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Accounts Receivable
9 Months Ended
Sep. 30, 2018
Receivables [Abstract]  
Accounts Receivable
Accounts Receivable

On December 13, 2016, the Company entered into a Purchase and Sale Agreement (the “SWK Purchase Agreement”) with SWK Funding LLC (“SWK”), pursuant to which the Company sold, and SWK purchased, the Company’s right to receive, commencing on October 1, 2016, all Royalties (as defined in the SWK Purchase Agreement) arising from the sale by Adapt of NARCAN or any other Product, in an amount up to (i) $20,625,000 and then the Residual Royalty thereafter or (ii) $26,250,000 (the "Capped Royalty Amount"), if Adapt has received in excess of $25,000,000 of cumulative Net Sales for any two consecutive fiscal quarters during the period from October 1, 2016 through September 30, 2017 from the sale of NARCAN (the “Earn Out Milestone”), and then the Residual Royalty thereafter. The Residual Royalty is defined in the SWK Purchase Agreement as follows: (i) if the Earn Out Milestone is paid, then SWK shall receive 10% of all Royalties; provided, however, that if no generic version of NARCAN is commercialized prior to the sixth anniversary of the SWK Closing Date, then SWK shall receive 5% of all Royalties after such date, and (ii) if the Earn Out Milestone is not paid, then SWK shall receive 7.86% of all Royalties; provided, however, that if no generic version of NARCAN is commercialized prior to the sixth anniversary of the SWK Closing Date, then SWK shall receive 3.93% of all Royalties after such date. Under the SWK Purchase Agreement, the Company received an upfront purchase price of $13,750,000 less $40,000 of legal fees on the SWK Closing Date, and received an additional $3,750,000 from SWK on August 10, 2017 after the Earn Out Milestone was achieved during the first two calendar quarters in 2017.

As of December 31, 2017, the Company determined that the Capped Royalty Amount provided in the SWK Agreement had been met. As a result, 90% of any succeeding milestone payments and royalties due from Adapt will revert to the Company while the remaining 10% will be paid to SWK. As of December 31, 2017, the Company recognized accounts receivable of $11.7 million, which is equivalent to 90% of the milestone payments and royalties earned during the five months ended December 31, 2017.
On February 28, 2018, the Company was notified that Adapt had entered into a license agreement with a Third Party (as defined in the License Agreement) with regard to one or more patents pursuant to which Adapt had invoked its right under Section 5.5 of that certain License Agreement, dated as of December 15, 2014 (the “Initial License Agreement”), by and between the Company and Adapt, as amended (the “License Agreement”), to offset 50%, or $6,250,000, of the payment paid to such Third Party from the amounts payable by Adapt to the Company (under the License Agreement) and to SWK (under the SWK Purchase Agreement). To the extent that the license agreement which Adapt has entered into with the Third Party requires additional payments that fall under the scope of Section 5.5 of the License Agreement, Adapt may seek from the Company future payment offsets of up to 50% of such amounts that Adapt pays to such Third Party. In accordance with the License Agreement, Adapt may enter into such a licensing arrangement and exercise its right to deduct any payments with respect thereto at any time without the consent of the Company. Under the License Agreement, royalty or milestone payments for a calendar quarter are payable from Adapt to the Company, and Adapt may not deduct more than 50% of the amount payable for that calendar quarter. The Company has not been given access to the license agreement between Adapt and the Third Party and Adapt may not give the Company notice of any future offset payments until they are incurred. The Company is not aware of any potential offset payments related to the three months ended September 30, 2018.
On March 1, 2018, the Company received net milestone payments of $6.1 million. The remaining accounts receivable balance of $5.6 million, which is associated with the royalty and milestones earned during the twelve months ended December 31, 2017, was applied as an offset to the license fee owed to Adapt, as provided under Section 5.5 of the License Agreement. The $5.6 million of fees paid to Adapt is reported as license fees in the condensed consolidated statements of operations.
At September 30, 2018, the Company recorded $4.1 million as a receivable relating to royalty revenue recognized during the three months ended September 30, 2018.