

(1,602

)

Other non-cash adjustments

 

 

274

 

 

 

(835

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,731

 

 

 

(1,990

)

Inventory

 

 

618

 

 

 

(9,801

)

Prepaid expenses and other current assets

 

 

(3,826

)

 

 

(758

)

Other assets

 

 

(2,150

)

 

 

42

 

Accounts payable and accrued expenses

 

 

13,060

 

 

 

3,956

 

Deferred rent and lease incentives

 

 

(150

)

 

 

(147

)

Net cash used in operating activities

 

 

(76,006

)

 

 

(35,924

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of securities available-for-sale

 

 

(23,600

)

 

 

(83,864

)

Maturities of securities available-for-sale

 

 

80,605

 

 

 

105,319

 

Restricted cash and investments

 

 

(165,229

)

 

 

39

 

Purchase of Contrave - net

 

 

(60,435

)

 

 

 

Purchase of property and equipment

 

 

(286

)

 

 

(231

)

Net cash provided by (used) in investing activities

 

 

(168,945

)

 

 

21,263

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from convertible debt issuance

 

 

120,000

 

 

 

 

Proceeds from issuance of warrants

 

 

41,000

 

 

 

 

Proceeds from issuance of Series Z Preferred

 

 

3,343

 

 

 

 

Proceeds from issuance of common stock and warrants in private placement financing

 

 

 

 

 

59,804

 

Proceeds from issuance of common stock

 

 

139

 

 

 

4,226

 

Net cash provided by financing activities

 

 

164,482

 

 

 

64,030

 

Effect of exchange rate changes on cash

 

 

(526

)

 

 

655

 

Net increase (decrease) in cash and cash equivalents

 

 

(80,995

)

 

 

50,024

 

Cash and cash equivalents at beginning of period

 

 

155,422

 

 

 

104,243

 

Cash and cash equivalents at end of period

 

$

74,427

 

 

$

154,267

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Liability incurred to acquire Contrave

 

$

5,442

 

 

$

 

 

See accompanying notes.

 

 

6


 

OREXIGEN THERAPEUTICS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. The Company and Basis of Presentation

Organization

Orexigen Therapeutics, Inc. (the “Company”), a Delaware corporation, is a biopharmaceutical company focused on the development and commercialization of pharmaceutical product candidates for the treatment of obesity. The Company was incorporated in September 2002 and commenced operations in 2003.

The Company’s primary activities since incorporation have been organizational activities, including recruiting personnel, conducting research and development, including clinical trials, raising capital, and preparing for the marketing and commercialization of its sole product, Contrave®, in the United States. Contrave was launched commercially in the United States by the Company’s former partner, Takeda Pharmaceutical Company Limited (“Takeda”), in October 2014. In August 2016, the collaboration agreement between the Company and Takeda was terminated and the Company is now solely responsible for developing and commercializing Contrave within the United States and the rest of the world. The Company has experienced losses since its inception, and as of September 30, 2016, had an accumulated deficit of $620.6 million. The Company expects to continue to incur losses for at least the next several years. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure, and until that time, the Company may need to continue to raise additional equity or debt financing.

Basis of Presentation

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial information. The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The financial statements of the Company’s foreign subsidiary with a functional currency other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations in other income and expense.

The balance sheet as of December 31, 2015 has been derived from the audited financial statements as of December 31, 2015 but does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For more complete financial information, the accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Reverse Stock Split

In July 2016, the Orexigen Board of Directors and stockholders approved a 1-for-10 reverse stock split of all of the outstanding shares of Orexigen’s common stock. On the effective date (July 12, 2016) of the reverse stock split, every 10 shares of the Company’s issued and outstanding common stock, par value $0.001, was consolidated into one outstanding share of common stock, par value $0.001. The reverse stock split reduced the number of shares of the Company’s outstanding common stock from approximately 145.9 million to approximately 14.6 million. Proportional adjustments were made to the Company’s outstanding convertible debt, stock options, warrants, and equity incentive plan. The effect of this event has been reflected in all the share quantities and per share amounts in these financial statements. The shares of common stock authorized remained at 300 million shares and retained a par value of $0.001.

 

 

7


 

2. Summary of Significant Accounting Policies

Research and Development Costs

All research and development costs are charged to expense as incurred and consist principally of costs related to clinical trials, license fees and salaries and related benefits. Clinical trial costs are a significant component of research and development expenses. These costs are accrued based on estimates of work performed, and require estimates of total costs incurred based on patients enrolled, progress of clinical studies and other events. Clinical trial costs are subject to revision as the trials progress and revisions are charged to expense in the period in which they become known.

