Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of Questcor and our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of interim financial information have been included.

The financial statements of our subsidiaries with functional currencies 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 shareholders' equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income in shareholders' equity. Foreign currency transaction gains and losses are included in the results of operations in our condensed consolidated statements of income and comprehensive income.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Our significant estimates include our estimates for sales-related reserves, valuation and impairment of intangibles and goodwill, deferred tax assets and tax liabilities, share-based compensation and estimating the fair value of our contingent consideration in conjunction with the acquisition of both BioVectra and Synacthen Depot, among others.

Reclassifications

Certain comparative prior year amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification 605, “Revenue Recognition-Products,” or ASC 605. Pursuant to ASC 605, we recognize revenue when we have persuasive evidence that an arrangement, agreement or contract exists, when each of the following three criteria are satisfied: (i) title for our product and risk of loss have passed to our customer, (ii) the price we charge for our product is fixed or is readily determinable, and (iii) we are reasonably assured of collecting the amounts owed under the resulting receivable. We do not require collateral from our customers.

In the U.S., our exclusive customer for Acthar is a specialty distributor. For our sales to this specialty distributor, a sale of Acthar occurs when the specialty distributor accepts a shipment of Acthar based on its order of Acthar from our exclusive agent for commercial shipment of Acthar to the specialty distributor. We sell Acthar at a discount from our list price to the specialty distributor, which then sells Acthar primarily to approximately 12 specialty pharmacy companies and many hospitals.

We provide free vials of Acthar, to support a patient assistance program administered by a third party administrator. We do not recognize any revenue or net sales from this program.

Separately, we make charitable contributions, in dollars, to independent third-party charitable organizations which administer co-pay assistance programs.

International sales of our products are immaterial.

Net Sales

We record net sales after establishing reserves for the following:


•	Medicaid rebates;


•	TRICARE retail program rebates;


•	Medicare Part D Coverage Gap Discount Program rebates;


•	Chargebacks due to other government programs;


•	Questcor-sponsored co-pay assistance programs;


•	Exchanges, which have historically been immaterial; and


•	Other deductions, such as payment discounts.

We currently provide our products to Medicaid participants under an agreement with the Centers for Medicare and Medicaid Services, or CMS. Under this agreement, states are eligible to receive rebates from us for Medicaid patients in accordance with CMS regulations. States have historically provided us with rebate invoices for their Medicaid Fee for Service reimbursements between 60 and 90 days after the end of the calendar quarter in which our products were provided. Certain states are taking longer to submit complete rebate invoices for the Medicaid Managed Care utilization that became rebate eligible on March 23, 2010, as a result of the enactment of the Patient Protection and Affordable Care Act.

Significant judgment is inherent in the selection of assumptions and the interpretation of historical experience as well as the identification of external and internal factors affecting the determination of our reserves for Medicaid rebates and other government program rebates and chargebacks. We believe that the assumptions used to determine these sales reserves are reasonable considering known facts and circumstances. However, our Medicaid rebates and other government program rebates and chargebacks could materially differ from our reserve amounts because of unanticipated changes in prescription trends or patterns in the states' submissions of Medicaid claims, adjustments to the amount of product in the distribution channel, or if our estimates of the number of Medicaid patients with IS, MS, NS and rheumatology related-conditions are incorrect. We have greater visibility on the future submission of Medicaid claims and the amount of product in the distribution channel for Acthar distributed to certain specialty pharmacies than we have with respect to Acthar distributed through other specialty pharmacies. If actual Medicaid rebates, or other government program rebates and chargebacks are materially different from our estimates, we would account for such differences as a change in estimate in the period in which they become known. If actual future payments for such reserves exceed the estimates we made at the time of sale, our consolidated financial position, results of operations and cash flows may be negatively impacted.

Total Sales-related Reserves

At June 30, 2014 and December 31, 2013, sales-related reserves included in the accompanying condensed consolidated balance sheets were as follows (in thousands):



	June 30, 2014		December 31, 2013
Medicaid rebates	$	22,961	$	30,981
Other rebates, chargebacks and discounts	3,952		4,389
Total	$	26,913	$	35,370

The following table summarizes the activity in the account for sales-related reserves for Medicaid rebates (in thousands):



	2014			2013
Balance at January 1	$	30,981		$	33,921
Actual Medicaid payments for sales made in prior year	(19,071		)	(21,463		)
Actual Medicaid payments for sales made in current year	(6,799		)	(6,923		)
Current Medicaid provision for sales made in prior year	(4,545		)	11,497
Current Medicaid provision for sales made in current year	22,395			13,510
Balance at June 30	$	22,961		$	30,542

Product Exchanges and Returns

Acthar has a shelf life of 18 months from the date of manufacture. We authorize Acthar exchanges for expiring and expired product in accordance with our stated return policy, which allows the specialty distributor to return product within one month of its expiration date and for a period up to three months after such product has reached its expiration date. Product exchanges have been insignificant since we began utilizing the services of the specialty distributor to distribute Acthar.

For our contract manufactured finished goods sold through our BioVectra subsidiary, we warrant that our products conform to the applicable product specifications. Each product is shipped with a Certificate of Analysis stating the conditions and results of product performance tests. Our customers must determine the suitability of our product. We do not accept liability for any incidental, direct or indirect consequential or contingent damages arising out of the use, result of use, or the inability to use our products. Should any of our products fail to meet its described specifications for reasons other than misuse or mishandling, at our option, we will either replace the product free of charge or refund the purchase price. We reserve the right to deny a return when the date of the invoice is greater than 30 days from the return request date, or for any other reason as covered by our warranty.

