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Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Litigation
The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. In the Company's opinion, the ultimate resolution of these matters is not expected to have a material effect on its consolidated financial statements. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.
In November 2016, the Company received notice that in October 2016, Ipsen had initiated arbitration proceedings against it in the International Chamber of Commerce’s International Court of Arbitration related to certain disputes under the License Agreement concerning abaloparatide. Ipsen sought declaratory relief, compliance with the License Agreement, damages, costs and fees as a result of the purported breaches and alleged the monetary value of these claims was approximately €50 million (approximately $61.6 million).
In June 2018, the Company received a final decision from the arbitration tribunal (the “Tribunal”), which found that the Company did not breach Ipsen’s contractual right to elect to co-promote abaloparatide in France. The Tribunal also found that the Company breached its obligation to provide Ipsen with certain know-how for use in Japan and, as a result, ordered the Company to pay Ipsen (i) $10.0 million (including pre-award interest), (ii) $5.0 million if abaloparatide receives marketing approval in Japan, and (iii) a fixed mid single-digit royalty based on net sales of abaloparatide in Japan. The Tribunal held that neither party was the prevailing party, and thus ordered each party to bear its own costs, attorneys’ fees, and expenses of the arbitration. The Company recorded the $10.0 million payment plus interest of $0.8 million to other operating expenses in the condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2018. The $5.0 million payment upon abaloparatide receiving marketing approval in Japan will be accrued for in the period in which the approval is determined to be probable. Royalties based on net sales of abaloparatide in Japan will be accrued during the period that revenue for such sales, which is subject to a royalty arrangement, is recognized and will be presented as cost of sales within the consolidated statement of operations and comprehensive loss.
The decision does not impact the Company’s rights under the License Agreement or its license agreement with Teijin for abaloparatide-SC in Japan, under which the Company previously received a $10.0 million upfront payment and is entitled to receive up to an aggregate of $40.0 million upon the achievement of certain regulatory and sales milestones, and a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan, and has an option to negotiate for a co-promotion agreement with Teijin for abaloparatide-SC in Japan.
Manufacturing Agreements
In June 2016, the Company entered into a Supply Agreement with Ypsomed AG (“Ypsomed”), pursuant to which Ypsomed agreed to supply commercial and clinical supplies of a disposable pen injection device customized for subcutaneous injection of abaloparatide, the active pharmaceutical ingredient (“API”) for TYMLOS. The Company agreed to purchase a minimum number of devices at prices per device that decrease with an increase in quantity supplied. In addition, the Company has made milestone payments for Ypsomed’s capital developments in connection with the initiation of the commercial supply of the device and paid a one-time capacity fee. All costs and payments under the agreement are delineated in Swiss Francs. The agreement has an initial term of three years, which began on June 1, 2017, after which it automatically renews for two-year terms unless either party terminates the agreement upon 18 months' notice prior to the end of the then-current term. The Company agreed to purchase the devices at prices that decrease based on the quantity ordered, subject to an annual increase by Ypsomed and to minimum annual quantity requirements over the initial three-year term of the agreement. The Company is required to purchase a minimum number of batches equal to approximately CHF 0.5 million (approximately $0.5 million) per year and CHF 2.9 million (approximately $2.9 million) in total, subject to any annual price adjustments, during the initial term.
In June 2016, the Company entered into a Commercial Supply Agreement with Vetter Pharma International GmbH (“Vetter”), pursuant to which Vetter has agreed to formulate the finished abaloparatide-SC drug product containing abaloparatide API, to fill cartridges with the drug product, to assemble the pen delivery device, and to package the pen for commercial distribution. The Company agreed to purchase the cartridges and pens in specified batch sizes at a price per unit. For labeling and packaging services, the Company agreed to pay a per unit price dependent upon the number of pens loaded with cartridges that are labeled and packaged. These prices are subject to an annual price adjustment. The agreement has an initial term of five years, which began on January 1, 2016, after which, it automatically renews for two-year terms unless either party notifies the other party two years before the end of the then-current term that it does not intend to renew.
In July 2016, the Company entered into a Manufacturing Services Agreement with Polypeptide Laboratories Holding AB (“PPL”), as successor-in-interest to Lonza Group Ltd., pursuant to which PPL agreed to manufacture the commercial and clinical supplies of the API for abaloparatide. The Company agreed to purchase the API in batches at a price per gram in euros, subject to an annual increase by PPL. The agreement has an initial term of six years, which began on June 28, 2016, after which, it automatically renews for three-year terms unless either party provides notice of non-renewal 24 months before the end of the then-current term. The Company is also required to purchase a minimum number of batches annually, equal to approximately €2.9 million (approximately $3.4 million) per year and approximately €16.1 million (approximately $18.8 million) in total, subject to any annual price adjustments, during the initial term.
Restructuring
On March 27, 2018, the Company implemented a restructuring plan to consolidate operations into its two main offices in Waltham, Massachusetts and Wayne, Pennsylvania to achieve operational efficiencies. As part of that effort, the Company will shut down its Parsippany, New Jersey office. Costs incurred in connection with the restructuring comprise one-time benefits to employees who are involuntarily terminated, costs related to the early termination of contracts, and retention costs for certain employees who will continue to work remotely for the Company after the Parsippany office is closed. Employee termination and retention related costs are generally recognized ratably over the future service period and contract termination costs are generally recognized as of the cease-use date. During the six months ended June 30, 2018, the Company incurred $0.8 million of employee termination and retention costs, with related cash payments to be made through the first quarter of 2019.
On June 11, 2018, the Company implemented a restructuring plan designed to increase the impact and efficiency of its field sales by re-allocating commercial resources across certain territories. Costs incurred in connection with the restructuring comprise one-time benefits to employees who are involuntarily terminated. During the six months ended June 30, 2018, the Company incurred $0.6 million of employee termination costs, with related cash payments to be made through the third quarter of 2018.