Revenue Recognition

Collaborative agreement revenue

Prior to the revised multiple element and milestone method of revenue recognition guidance adopted by the Company on January 1, 2011, nonrefundable, up-front license fees and milestone payments with standalone value that are not dependent on any future performance by the Company under the agreements were recognized as revenue upon the earlier of when payments were received or collection was assured, but were deferred if the Company had continuing performance obligations. If the Company had continuing involvement through contractual obligations under such agreements, such up-front fees were deferred and recognized over the period for which the Company continued to have a performance obligation.

Effective January 1, 2011, for multiple element agreements entered into or materially modified after December 31, 2010, the Company follows the provisions of Accounting Standards Update (“ASU”) No. 2009-13. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company use its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. Upfront license fee payments are recognized upon delivery of the license if facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the relative selling price allocation of the license is equal to or exceeds the upfront license fee, persuasive evidence of an arrangement exists, the Company’s price to the partner is fixed or determinable, and collectability is reasonably assured.

Upfront license fee payments are deferred if facts and circumstances dictate that the license does not have standalone value. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have a material impact on the amount of revenue recognized in a given period.

The Company accounts for milestone payments under its agreements using the Milestone Method of accounting. The Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following three criteria: 1) the consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) the consideration relates solely to past performance, and 3) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company. Any milestone payments that do not satisfy these revenue recognition criteria are recorded over the remaining life of the agreements with a cumulative catch up adjustment for the portion of the milestone earned from the inception of the agreement to the expected term of the agreement. The excess of the milestone paid and the amount recognized in the cumulative catch up adjustment is recorded as deferred revenue and recognized over the remaining expected term of the agreement.

8


 

Royalty revenue

Royalties to be received based on sales of the Company’s licensed products by partners are recognized as earned.

Product Sales, Net

The Company’s net product sales consist of U.S. sales of Contrave as well as product sales to our distributors in other countries. The Company recognizes product revenue when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured. Specifically, net product revenue from the sale of Contrave/Mysimba is generally recognized upon transfer of title of the product to our third-party customers, provided that no significant obligations remain.

Effective August 1, 2016, the Company reacquired the commercial rights of Contrave from Takeda and began selling Contrave in the U.S.  The Company commenced shipments of Contrave to its wholesalers in mid-August 2016. The Company has determined it does not currently have the necessary volume of activity to reasonably estimate certain sales allowances at the time title and risk of loss transfers to the wholesalers. Accordingly, the price is not considered fixed or determinable at that time.  Therefore, the Company recognizes revenue when the wholesalers sell Contrave to the dispensing institutions (i.e. pharmacies, hospitals) at which point it has developed sufficient historical experience and data to reasonably estimate future returns and chargebacks. As of September 30, 2016, the Company had a deferred revenue balance of $1.8 million related to Contrave net product sales.

Upon recognition of revenue from product sales of Contrave in the U.S., the Company records certain sales reserves and allowances as a reduction to gross revenue.  These reserves and allowances include:

Rebates:

The Company records provisions for U.S. Medicaid, and commercial managed care contract rebates at the time revenue is recognized based upon our estimated rebate claims attributable to a sale. U.S Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services.  For commercial managed care contract rebates, the Company considers current contract terms, such as changes in formulary status and agreed to discount rates, along with historical utilization rates. Orexigen also considers outstanding rebate claims, rebate payments, forecasted sales, and levels of inventory in the distribution channel and adjusts estimates each period to reflect actual experience. There can be a significant time lag between recording estimates and actual payments.

Chargebacks:

The Company provides predetermined discounts under certain government programs, including the Veterans Administration Federal Supply Schedule (FSS) and Public Health Service 340B, whereby the pharmacies or health care facilities affiliated with these programs purchase Contrave from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the contractual discounted price offered by the Company under the respective program. Our estimate for these chargeback fees takes into consideration contractual terms, historical utilization rates along with payor mix, and our expectations regarding future utilization rates.

Cash Discounts:

The Company offers certain wholesalers cash discounts as an incentive for meeting certain payment terms.   The Company estimates prompt payment discounts based on contractual terms, historical utilization rates, as available, and our expectations regarding future utilization rates.  As the prompt pay discounts are applied against wholesaler purchases of Contrave, the Company records its initial estimate at the point in which that sales occurs.