Concentration of Credit Risk

Financial instruments that subject us to a significant concentration of credit risk principally consist of cash and cash equivalents, short-term investments and accounts receivable. We invest our cash in high credit quality government and corporate debt instruments and believe the financial risks associated with these instruments are minimal.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non-interest bearing cash balances are insured up to $250,000 per depositor at each financial institution.

We extend credit to a specialty distributor, which accounts for approximately 93% of our gross product sales and 88% of our accounts receivable. We have not experienced material credit losses on our customer accounts.

Inventories

We state inventories, net of allowances, at the lower of cost or market value. For our Acthar product, cost is determined by the first-in, first-out method. For our production materials and supplies, work-in-process and finished goods at our contract manufacturer, cost is determined on an average cost basis.

We review inventory periodically for slow-moving or obsolete status. We adjust our inventory if we do not expect to recover the cost of inventory. We would record a reserve to adjust inventory to its net realizable value when any of the following occur: (i) a product is close to expiration and we do not expect it to be sold, (ii) a product has reached its expiration date or (iii) we do not expect a product to be saleable. In determining the reserves for these products, we consider factors such as the amount of inventory on hand and its remaining shelf life, and current and expected market conditions, including management forecasts and levels of competition. We have evaluated the current level of inventory considering historical trends and other factors, and based on our evaluation, have recorded adjustments to reflect inventory at its net realizable value. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors differ from expectations. These estimates require us to assess the future demand for our products in order to categorize the status of such inventory items as slow-moving, obsolete or in excess-of-need. These future estimates are subject to the ongoing accuracy of our forecasts of market conditions, industry trends, competition and other factors. Differences between our estimated reserves and actual inventory adjustments have been immaterial, and we account for such adjustments in the current period as a change in estimate.

The components of inventory are as follows (in thousands):



	June 30, 2014			December 31, 2013
Raw material	$	10,145		$	9,835
Work-in-process	3,565			2,194
Intermediates	1,620			1,572
Finished goods	2,493			4,096
	17,823			17,697
Less: Reserve for obsolescence	(1,441		)	(1,329		)
	$	16,382		$	16,368

Included in inventories at June 30, 2014 is $8.8 million held at BioVectra, in Canada.

Property, Plant and Equipment

Equipment, building, land and leasehold improvements and related accumulated depreciation and amortization are as follows (in thousands):



	June 30, 2014			December 31, 2013
Equipment (including manufacturing, laboratory and office)	$	32,816		$	26,237
Building	13,000			12,015
Land and land improvements	502			406
Leasehold improvements	1,523			1,446
	47,841			40,104
Less accumulated depreciation and amortization	(11,432		)	(8,371		)
	$	36,409		$	31,733

Total depreciation and amortization expense amounted to $3.2 million and $2.8 million for the six months ended June 30, 2014 and 2013, respectively. The increase in depreciation and amortization expense was due to an increase in the value of assets held and acquired. We depreciate our property and equipment and amortize our leasehold improvements using the straight-line method of depreciation. Included in property, plant and equipment at June 30, 2014 is $32.9 million held at BioVectra, in Canada.

Supply Concentration Risks

Acthar is derived from the extraction and purification of porcine pituitary glands through complicated processes, and is difficult to manufacture. Acthar bulk concentrate, the API used in Acthar, is processed at our BioVectra subsidiary, in several stages to produce a highly purified raw material for formulation. We have a supply agreement with Cangene bioPharma, Inc., or Cangene, to manufacture commercial quantities of Acthar finished product. Currently, Cangene is our sole source supplier of Acthar finished product. Additionally, we use a sole source provider for potency testing. The processes used to manufacture and test Acthar are complex and subject to FDA inspection and approval. Acthar finished product has a shelf life of 18 months from the date of manufacture.

Cash Equivalents and Short-Term Investments

We consider highly liquid investments with maturities from the date of purchase of three months or less to be cash equivalents. We classify available-for-sale debt instruments with maturities at the date of purchase of greater than three months as short-term investments.

We carry available-for-sale securities at fair value, with the unrealized gains and losses, if any, reported in the Condensed consolidated statements of income and comprehensive income. If we deem the decline in value to be other-than-temporary and we intend to sell such securities before their full cost can be recovered, we write down such securities to fair value and we charge the loss to net realized losses on investments. We use significant judgment in the determination of when an other-than-temporary decline in value has occurred. We evaluate our investment securities for other-than-temporary declines based on quantitative and qualitative factors. As of June 30, 2014, none of our investments had an other-than-temporary decline in valuation, and no other-than-temporary losses were recognized during the three and six months ended June 30, 2014 and 2013, respectively. We base the cost of securities sold on the specific identification method. We include realized gains and losses, if any, in the accompanying condensed consolidated statements of income and comprehensive income, in Interest and other income, net.

A summary of cash and cash equivalents and short-term investments, classified as available-for-sale, and carried at fair value is as follows (in thousands):



	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Estimated Fair Value
June 30, 2014
Cash and cash equivalents	$	21,566	$	—	$	—		$	21,566
Short-term investments:
Corporate bonds	32,861		18		(2		)	32,877
Government-sponsored enterprises	12,019		10		(1		)	12,028
Municipal bonds	16,158		12		(1		)	16,169
	$	61,038	$	40	$	(4	)	$	61,074
December 31, 2013
Cash and cash equivalents	$	13,351	$	—	$	—		$	13,351
Short-term investments:
Corporate bonds	45,190		11		(14		)	45,187
Government-sponsored enterprises	14,539		3		(4		)	14,538
Municipal bonds	9,438		4		(1		)	9,441
	$	69,167	$	18	$	(19	)	$	69,166

The amortized cost and fair value of short-term investment securities at June 30, 2014, by contractual maturity, are as follows (in thousands):



	Amortized Cost		Estimated Fair Value
Due in one year or less	$	22,410	$	22,414
Due after one through two years	38,628		38,660
Total short-term investments	$	61,038	$	61,074

As of June 30, 2014, the average contractual maturity of our short-term investments was approximately 15 months.

