See accompanying notes to consolidated financial statements.
68
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(In thousands)
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,504)
|
|
$
|
(18,735)
|
|
$
|
(36,267)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,630
|
|
|
1,083
|
|
|
462
|
Accretion of premium on marketable investment securities
|
|
|
2,956
|
|
|
2,005
|
|
|
1,379
|
Shares issued for payment of services
|
|
|
549
|
|
|
-
|
|
|
-
|
Non-cash interest expense
|
|
|
10,982
|
|
|
17,239
|
|
|
18,115
|
Non-cash royalties
|
|
|
(39,804)
|
|
|
(55,993)
|
|
|
(57,467)
|
Realized gain on marketable investment securities
|
|
|
(4)
|
|
|
(4)
|
|
|
-
|
Loss on disposal of equipment
|
|
|
41
|
|
|
-
|
|
|
-
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
646
|
Compensation expense on share-based awards
|
|
|
9,437
|
|
|
7,548
|
|
|
4,100
|
Decrease (increase) in operating assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(11,324)
|
|
|
(16,010)
|
|
|
18,663
|
Inventory
|
|
|
3,663
|
|
|
-
|
|
|
-
|
Prepaid expenses, other current assets and other assets
|
|
|
(466)
|
|
|
1,803
|
|
|
(2,948)
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
11,859
|
|
|
1,321
|
|
|
(3,425)
|
Other liabilities
|
|
|
(1,331)
|
|
|
(1,249)
|
|
|
84
|
Net cash used in operating activities
|
|
|
(24,316)
|
|
|
(60,992)
|
|
|
(56,658)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Sales of marketable investment securities
|
|
|
11,850
|
|
|
7,628
|
|
|
240
|
Maturities of marketable investment securities
|
|
|
96,021
|
|
|
111,879
|
|
|
86,428
|
Purchases of marketable investment securities
|
|
|
(156,842)
|
|
|
(124,809)
|
|
|
(111,380)
|
Acquisitions of property and equipment
|
|
|
(1,142)
|
|
|
(1,187)
|
|
|
(3,407)
|
Net cash used in investing activities
|
|
|
(50,113)
|
|
|
(6,489)
|
|
|
(28,119)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of non-recourse debt
|
|
|
-
|
|
|
-
|
|
|
145,000
|
Principal payments on debt
|
|
|
-
|
|
|
-
|
|
|
(213,848)
|
Payment of debt issuance costs
|
|
|
-
|
|
|
-
|
|
|
(96)
|
Excess tax benefit from stock options
|
|
|
178
|
|
|
-
|
|
|
-
|
Net proceeds from the sale of common stock and exercise
|
|
|
|
|
|
|
|
|
|
of stock options
|
|
|
107,940
|
|
|
2,561
|
|
|
108,163
|
Decrease in restricted cash and cash equivalents
|
|
|
-
|
|
|
-
|
|
|
50,784
|
Net cash provided by financing activities
|
|
|
108,118
|
|
|
2,561
|
|
|
90,003
|
Effect of exchange rate changes on cash
|
|
|
44
|
|
|
(10)
|
|
|
5
|
Net increase (decrease) in cash and cash equivalents
|
|
|
33,733
|
|
|
(64,930)
|
|
|
5,231
|
Cash and cash equivalents at beginning of year
|
|
|
17,471
|
|
|
82,401
|
|
|
77,170
|
Cash and cash equivalents at end of year
|
|
$
|
51,204
|
|
$
|
17,471
|
|
$
|
82,401
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
952
|
|
$
|
954
|
|
$
|
27,109
|
Cash paid for income taxes
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
6.1 million shares of NPS common stock issued in connection with
|
|
|
|
|
|
|
|
|
|
the Takeda Termination and Transition agreement, see note 10
|
|
$
|
55,403
|
|
$
|
-
|
|
$
|
-
|
Unrealized gains (losses) on marketable investment securities
|
|
|
7
|
|
|
111
|
|
|
(102)
|
Accrued acquisition of equipment
|
|
|
428
|
|
|
96
|
|
|
353
|
Noncash principal payments
|
|
|
26,915
|
|
|
52,050
|
|
|
19,899
|
Conversion of 5.75% convertible notes
|
|
|
-
|
|
|
-
|
|
|
33,260
|
See accompanying notes to consolidated financial statements.