Distribution Fees:

The distribution fees, based on contractually determined rates, arise from contractual agreements the Company has with certain wholesalers for distribution services they provide with respect to Contrave. These fees are generally a fixed percentage of the price of the product purchased by the wholesalers.

9


 

Savings Card Program:

The Company offers certain discount programs to patients under which the patient receives a discount on his or her prescription. The Company reimburses pharmacies for this discount through a third-party vendor. The discounts, which are recorded as a reduction of sales at the point of revenue recognition, reflect an estimate based on historical utilization rates, expectations surrounding future utilization, and user mix in relation to the discount offering.

Sales Returns:

The Company allows the wholesalers to return product that is damaged or received in error. In addition, the Company accepts unused product to be returned beginning six months prior to and ending twelve months following product expiration. Specific rights of return are also extended to certain customers. The Company believes that its estimated product returns for Contrave requires a high degree of judgement and is subject to change based on our experience and certain quantitative and qualitative factors. Because of the shelf life of Contrave and the lengthy return period, there may be a significant period of time between when the product is shipped and when the Company issues credits on returned product.  In order to develop a methodology to reliably estimate future returns, the Company analyzes many factors, including, without limitation: (1) actual Contrave product return history, taking into account product expiration dating at the time of shipment, (2) re-order activities of the wholesalers as well as their customers and (3) levels of inventory in the wholesale channel.  The Company considers the dating of product at the time of shipment into the distribution channel and changes in the estimated levels of inventory within the distribution channel to estimate our exposure to returned product. The Company also considers current contract prices and projected future prices to estimate the exposure to returned product. Given the exposure to returns and the Company’s limited history of selling Contrave in the U.S., the Company recognizes product sales allowances based on these estimates as a reduction of product sales in the same period the related revenue is recognized, upon sale of Contrave from the wholesalers to the pharmacies, hospitals, etc.  The Company believes this reduces its exposure to returns and allows us to more reasonably justify the estimate.  Should actual product return results differ from our estimates, however, the Company will be required to make adjustments to these allowances in the future, which could have an effect on product sales revenue and earnings in the period of adjustments.

Inventory

Inventories are stated at the lower of cost (using a first-in, first-out basis) or market. Inventory costs including raw materials, work in process and finished goods that may be associated with its products prior to regulatory approval are charged to research and development expense prior to such approval on a country-specific basis.

Fair Value Option

The Company has elected the fair value option to account for its convertible notes that were issued during the quarter ended March 31, 2016 and records these convertible notes at fair value with changes in fair value recorded in the statement of operations. As a result of applying the fair value option, direct costs and fees related to the convertible notes were recognized in earnings as incurred and not deferred.

Preferred Stock

When issued, the Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. The Company’s Series Z Preferred Stock features a contingent right to receive payment from the Company in the event of certain fundamental changes, some of which are not within the Company’s control. Accordingly, the Series Z Preferred Stock is presented as a component of temporary equity.

Accounting for Warrants at Fair Value

The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

The Company assessed the classification of warrants issued in 2016 and associated with the 2016 convertible notes as of the date of the offering and determined that such instruments met the criteria for liability classification. Accordingly, the Company classified the warrants issued in 2016 as a liability at their fair value and adjusts the instruments to fair value at each balance sheet date until the cash settlement feature expires, the warrants are exercised or expired. At the 2016 Annual Meeting of Stockholders on July 8, 2016, the stockholders approved an amendment to increase in authorized shares of common stock. On such date, the cash settlement

10


 

feature expired and therefore the Company adjusted the liability to fair value on that date and reclassified the warrants from a Warrant Liability to Additional Paid in Capital.

 

Purchased Intangibles

 

Acquired assets and assumed liabilities recognized in an acquisition are recorded on the basis of their estimated fair values determined by management at the date of acquisition. The Company determines the estimated economic lives of the acquired intangible assets for amortization purposes.

 

Intangible assets consist of developed technology and tradenames acquired in the Contrave business combination under the purchase method of accounting are recorded at fair value net of accumulated amortization since the acquisition date. Amortization is calculated using the straight line method over the following estimated useful lives:

 

 

 

Useful Lives

Developed technology

 

 

10

 years 

Tradename

 

 

10

 years

 

The Company reviews its finite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of finite-lived intangible asset may not be recoverable. Recoverability of a finite-lived intangible asset is measured by a comparison of its carrying amount to the undiscounted future cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no indicators of impairment during the period ended September 30, 2016.