As of June 30, 2014, we had the following available-for-sale securities that were in an unrealized loss position but were not deemed to be other-than-temporarily impaired (in thousands):



	Less Than 12 Months					12 Months or Greater
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	(1	)	$	4,025	$	(1	)	$	2,392
Government-sponsored enterprises	—			—		(1		)	1,998
Municipal bonds	—			1,391		(1		)	1,314
Total	$	(1	)	$	5,416	$	(3	)	$	5,704

The gross unrealized losses reported above for June 30, 2014 were caused by general fluctuations in market interest rates from the respective purchase date of these securities through June 30, 2014. No significant facts or circumstances have occurred to indicate that these unrealized losses are related to any deterioration in the creditworthiness of the issuers of the marketable securities we own. Based on our review of these securities, including our assessment of the duration and severity of the related unrealized losses, we have not recorded any other-than-temporary impairments on these investments. For the three and six months ended June 30, 2014, we did not realize any gains or losses.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, dividends payable, accrued liabilities and derivatives (primarily associated with the contingent consideration in conjunction with the acquisition of Synacthen Depot). We believe that the fair value of these financial instruments approximate the reported carrying amounts.

Fair Value Measurements

We account for fair value measurements under Accounting Standards Codification 820 “Fair Value Measurements and Disclosures,” or ASC 820, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


•	Level 1 – Quoted prices in active markets for identical assets or liabilities.


•	Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We have segregated all assets and liabilities measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. As of June 30, 2014 and December 31, 2013, assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):



		Basis of Fair Value Measurements
		Balance at
Balance Sheet Classification		June 30, 2014		Level 1		Level 2		Level 3
Cash and cash equivalents	Cash and cash equivalents	$	21,566	$	19,216	$	2,350	$	—
Short-term investments	Corporate bonds	32,877		—		32,877		—
Short-term investments	Government-sponsored enterprises	12,028		—		12,028		—
Short-term investments	Municipal bonds	16,169		—		16,169		—
	Total assets	$	82,640	$	19,216	$	63,424	$	—

Current liabilities	Current portion of contingent consideration in conjunction with acquisition of BioVectra	$	4,124	$	—	$	—	$	4,124
Non-current liabilities	Contingent consideration in conjunction with acquisition of BioVectra	30,642		—		—		30,642
Non-current liabilities	Contingent consideration in conjunction with acquisition of Synacthen Depot	72,011		—		—		72,011
	Total liabilities	$	106,777	$	—	$	—	$	106,777



		Basis of Fair Value Measurements
		Balance at
Balance Sheet Classification		December 31, 2013		Level 1		Level 2		Level 3
Cash and cash equivalents	Cash and cash equivalents	$	13,351	$	5,260	$	8,091	$	—
Short-term investments	Corporate bonds	45,187		—		45,187		—
Short-term investments	Government-sponsored enterprises	14,538		—		14,538		—
Short-term investments	Municipal bonds	9,441		—		9,441		—
	Total assets	$	82,517	$	5,260	$	77,257	$	—

Current liabilities	Current portion of contingent consideration in conjunction with acquisition of BioVectra	$	4,238	$	—	$	—	$	4,238
Non-current liabilities	Contingent consideration in conjunction with acquisition of BioVectra	33,224		—		—		33,224
Non-current liabilities	Contingent consideration in conjunction with acquisition of Synacthen Depot	70,290		—		—		70,290
	Total liabilities	$	107,752	$	—	$	—	$	107,752

The fair value of contingent consideration in conjunction with the acquisition of BioVectra and Synacthen Depot were determined to be Level 3 under the fair value hierarchy. The following table presents the fair value, valuation technique and related unobservable input for the Level 3 measurements:



	Fair Value		Valuation Technique	Unobservable Input	Rate
Contingent consideration in conjunction with the acquisition of Bio Vectra estimate	$	34,766	Probability weighted discounted future cash flows	Discount rate	5%
Contingent consideration in conjunction with the acquisition of Synacthen Depot estimate	$	72,011	Probability weighted discounted future cash flows	Discount rate	5%

Investment securities are exposed to various risk factors, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that changes in these risk factors in the near term could have an adverse material impact on our results of operations or shareholders’ equity.

The following table represents a roll forward of the fair value of Level 3 instruments, comprised solely of the contingent consideration, including the current portion of the contingent consideration:



	June 30, 2014
Balance at beginning of period	$	107,752
Amounts acquired or issued	(4,581		)
Change due to compensation expense	1,059
Change due to time value of money	2,382
Change due to foreign currency translation adjustment	165
Changes in fair value	—
Balance at end of period	$	106,777

Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.

Long-term Debt

Funded long-term debt

Our subsidiary, BioVectra, has a supply agreement with a customer to supply a pharmaceutical product for a period of 10 years. Per the supply agreement, BioVectra financed and constructed a facility for the manufacturing of the pharmaceutical product to be supplied under the agreement. BioVectra entered into a term loan agreement with Prince Edward Island Century 2000 Fund Inc. to finance C$14.8 million of the construction costs of the facility. The term loan has an interest rate of 4%, is due in full by February 2022 and is secured by certain of our BioVectra assets. Under the supply agreement, the customer agreed to reimburse BioVectra for the quarterly financing payments of C$450,743 during the term of the loan.