69
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2013, 2012, and 2011
(1) Organization and Summary of Significant Accounting Policies
The consolidated financial statements are comprised of the financial statements of NPS Pharmaceuticals, Inc. and its subsidiaries (NPS),
collectively referred to as the Company or NPS. NPS is a biopharmaceutical company pioneering and delivering therapies that transform the
lives of patients with rare diseases worldwide. The Company's marketed product, Gattex® (U.S.)/Revestive® (EU) (teduglutide [rDNA
origin]) for injection is approved for adult Short Bowel Syndrome (SBS) patients who are dependent on parenteral support. In February 2013,
the Company launched and initiated commercial sales of Gattex in the U.S. The Company has also developed Natpara® (rhPTH[1-84]) for
the treatment of hypoparathyroidism and submitted its Biologic License Application (BLA) to the FDA in October 2013. In January 2014, the
U.S. Food and Drug Administration (FDA) accepted and filed for review the Company's BLA for Natpara. Under the Prescription Drug User
Fee Act (PDUFA), the goal date for a decision by the FDA is October 24, 2014. During 2013, the Company reacquired the rights to Revestive
and Natpara outside of the U.S. and has defined its international strategy for Gattex/Revestive.
In addition to the Company's proprietary clinical portfolio, it has a number of royalty-based clinical and commercial stage programs.
Since inception, the Company's principal activities have been performing research and development, raising capital, establishing research
and license agreements and effecting the commercial launch of Gattex in the U.S. All monetary amounts are reported in U.S. dollars unless
specified otherwise.
Subsequent Events
The Company has evaluated all events and transactions since December 31, 2013. The Company did not have any material
recognized or non-recognized subsequent events.
Significant Accounting Policies
The following significant accounting policies are followed by the Company in preparing its consolidated financial statements:
(a) Cash Equivalents
The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash
equivalents. Cash equivalents at December 31, 2013 and 2012 are carried at cost and consist of commercial paper, money market
funds, debt securities and other highly liquid instruments of approximately $40.6 million and $16.2 million, respectively. At
December 31, 2013 and 2012, the book value of cash equivalents approximates fair value.
(b) Marketable Investment Securities
The Company classifies its marketable investment securities as available-for-sale and are recorded at fair value. Unrealized holding gains
and losses on available-for-sale securities, net of the related tax effect, are excluded from earnings and are reported as a separate component
of stockholders' deficit until realized. A decline in the fair value below cost of available-for-sale securities that is deemed other than temporary
is charged to results of operations, resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized
or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest
income is recognized when earned. Realized gains and losses from the sale of marketable investment securities are based on the specific
identification method and are included in results of operations and are determined on the specific-identification basis.
The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss. An unrealized loss exists
when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that
are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
70
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether the Company intends to
sell or whether it would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where
the Company intends to sell a security, or where it may be more likely than not be required to sell the security before the expected recovery of
the amortized cost basis, the security's decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is
recorded within earnings as an impairment loss.
Regardless of the Company's intent to sell a security, the Company performs additional analysis on all securities with unrealized losses to
evaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does not expect to
receive cash flows sufficient to recover the amortized cost basis of a security.
(c) Trade Accounts Receivable
Trade accounts receivable are recorded for research and development support performed, for license fees, milestone payments and
royalty income earned, and for product sales, and do not bear interest. The Company determines an allowance for doubtful accounts based
on assessed customers' ability to pay, historical write-off experience, and economic trends. Such allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its
allowance for doubtful accounts monthly. The Company did not record any bad debt expense for the years ended December 31, 2013 2012
and 2011. At December 31, 2013 and 2012 the allowance for bad debts was zero.