 

Contingent Consideration

The Company measures contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy.  The Company uses a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. The fair value of the Company’s contingent consideration liability is revalued to fair value each period and any increase or decrease is recorded into earnings. Amounts paid in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities.

 

Restricted Cash and Investments

All cash and investments that are legally restricted from use are recorded in restricted cash and investments on the balance sheet. The convertible senior secured notes due 2020 issued in March 2016 (See Note 10) require the Company to maintain a minimum account balance which is considered to be restricted cash and investments. The required restricted cash and investment amounts are $165.0 million, $100.0 million and $50.0 million until December 21, 2016, March 21, 2017 and June 21, 2017, respectively. The restricted cash and investments balance was $165.3 million and $138,000 on September 30, 2016 and December 31, 2015, respectively.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new standard requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASU 2014-09 defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. The new standard will be effective for the Company starting in the first quarter of fiscal 2018; early adoption as of January 1, 2017 is permitted. The Company is in the process of evaluating the timing of adoption, the transition methods, and the effects the adoption will have on its consolidated financial statements.

In April 2015, the FASB issued ASU No, 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability, consistent with the presentation of debt discounts or premiums. Previous guidance generally required entities to present debt issue costs separately as deferred charges. The Company adopted the new

11


 

guidance in the first quarter of 2016, and prior year amounts were reclassified to conform to the current year presentation. The adoption of this guidance resulted in the reclassification of approximately $259,000 of unamortized debt issuance costs principally from other noncurrent assets to a reduction of long term debt on our consolidated balance sheet as of December 31, 2015. At September 30, 2016, debt issuance costs of approximately $224,000 were netted against long term debt on our consolidated balance sheet under the new guidance.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. ASU No. 2016-01 requires several targeted changes including that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. In addition, the new guidance requires an entity that has elected the fair value option for a financial liability to present separately in other comprehensive income the portion of the total change in the fair value of the liability resulting from a change in the instrument-specific credit risk. The new guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. Amendments are generally to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. ASU No. 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of the provision addressing instrument-specific credit risk related to financial liabilities recorded at fair value under the fair value option. The Company is currently evaluating the impact of adoption of ASU No. 2016-01 on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-2 requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet for all leases and to disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU No. 2016-02 on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued new guidance for the accounting for credit losses on certain financial instruments. This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. This guidance, which becomes effective January 1, 2020. The Company is currently assessing the impact of this guidance on the consolidated financial statements and related disclosures.

In August 2016, the FASB released guidance intended to reduce diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. This guidance becomes effective January 1, 2018 and is applied on a retrospective basis. This guidance is not expected to have a material impact on the Company’s consolidated statement of cash flows.

 

 

3. Net Income (Loss) per Share

Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method or the if-converted method

12


 

For purposes of this calculation, options, warrants and shares underlying convertible notes are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

(In thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) - basic

 

$

47,663

 

 

$

(11,141

)

 

$

85

 

 

$

(50,878

)

Change in fair value of financial instruments

 

 

(6,700

)

 

 

 

 

 

 

 

 

 

Net income (loss) - diluted

 

$

40,963

 

 

$

(11,141

)

 

$

85

 

 

$

(50,878

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic and diluted weighted average shares

   of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic

 

 

14,587

 

 

 

12,975

 

 

 

14,570

 

 

 

12,630

 

Dilutive potential common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and Employee Stock Purchase Plan (ESPP)

 

 

28

 

 

 

 

 

 

 

 

 

 

Common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

Convertible senior notes

 

 

22,000

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for diluted

 

 

36,615

 

 

 

12,975

 

 

 

14,570

 

 

 

12,630

 

Basic net income (loss) per share

 

$

3.27

 

 

$

(0.86

)

 

$

0.01

 

 

$

(4.03

)

Diluted net income (loss) per share

 

$

1.12

 

 

$

(0.86

)

 

$

0.01

 

 

$

(4.03

)

The following weighted outstanding common stock

   equivalents were not included in the calculation of net

   income (loss) per diluted share because their effects were

   anti-dilutive (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares underlying 2013 convertible senior notes

 

 

1,404

 

 

 

1,404

 

 

 

1,404

 

 

 

1,404

 

Shares underlying 2016 convertible senior notes

 

 

 

 

 