	June 30, 2014
4% Term Loan, due February 2022, payable in quarterly installments of C$450,743 including principal and interest	$	11,519
Less: Current Portion	1,249
Funded long-term debt, less current portion	$	10,270

Long-term debt

Our subsidiary, BioVectra, has a 2.85% term loan. The loan is payable monthly and is due April 2016. The loan is secured with BioVectra accounts receivable, inventory and certain owned properties.



	June 30, 2014
2.85% Term Loan, due April 2016, payable in monthly installments of C$48,170 including principal and interest	$	3,363
Less: Current Portion	452
Funded long-term debt, less current portion	$	2,911

Share-based Compensation

We recognize compensation expense for all share-based awards made to employees and directors. The fair value of share-based awards is estimated at grant date using an option pricing model and the portion that is ultimately expected to vest is recognized as compensation cost over either (1) the requisite service period or (2) the performance period.

Since share-based compensation is recognized only for those awards that are ultimately expected to vest, we have applied an estimated forfeiture rate to unvested awards for the purpose of calculating compensation cost. These estimates will be revised, if necessary, in future periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

We use the Black-Scholes option-pricing model to estimate the fair value of share-based awards. The determination of fair value using the Black-Scholes option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option behaviors. We estimate the expected term based on the contractual term of the awards and employees' exercise and expected post-vesting termination behavior.

We use the intrinsic method to account for restricted stock awards. The restricted stock awards are valued based on the closing stock price on the date of grant and amortized ratably over the life of the award.

Additionally, we are required to disclose in our condensed consolidated statements of cash flows the income tax effects resulting from share-based payment arrangements. We adopted the simplified method to calculate the beginning balance of the additional paid-in capital, or APIC, pool of excess tax benefits, and to determine the subsequent effect on the APIC pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards.

At June 30, 2014, there was $15.2 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a remaining weighted average vesting period of approximately 1.9 years; and $56.3 million of total unrecognized compensation cost related to unvested restricted stock awards and restricted stock units.

Share-based compensation cost is summarized below (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Selling and marketing	$	3,749	$	2,570	$	6,866	$	5,024
General and administrative	3,462		2,685		7,297		5,223
Research and development	1,562		1,276		3,306		2,432
Total	$	8,773	$	6,531	$	17,469	$	12,679

Net Income Per Share

Basic net income per share applicable to common shareholders is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalents shares, such as stock options and restricted stock outstanding during the period. Diluted earnings for our common shareholders per common stock considers the impact of potentially dilutive securities and excludes the impact of potential common shares related to our stock options and restricted stock in periods in which the option exercise or conversion price is greater than the average market price of our common stock during the period.

The following table presents the amounts used in computing basic and diluted net income per share applicable to common shareholders for the three and six months ended June 30, 2014 and 2013 and the effect of dilutive potential common shares on the number of shares used in computing dilutive net income per share applicable to common shareholders. Diluted potential common shares resulting from the assumed exercise of outstanding stock options and restricted stock are determined based on the treasury stock method (in thousands, except per share amounts).



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Net income applicable to common shareholders	$	96,436	$	69,123	$	170,746	$	108,185
Shares used in computing net income per share applicable to common shareholders:
Basic	59,686		58,938		59,415		58,075
Effect of dilutive potential common shares:
Stock options	2,221		2,238		2,222		2,276
Restricted stock	544		322		535		230
Diluted	62,451		61,498		62,172		60,581
Net income per share applicable to common shareholders:
Basic	$	1.62	$	1.17	$	2.87	$	1.86
Diluted	$	1.54	$	1.12	$	2.75	$	1.79

The following table presents the amounts excluded from the computation of diluted net income per share applicable to common shareholders for the three and six months ended June 30, 2014 and 2013 as the inclusion of these securities would have been anti-dilutive (in thousands):



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
Stock options	25	2,010	63	2,004
Restricted stock awards	3	—	11	—

Basic and diluted net income per share also takes into consideration the two-class method. Under the two-class method, undistributed net income is allocated to common stock and unvested participating securities based on their respective rights to share in dividends. We have determined that restricted stock awards represent participating securities and, therefore, require the use of the two-class method for the calculation of basic and diluted earnings per share. During the three and six months ended June 30, 2014 and 2013, we issued restricted stock units to certain employees under our 2006 Equity Incentive Plan. Because the holders of the restricted stock units will only receive dividends on restricted stock units that have vested prior to us declaring dividends, we have determined that the restricted stock units are non-participating securities and will not be included in our two-class method calculation.

The following table sets forth the calculation of unallocated undistributed earnings, both basic and diluted, using the two-class method for amounts attributable to our common stock and our restricted stock awards (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Net income applicable to common shareholders	$	96,436	$	69,123	$	170,746	$	108,185
Less: Dividends declared	18,426		15,000		36,773		29,887
Undistributed earnings	$	78,010	$	54,123	$	133,973	$	78,298

Common stock undistributed earnings	$	76,009	$	53,172	$	130,543	$	76,648
Unvested restricted stock award undistributed earnings	2,001		951		3,430		1,650
Total undistributed earnings	$	78,010	$	54,123	$	133,973	$	78,298

Dividend Program

Our Board of Directors has adopted a policy to pay a regular quarterly dividend in such amounts as the Board of Directors may determine from time to time. The Board of Directors declared an initial quarterly cash dividend of $0.20 per share to all shareholders of record at the close of business on October 31, 2012. In February 2013, we announced an increase in our quarterly cash dividend from $0.20 per share to $0.25 per share, and in October 2013, we announced a further increase in our quarterly cash dividend to $0.30 per share. In July 2014, we paid a quarterly cash dividend of $0.30 per share to shareholders of record on July 1, 2014. Under the terms of the Merger Agreement with Mallinckrodt, we are restricted from paying any further dividends on our common stock.