(d) Inventory
Inventories are stated at the lower of cost or estimated realizable value. The Company determines the cost of inventory using the first-in,
first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company's products after regulatory approval when,
based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be
realized; otherwise, such costs are expensed as research and development. The Company periodically analyzes its inventory levels to identify
inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such
inventories as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company
performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete
due to expiration, the Company records a charge to cost of sales sold to write down such unmarketable inventory to its estimated realizable
value.
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of property and equipment is calculated on the straight-line
method over estimated useful lives of 3 to 5 years. Leasehold improvements are amortized using the straight-line method over the shorter of
the life of the asset or remainder of the lease term.
(f) Goodwill and Intangibles
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Intangibles represents acquired assets and are
measured at fair value as of the date of acquisition. Goodwill and intangible assets acquired in a purchase or business combination and
determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually or sooner if circumstances
indicate that impairment might have occurred.
Intangible assets with definite
useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events
occur.
As a result of the annual impairment test performed by management at year-end, it was noted that fair value
significantly exceeded the carrying value of the reporting unit. The company considers itself a single reportable segment and reporting
unit.
(g) Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect for years in which the temporary differences are expected to reverse. The Company establishes a valuation allowance when
it believes it is more likely than not that deferred tax assets will not be realized.
71
The Company determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into
consideration all available positive and negative evidence, including historical operating results, expectations of future taxable income,
carryforward periods available to the Company for tax reporting purposes, various income tax strategies and other relevant factors. Significant
judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the
recoverability of its deferred tax assets at that time. At December 31, 2013 and 2012, the Company maintained a full valuation allowance on
its deferred tax assets.
At any one time the Company's tax returns for numerous tax years are subject to examination by U.S. federal, state and foreign taxing
jurisdictions. The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial
statements at the largest amount that is more likely than not to be sustained. An uncertain income tax position will not be recognized in the
financial statements unless it is more likely than not to be sustained. The Company adjusts these tax liabilities, as well as the related interest
and penalties, based on the latest facts and circumstances, including recently enacted tax law changes, published rulings, court cases, and
outcomes of tax audits. While the Company does not expect material changes, it is possible that its actual tax liability will differ from its
established tax liabilities for unrecognized tax benefits, and the Company's effective tax rate may be materially impacted. The Company
accounts for interest and penalties related to uncertain tax positions as a component of Income tax expense.
For further information, refer to Note 13,
Income Taxes
.
(h) Revenue Recognition
The Company analyzes its revenue arrangements to determine whether the elements should be separated and accounted for individually
or as a single unit of accounting. Allocation of revenue to individual elements which qualify for separate accounting is based on the estimated
fair value of the respective elements. The Company earns revenue from license fees, milestone payments, royalty payments and product
sales.
License fees.
The Company defers and recognizes revenue from up-front nonrefundable license fees on a straight-line
basis, unless another pattern is apparent, over the period wherein the Company has continuing involvement in the research and development
project. The Company recognizes revenue from up-front nonrefundable license fees upon receipt when there is no continuing involvement in
the research and development project.
Milestone payments.
The Company recognizes revenue from its milestone payments as agreed-upon events representing
the achievement of substantive steps in the development process are achieved and where the amount of the milestone payment approximates
the fair value of achieving the milestone.
Royalties.
Royalties from licensees are based on third-party sales of licensed products and are recorded in accordance
with contract terms when sales results are reliably measurable and collectability is reasonably assured.
Product sales.
The Company recognizes revenue from product sales when persuasive evidence of an arrangement
exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer is
reasonably assured, the Company has no further performance obligations, and returns can be reasonably estimated. Currently, product sales
represent U.S. sales of Gattex, which was approved by the FDA in December 2012.