 

 

 

22,000

 

 

 

 

Common stock warrants outstanding

 

 

22,000

 

 

 

500

 

 

 

22,000

 

 

 

500

 

Common stock options outstanding

 

 

6,584

 

 

 

1,999

 

 

 

6,584

 

 

 

1,999

 

 

 

 

29,988

 

 

 

3,903

 

 

 

51,988

 

 

 

3,903

 

 

 

4. Investment Securities, Available-for-Sale

The Company invests its excess cash in investment securities, including debt instruments of financial institutions, corporations with investment grade credit ratings and government agencies. Investment securities, available-for-sale, consisted of the following (in thousands):

September 30, 2016

 

 

 

Maturity in

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Years

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. Treasury securities

 

Less than 1

 

 

135,076

 

 

 

13

 

 

 

(7

)

 

 

135,082

 

Corporate debt securities

 

Less than 1

 

 

1,495

 

 

 

0

 

 

 

 

 

 

1,495

 

Total investment securities

 

 

 

$

136,571

 

 

$

13

 

 

$

(7

)

 

$

136,577

 

 

December 31, 2015

 

 

 

Maturity in

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Years

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. government agency securities

 

Less than 1

 

$

36,748

 

 

$

7

 

 

$

(12

)

 

$

36,743

 

Corporate debt securities

 

Less than 1

 

 

9,803

 

 

$

 

 

$

(2

)

 

$

9,801

 

U.S. Treasury securities

 

Less than 1

 

 

12,046

 

 

 

 

 

 

(1

)

 

$

12,045

 

Total investment securities

 

 

 

$

58,597

 

 

$

7

 

 

$

(15

)

 

$

58,589

 

13


 

 

A portion of the investments at September 30, 2016 are restricted investments as described in Note 2. Gross realized gains and losses on available-for-sale securities were immaterial during the three and nine months ended September 30, 2016 and 2015.

 

 

5. Contrave Acquisition

 

In March 2016, the Company entered into a separation agreement with Takeda (the “Separation Agreement”), which terminated the Restated Collaboration Agreement between the Company and Takeda, and the manufacturing services agreement between the Company and Takeda. The Separation Agreement provided for the transfer of certain rights and assets to the Company and provided for the transition of activities under the collaboration agreement from Takeda to the Company during the transition period. On August 1, 2016, the transition period under the Separation Agreement between the Company and Takeda terminated and the Company reacquired all commercial rights to Contrave in the United States. The Company made an initial payment of $60.0 million (the “Initial Payment”) to Takeda in March 2016 and will pay an additional $15.0 million to Takeda in January 2017 (the “January 2017 Payment”) provided that Takeda substantially performs its obligations under the Separation Agreement and related agreements. The source of funds for the Initial Payment and the January 2017 Payment was, and will be, from the Company’s cash on hand. The Company may also be obligated to pay Takeda milestone payments of $10 million, $20 million, $30 million and $50 million, based on the achievement of annual Contrave net sales milestones of $200 million, $300 million $400 million and $600 million, respectively, in any future year. Each such milestone payment shall be payable only once but more than one may be payable with respect to net sales in a single year. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any changes in fair value are recognized in earnings. See Footnote 6 for valuation methodology of contingent consideration. As a result of the Contrave acquisition and the resulting settlement of its pre-existing relationship with Takeda, the Company recorded a settlement gain of $80.2 million representing the remaining Contrave deferred revenue on August 1, 2016.

 

Purchase Consideration

 

The estimated fair value of the total consideration at the date of acquisition (August 1, 2016) is as follows (in thousands):

 

Prepaid purchase price payment to Takeda in March 2016

 

$

60,000

 

Fair value of contingent consideration due to Takeda

 

 

18,800

 

Payment due to Takeda for Contrave inventory

 

 

7,544

 

Estimated payment due to Takeda for charge-backs and rebates

 

 

823

 

Cash received from Takeda for estimated returns as of

   August 1, 2016

 

 

(1,667

)

Total Purchase Price

 

$

85,500

 

 

 

On the acquisition date, the estimated fair value of net assets acquired was $85.5 million. The preliminary allocation of the total consideration to the fair value of the assets acquired and liabilities assumed is subject to finalization of estimating the fair value of the assets acquired and liabilities assumed. The estimated fair values of the assets acquired and liabilities assumed, including the fair value of purchased intangibles, are preliminary estimates pending the finalization of our valuation analyses. The estimated fair value of the inventory and accrued expenses will be finalized as further information is received regarding these items and analysis of this information is completed. The allocation as of the date of the acquisition is as follows (in thousands):