Goodwill, Intangibles and Purchased Technology

We determine the estimated fair values of goodwill and intangible assets with definite and/or indefinite lives based on valuations performed at the time of their acquisition in accordance with FASB ASC 350. Such valuations utilize forecasted financial information. In addition, certain amounts paid to third parties, such as our In Process R&D asset related to the acquisition of Synacthen, are capitalized and included in intangible assets on the accompanying consolidated balance sheets.

Goodwill and indefinite-lived intangibles are tested for impairment annually and in interim periods if certain events occur indicating the fair value may be below its carrying value using a two-step process. The first step is to identify a potential impairment, and the second step measures the amount of the impairment loss, if any. Goodwill is impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. We performed our annual goodwill and indefinite-lived impairment assessment as of December 31, 2013, noting no impairment. We continue to believe there is no impairment to our goodwill and indefinite-lived assets as of June 30, 2014.

Definite lived intangibles are amortized on an accelerated or straight-line basis over their estimated useful life. This determination is made based on the specific asset and the timing of recoverability from expected future cash flows.

We review the carrying value of our definite-lived intangibles and long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. These assets are impaired when undiscounted expected future cash flows are less than the carrying value. Our judgments related to the expected useful lives of definite-lived intangibles and long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as ongoing maintenance and improvements of the assets, changes in economic conditions, our ability to successfully launch products, and changes in operating performance. In addition, we regularly evaluate our long-lived assets and may accelerate depreciation over the revised useful life if the asset has limited future value.

Goodwill and intangibles acquired in conjunction with the acquisition of BioVectra, consists of the following (in thousands):



	June 30, 2014			December 31, 2013
Acquired intangibles	$	33,235		$	33,186
Less accumulated amortization	(4,646		)	(3,055		)
Acquired intangibles, net	$	28,589		$	30,131
Goodwill	$	20,527		$	20,464

The following table summarizes the changes in the carrying amount of goodwill (in thousands):



Balance at December 31, 2013	$	20,464
Currency translation	63
Balance at June 30, 2014	$	20,527

The following table provides a rollforward of goodwill by country (in thousands):



	December 31, 2013		Additions from Purchase Accounting		Currency Translation		June 30, 2014
United States	$	—	$	—	$	—	$	—
Canada	20,464		—		63		20,527
Total	$	20,464	$	—	$	63	$	20,527

The following table provides a rollforward of the intangibles (in thousands):



	June 30, 2014
	Gross Book Value		Accumulated Amortization			Currency Translation			Net Book Value
Trademark	$	8,151	$	—		$	(553	)	$	7,598
Patent	58		(30		)	(4		)	24
Contracted customer relationships	17,208		(2,434		)	(1,133		)	13,641
Non-contracted customer relationships	10,164		(2,182		)	(656		)	7,326
Total acquired intangibles	$	35,581	$	(4,646	)	$	(2,346	)	$	28,589

The following table summarizes the changes in the carrying amount of intangibles (in thousands):



Balance at December 31, 2013	$	30,131
Amortization expense	(1,591		)
Currency translation	49
Balance at June 30, 2014	$	28,589

Amortization expense for BioVectra's intangibles totaled $1.6 million and $1.5 million for the six months ended June 30, 2014 and 2013, respectively. The estimated annual amortization expense for intangible assets is approximately $1.6 million in 2014, $3.3 million in 2015, $3.1 million in 2016, $2.9 million in 2017, $2.7 million in 2018 and $7.5 million thereafter. Amortizable intangible assets are amortized over 8 to 10 years (9 years average). Customer relationships are amortized on an accelerated basis over their useful lives.

Intangibles acquired in conjunction with the acquisition of Synacthen, consists of the following (in thousands):



	June 30, 2014			December 31, 2013
In process R&D asset	$	196,663		$	196,663
Less accumulated amortization	(10,133		)	(5,212		)
In process R&D asset, net	$	186,530		$	191,451

Amortization expense for the intangible acquired in conjunction with the acquisition of Synacthen totaled $4.9 million and $0.3 million for the six months ended June 30, 2014 and 2013. The estimated annual amortization expense for the intangible asset is approximately $4.9 million for the remainder of 2014, $9.8 million in 2015, $9.8 million in 2016, $9.8 million in 2017, $9.8 million in 2018 and $142.3 million thereafter. The in process R&D asset will be amortized over 20 years. We believe that this is the appropriate period because of the anticipated 7-8 years of development and the anticipated 11-12 years of patent exclusivity available thereafter.

Commitments and Contingencies

BioVectra receives funding from the Atlantic Canada Opportunities Agency (“ACOA”) which is contingently repayable on a royalty basis upon sales of commercialized products resulting from 4 projects. In the event that the products are not commercialized under the program or do not continue to generate revenues, the royalty agreement will be terminated without future obligation to BioVectra. Royalties paid under this agreement in the six months ended June 30, 2014 were immaterial.

On January 18, 2013, we completed our acquisition of BioVectra. We acquired 100% of the issued and outstanding shares of BioVectra for $50.3 million utilizing cash on hand. The former shareholders of BioVectra could receive additional cash consideration of up to C$50.0 million based on BioVectra's financial results over the next 3 years. Contingent consideration in conjunction with the acquisition of BioVectra of $30.4 million was recorded on our Consolidated Balance Sheet at the acquisition date. Any differences between our estimate and actual payments or subsequent adjustments will be recorded in operating expenses. Consequently, in 2013, BioVectra met its performance milestones for the year and earned C$5.0 million in consideration. Additionally, financial projections for 2014 and 2015 improved, which resulted in an increase in the value of the contingent consideration, which was recorded during the fourth quarter of 2013 as a reduction to operating income.