 

Developed technology intangible

 

$

75,039

 

Tradename

 

 

4,400

 

Inventory

 

 

13,971

 

Assumption of accrued expenses (savings card program)

 

 

(5,687

)

Assumption of accrued expenses (returns reserve)

 

 

(2,223

)

Total Fair Value of Assets Acquired and Liabilities Assumed

 

$

85,500

 

 

The fair value of the intangible assets (developed technology intangible and tradename) is determined primarily using the “income method,” the basis of which is a forecast of expected future cash flows. Some of the more significant assumptions inherent in the intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including net revenue, cost of product sales, research and development costs, sales and marketing expenses, capital expenditures and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors. The fair value of the inventory was based upon net realizable values.

 

14


 

The estimated amortization expense related to the intangible assets recorded in connection with the Contrave acquisition for 2016 through 2020 and thereafter is as follows (in millions):

 

Year ended December 31,

 

 

 

 

2016

 

$

3,310

 

2017

 

 

7,944

 

2018

 

 

7,944

 

2019

 

 

7,944

 

2020

 

 

7,944

 

Thereafter

 

 

44,353

 

 

 

$

79,439

 

 

Pro forma

 

The following unaudited pro forma financial information presents results as if the acquisition of Contrave had occurred on January 1, 2015 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

$

10,965

 

 

$

12,667

 

 

$

42,677

 

 

$

38,972

 

Net loss

 

 

(36,040

)

 

 

(55,437

)

 

 

(147,504

)

 

 

(117,427

)

Net loss per share - basic and diluted

 

$

(2.47

)

 

$

(4.27

)

 

$

(10.12

)

 

$

(9.30

)

 

For purposes of the pro forma disclosures above, the primary adjustments for the three and nine months ended September 2016 include the amortization of the intangible assets and the reversal of collaborative and royalty revenue.

 

For purposes of the pro forma disclosures above, the primary adjustments for the three and nine months ended September 2015 include the amortization of the intangible assets, reversal of collaborative and royalty revenue and the elimination of existing Contrave deferred revenue.

 

 

6. Fair Value Measurements

The fair values of the Company’s financial instruments are estimated and classified using a hierarchal disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. The Company classifies money market funds as Level 1 assets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company classifies commercial paper holdings, U.S. Treasury securities, U.S. government agency securities and asset-backed security holdings as Level 2 assets. Level 3 inputs are unobservable inputs for the assets or liabilities, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

15


 

Assets and liabilities measured at fair value on a recurring basis at September 30, 2016 are shown below (in thousands):

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

Description

 

Balance as of

September 30, 2016

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

93,729

 

 

$

93,729

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

135,082

 

 

 

 

 

 

135,082

 

 

 

 

Corporate debt securities

 

 

1,494

 

 

 

 

 

 

1,494

 

 

 

 

Total assets measured at fair value

 

$

230,305

 

 

$

93,729

 

 

$

136,576

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration - current

 

$

13,500

 

 

$

 

 

$

 

 

$

13,500

 

Contingent consideration - long-term

 

 

6,300

 

 

$

 

 

$

 

 

 

6,300

 

Convertible debt

 

 

109,600

 

 

 

 

 

 

 

 

 

109,600

 

Total liabilities measured at fair value

 

$

129,400

 

 

$

 

 

$

 

 

$

129,400

 

 

There were no transfers between Levels 1, 2 or 3 during the three and nine months ended September 30, 2016 and 2015.

The following table presents additional information about Level 3 liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2016 (in thousands):

 

Contingent Consideration—August 1, 2016

 

$

18,800

 

Change in fair value of contingent consideration (recognized in

   earnings)

 

 

1,000

 

Contingent Consideration at fair value – September 30, 2016

 

$

19,800

 

Convertible Debt—March 31, 2016

 

$

120,000

 

Change in fair value of convertible debt (recognized in

   earnings)

 

 

(10,400

)

Convertible debt at fair value – September 30, 2016

 

$

109,600

 

Warrant Liabilities – March 31, 2016

 

$

41,000

 

Change in fair value of warrant liability (recognized in

   earnings)

 

 

(7,300

)

Reclassifcation to equity

 

 

(33,700

)

Fair value of warrant liability—September 30, 2016

 

$