On June 11, 2013, the Effective Date, we acquired from Novartis a license to develop, market, manufacture, distribute, sell and commercialize Synacthen and Synacthen Depot for all uses in humans in the United States. Under the terms of the transaction agreements, we paid Novartis an upfront consideration of $60.0 million and an annual cash payment on the first anniversary of $25 million. We will also be making annual cash payments of $25 million on each of the second and third anniversaries of the Effective Date, a potential additional annual cash payment on each anniversary subsequent to the third anniversary until we obtain the first approval of the FDA related to one of the products, or the FDA Approval, and a milestone payment upon our receipt of the FDA Approval. If we successfully obtain the FDA Approval, we will pay an annual royalty to Novartis based on a percentage of the net sales of the product in the U.S. market until the maximum payment is met. The first three annual payments aggregating to $75.0 million are secured by a letter of credit and classified as restricted cash on the Condensed Consolidated Balance Sheets. In no event will the total payments related to this transaction exceed $300 million.

We operate in a highly regulated industry. We are subject to the regulatory authority of the SEC, the FDA and numerous other federal, state and foreign governmental agencies including state attorney general offices, which have become more active in investigating the business practices of pharmaceutical companies.

Employment Agreements

We have entered into employment and severance agreements with our corporate officers that provide for, among other things, base compensation, accelerated vesting of equity compensation and/or other benefits in certain circumstances in the event of termination or a change in control.

Indemnifications

As permitted under California law and in accordance with our Amended and Restated Bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The potential future indemnification limit is to the fullest extent permissible under California law. However, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Accordingly, we have no liabilities recorded for these agreements as of June 30, 2014 and December 31, 2013.

Glenridge Litigation

In June 2011, Glenridge Pharmaceuticals LLC, or Glenridge, filed a lawsuit against us in the Superior Court of California, Santa Clara County, alleging that we had underpaid royalties to Glenridge, in connection with the timing of the impact of various offsets in the calculation of net sales. In August 2012, we filed a separate lawsuit against the three principals of Glenridge, as well as Glenridge, challenging the enforceability of our agreement with Glenridge. Our lawsuit alleges that Kenneth Greathouse breached his fiduciary duties to the Company and that his partners at Glenridge aided and abetted his breach. In the January 2013, we began to withhold royalty payments from Glenridge. In August 2013, the two lawsuits were consolidated into one case in the Superior Court of California, Santa Clara County. We filed a motion for summary adjudication seeking to declare our agreement with Glenridge unenforceable. The Court denied it on March 6, 2014, finding that triable issues of fact existed as to whether the Glenridge agreement was enforceable. Glenridge subsequently filed its own motion for summary judgment that seeks to dismiss Questcor's affirmative claims on the grounds that they are time-barred. The Court denied Glenridge's motion for summary judgment on June 4, 2014. The Court set a trial for November 3, 2014.

USAO Investigation

On September 21, 2012, we became aware of an investigation by the United States Attorney's Office, or the USAO, for the Eastern District of Pennsylvania regarding our promotional practices. Following our September 24, 2012 announcement of this investigation, we received a subpoena from the USAO for information relating to our promotional practices. We have been informed by the USAO for the Eastern District of Pennsylvania that the USAO for the Southern District of New York and the SEC are also participating in the investigation to review our promotional practices and related matters. We continue to cooperate with the USAO and the SEC with regard to this investigation.

Putative Class Action Securities Litigation

On September 26, 2012, a putative class action lawsuit was filed against us and certain of our officers and directors in the United States District Court for the Central District of California, captioned John K. Norton v. Questcor Pharmaceuticals, et al., No. SACv12-1623 DMG (FMOx). The complaint purports to be brought on behalf of shareholders who purchased our common stock between April 26, 2011 and September 21, 2012. The complaint generally alleges that we and certain of our officers and directors engaged in various acts to artificially inflate the price of our stock and enable insiders to profit through stock sales. The complaint asserts that we and certain of our officers and directors violated sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, by making allegedly false and/or misleading statements concerning the clinical evidence to support the use of Acthar for indications other than infantile spasms, the promotion of the sale and use of Acthar in the treatment of MS and nephrotic syndrome, reimbursement for Acthar from third-party insurers, and our outlook and potential market growth for Acthar. The complaint seeks damages in an unspecified amount and equitable relief against the defendants. This lawsuit has been consolidated with four subsequently-filed actions asserting similar claims under the caption: In re Questcor Securities Litigation, No. CV 12-01623 DMG (FMOx). On October 1, 2013, the District Court granted in part and denied in part our motion to dismiss the consolidated amended complaint. On October 29, 2013, we filed an answer to the consolidated amended complaint. Discovery is currently ongoing. The Court set a jury trial for December 1, 2015.

Federal Shareholder Derivative Litigation

On October 4, 2012, another alleged shareholder filed a derivative lawsuit in the United States District Court for the Central District of California captioned Gerald Easton v. Don M. Bailey, et al., No. SACV12-01716 DOC (JPRx). The suit asserts claims substantially identical to those asserted in the do Valle derivative action described below against the same defendants. This lawsuit has been consolidated with five subsequently-filed actions asserting similar claims under the caption: In re Questcor Shareholder Derivative Litigation, CV 12-01716 DMG (FMOx). Following the resolution of the motion to dismiss in the consolidated putative securities class action, the court issued an order staying the federal derivative action until the earlier of: (a) sixty (60) days after the resolution of any motion for summary judgment filed in the putative class action lawsuit, (b) sixty (60) days after the deadline to file a motion for summary judgment in the putative class action lawsuit, if none is filed, or (c) the execution of any settlement agreement (including any partial settlement agreement) to resolve the putative class action lawsuit. On May 2, 2014, the court denied plaintiffs’ ex parte motion to lift the stay. On May 16, 2014, the plaintiffs voluntarily withdrew their noticed motion to lift the stay. The case remains stayed.

State Shareholder Derivative Litigation

On October 2, 2012, an alleged shareholder filed a derivative lawsuit purportedly on behalf of the Company against certain of our officers and directors in the Superior Court of the State of California, Orange County, captioned Monika do Valle v. Virgil D. Thompson, et al., No. 30-2012-00602258-CU-SL-CXC. The complaint asserts claims for breach of fiduciary duty, abuse of control, mismanagement and waste of corporate assets arising from substantially similar allegations as those contained in the putative securities class action described above, as well as from allegations relating to sales of our common stock by the defendants and repurchases of our common stock. The complaint seeks an unspecified sum of damages and equitable relief. On October 24, 2012, another alleged shareholder filed a derivative lawsuit purportedly on behalf of the Company against certain of our officers and directors in the Superior Court of the State of California, Orange County, captioned Jones v. Bailey, et al., Case No. 30-2012-00608001-CU-MC-CXC. The suit asserts claims substantially identical to those asserted in the do Valle derivative action. On February 19, 2013, the court issued an order staying the state derivative actions until the putative federal securities class action and federal derivative actions are resolved. On May 17, 2014, the Court granted plaintiff’s request for dismissal without prejudice of the Jones action. The substantially similar Do Valle action remains stayed.

Put Options Securities Action

In March 2013, individual traders of put options filed a securities complaint in the United States District Court for the Central District of California captioned David Taban, et al. v. Questcor Pharmaceuticals, Inc., No. SACV13-0425. The complaint generally asserts claims against us and certain of our officers and directors for violations of the Exchange Act and for state law fraud and fraudulent concealment based on allegations similar to those asserted in the putative securities class action described above. The complaint seeks compensatory damages in an amount equal to $5 million and punitive damages of an unspecified amount. Following the resolution of the motion to dismiss in the consolidated putative securities class action, the court issued an order staying this action until the earlier of: (a) sixty (60) days after the resolution of any motion for summary judgment filed in the putative class action lawsuit, (b) sixty (60) days after the deadline to file a motion for summary judgment in the putative class action lawsuit, if none is filed, or (c) the execution of any settlement agreement (including any partial settlement agreement) to resolve the putative class action lawsuit. The case remains stayed.

Retrophin Litigation

In January 2014, Retrophin Inc. filed a lawsuit against us in the United States District Court for the Central District of California, alleging a variety of federal and state antitrust violations based on our acquisition from Novartis of certain rights to develop, market, manufacture, distribute, sell and commercialize Synacthen. We filed a motion to dismiss the complaint in March 2014 and the hearing on this motion took place in June 2014. The Court’s ruling on our motion to dismiss is pending.

Putative Class Action Securities Litigation Related to the Merger

Since the announcement of the merger agreement on April 7, 2014, Questcor, Mallinckrodt, Merger Sub, and Questcor’s board of directors have been named as defendants in seven putative class and derivative actions on behalf of an alleged class of Questcor shareholders in the Superior Court of California, County of Orange. The complaints allege, inter alia, that the proposed merger between Questcor and Mallinckrodt involves an unfair price, an inadequate sales process, self-dealing, and unreasonable deal protection devices. On June 3, 2014, the Court consolidated the actions under the caption In re Questcor Pharmaceuticals Inc. Shareholder Litigation, Lead Case No. 30-2014-00716108-CUSL-CXC. On June 12, 2014, lead plaintiffs filed a consolidated class action complaint which included allegations that were substantially similar to those in the previously filed complaints. The complaint seeks, among other things, an order enjoining or rescinding the merger and an award of attorney’s and other fees and costs.

We believe that the probability of unfavorable outcome or loss related to these matters and an estimate of the amount or range of loss, if any, from an unfavorable outcome are not determinable at this time. We believe we have meritorious legal positions and will continue to represent our interests vigorously in these matters. However, responding to government investigations, defending any claims raised, and any resulting fines, restitution, damages and penalties, settlement payments or administrative actions, as well as any related actions brought by shareholders or other third parties, could have a material impact on our reputation, business and financial condition and divert the attention of our management from operating our business.

Segment Reporting

Segment results for net sales are presented in the same manner as we present our operations internally to make operating decisions and assess performance. Net income, which includes the negative impact of purchase price adjustments related to our January 18, 2013 acquisition of BioVectra, is the primary responsibility of segment operating management and therefore all activities remain in the segment in which incurred for performance assessment by our chief operating decision maker.

Financial Information by Operating Segment. For the three and six months ended June 30, 2014 and 2013, information regarding our net sales and net income for our operating segments is as follows (in millions):



	Questcor		BioVectra			Intersegment Eliminations			Consolidated
Net Sales
For the three months ended June 30, 2014	$	261,412	$	17,467		$	(49	)	$	278,830
For the three months ended June 30, 2013	$	177,045	$	7,693		$	(165	)	$	184,573
Net Income
For the three months ended June 30, 2014	$	92,239	$	4,215		$	(18	)	$	96,436
For the three months ended June 30, 2013	$	70,125	$	(1,015	)	$	13		$	69,123



	Questcor		BioVectra			Intersegment Eliminations			Consolidated
Net Sales
For the six months ended June 30, 2014	$	471,180	$	34,803		$	(49	)	$	505,934
For the six months ended June 30, 2013	$	303,817	$	16,078		$	(193	)	$	319,702
Net Income
For the six months ended June 30, 2014	$	162,574	$	8,190		$	(18	)	$	170,746
For the six months ended June 30, 2013	$	110,948	$	(2,770	)	$	7		$	108,185

As of June 30, 2014 and December 31, 2013, information regarding total assets for our operating segments is as follows (in millions):



	Questcor		BioVectra		Intersegment Eliminations			Consolidated
Total Assets
June 30, 2014	$	874,006	$	118,516	$	(84,684	)	$	907,838
December 31, 2013	$	711,507	$	108,510	$	(83,663	)	$	736,354

As of June 30, 2014 and December 31, 2013, information regarding capital expenditures for our operating segments is as follows (in millions):



	Questcor		BioVectra		Intersegment Eliminations		Consolidated
Total Capital Expenditures
June 30, 2014	$	1,620	$	6,646	$	—	$	8,266
December 31, 2013	$	1,100	$	2,426	$	10	$	3,536

Income Taxes

We account for income taxes under the provisions of Accounting Standards Codification, 740 “Income Taxes,” or ASC 740. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets.

As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our tax exposure under the most current tax laws and assessing temporary and/or permanent differences resulting from differing treatment of items for tax and accounting purposes, which may result in uncertain tax positions.

We regularly assess the likelihood that we will be able to recover our deferred tax assets, which is ultimately dependent on us generating future taxable income. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is not considered “more likely than not” that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Equity Transactions

On February 29, 2008, our Board of Directors approved a stock repurchase plan that provides for the repurchase of up to 7 million shares of our common stock. Stock repurchases under this plan may be made through either open market or privately negotiated transactions in accordance with all applicable laws, rules and regulations. On May 29, 2009 and May 10, 2012, our Board of Directors increased the stock repurchase plan authorization by an additional 6.5 million shares and 5 million shares, respectively. On September 28, 2012, our Board of Directors increased the remaining shares authorized under the stock repurchase plan to 7 million shares. This authorization included the 3.2 million shares previously outstanding from previous authorizations.

During the six months ended June 30, 2013, we did not repurchase any shares of our common stock. During the six months ended June 30, 2014, we used $2.1 million of our cash to repurchase 23,552 shares of our common stock. Under this share repurchase plan, we have repurchased a total of 17.0 million shares of our common stock for $365.1 million through June 30, 2014, at an average price of $21.50 per share. As of June 30, 2014, there are approximately 5.3 million shares authorized remaining under our stock repurchase plan. Additionally, we have repurchased 6.2 million shares outside of the approved share repurchase plan, for $30.3 million at an average purchase price of $4.93 per share. Total shares repurchased were 23.1 million for $395.5 million at an average price of $17.09 per share.

Our equity incentive award plan is broad-based and every Questcor full-time employee and certain Questcor part-time employees are eligible to receive a grant. The increase in our share-based compensation is due to the increase in Questcor employees (excluding BioVectra) from 425 on June 30, 2013 to 528 employees on June 30, 2014.

For the six months ended June 30, 2014, we granted options to employees and non-employee directors to purchase 14,150 shares of our common stock at a weighted average exercise price of $54.22 per share, which was equal to the weighted average of the fair market value of our common stock on the date of each grant. For the six months ended June 30, 2013, we granted options to employees and non-employee directors to purchase 343,623 shares of our common stock at a weighted average exercise price of $30.06 per share, which was equal to the weighted average of the fair market value of our common stock on the date of each grant. The total share-based compensation costs for the six months ended June 30, 2014 and 2013 included $5.3 million and $5.6 million, respectively, related to option grants.

For the six months ended June 30, 2014 and 2013, we issued 600,221 and 731,916 restricted stock awards, respectively. For the six months ended June 30, 2014, we issued 141,500 shares of performance-based restricted stock awards to executive officers and certain other employees. These performance-based restricted stock awards include a one-time performance achievement and vest according to the degree at which the performance milestone was achieved. At June 30, 2014, we estimated an achievement equal to a vesting of 40% of the performance-based restricted stock awards and recorded stock-based compensation expense associated with such grants. For the six months ended June 30, 2013, we issued 194,750 shares of performance-based restricted stock awards to executive officers and certain other employees. These performance-based restricted stock awards included a one-time performance achievement and vested according to the degree at which the performance milestone was achieved. During the first quarter of 2014, we determined that the 2013 performance-based restricted stock awards achieved a performance level equal to one-third vesting. The total share-based compensation costs for the six months ended June 30, 2014 and 2013 included $11.2 million and $5.4 million, respectively, related to restricted stock awards issued in prior periods.

For the six months ended June 30, 2014, we issued 18,155 restricted stock units to certain employees. No restricted stock units were granted for the six months ended June 30, 2013. The total share-based compensation costs for the six months ended June 30, 2014 included $241,920 related to restricted stock units. We did not have any share-based compensation costs related to restricted stock units for the six months ended June 30, 2013.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

Subsequent Events

During the quarter, our subsidiary BioVectra Inc., acquired an idle pharmaceutical production facility in Windsor, Nova Scotia for C$2.4 million. BioVectra intends to retrofit the facility over the next 18 months to provide additional contract manufacturing capacity for specialized pharmaceutical fermentation and synthetic organic chemistry products. Subsequent to the quarter end, BioVectra signed a binding letter of intent with a customer to extend the duration of a supply agreement for a specialized pharmaceutical fermentation product through 2020.

We evaluated subsequent events that have occurred after June 30, 2014, and determined that there were no events or transactions occurring during this reporting period that require recognition or disclosure in our consolidated financial statements.