All prescriptions for Gattex, received directly by NPS from the patient's physician, are handled through NPS Advantage, the Company's
data management and patient support program, which investigates and determines the patient's insurance coverage for Gattex. Once
coverage is confirmed, NPS forwards the prescription to the specialty pharmacy (SP) who then re-confirms the coverage and dispenses Gattex
to the patient. The Company sells Gattex directly to a limited number of SPs and a specialty distributor (SD) who dispense product to patients,
hospitals or U.S. government entities. The Company invoices and records revenue when the SPs or SD receives Gattex from the Company's
third-party logistics warehouse. The Company's SPs order product to fill prescriptions that have been approved for reimbursement by payers.
72
Specific considerations for Gattex sold in the U.S. are as follows:
-
Rebates
: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebates are amounts
owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements
with public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization.
The Company's estimate for expected utilization for rebates is based in part on actual and pending prescriptions for which it has validated the
insurance benefits.
-
Chargebacks:
Chargebacks are discounts that occur when contracted customers purchase from the Company's SPs or SD.
Contracted customers, which currently consist primarily of Public Health Service institutions and Federal government entities purchasing via
the Federal Supply Schedule, generally purchase the product at a discounted price. The Company's SPs or SD, in turn, charge back the
difference between the price initially paid by the SP or SD and the discounted price paid to the SP or SD by the customer. The allowance for
chargebacks is based on actual and expected sales to the SPs and SD.
-
SP and SD Fees and Deductions:
The Company's SPs and its SD are offered prompt payment discounts and are paid fees for
their services and data.
-
Product returns
: The Company will accept product that is damaged or defective when shipped directly to the SP or SD from the
Company's third-party logistics provider or for product that is returned with more than two (2) months remaining until the expiration date from
its SP or SD only. The Company will not provide any credit for product that has been labeled for or sent to a patient. Product returned is
generally not resalable as the product must be temperature-controlled throughout the supply chain and such control is difficult to confirm. The
Company makes a reasonable estimate of future potential product returns based on the number of prescriptions that have been approved for
reimbursement and sent to an SP with each corresponding shipment of Gattex that has been sent to each respective SP. The Company also
has the visibility to see current inventory levels and the current shelf life at the SPs and SD and has the ability to control the amount of product
that is sold to the SPs and SD. At the end of each reporting period, the Company determines a product returns reserve by evaluating the units
held in its distribution channel, the underlying demand for such units and the risk of potential product returns.
The following table summarizes the provisions, and credits/payments, for government rebates and chargebacks, distribution-related fees,
and returns and other sales-related deductions (in thousands):
|
|
|
|
|
|
|
|
Returns and
|
|
|
|
|
|
Rebates and
|
|
Distribution-
|
|
Other Sales-
|
|
|
|
|
|
|
Chargebacks
|
|
|
Related Fees
|
|
|
Related Deductions
|
|
|
Total
|
Balance as of December 31, 2012
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Provision related to current period sales
|
|
|
1,375
|
|
|
332
|
|
|
1,098
|
|
|
2,805
|
Credits/payments
|
|
|
(262)
|
|
|
(185)
|
|
|
(857)
|
|
|
(1,304)
|
Balance as of December 31, 2013
|
|
$
|
1,113
|
|
$
|
147
|
|
$
|
241
|
|
$
|
1,501
|
Product sales are recorded net of accruals for estimated rebates, chargebacks, discounts, and other deductions (collectively, sales
deductions) and returns. With the exception of allowances for prompt payment, allowances for sales deductions and returns are included in
accounts payable and accrued expenses in the accompanying consolidated balance sheets.
(i) Research and Development Expenses
Research and development expenses, are expensed as incurred and are primarily comprised of the following types of costs incurred in
performing research and development activities: clinical trial and related clinical manufacturing costs, contract services, outside costs, salaries
and benefits, overhead and occupancy costs.
The Company analyzes how to characterize payments under collaborative agreements based on the relevant facts and circumstances
related to each agreement.
73
(j) Income (Loss) per Common Share
Basic income (loss) per common share is the amount of income (loss) for the period divided by the sum of the weighted average shares of
common stock outstanding during the reporting period. Diluted income (loss) per common share is the amount of income (loss) for the period
plus interest expense on convertible debt divided by the sum of weighted average shares of common stock outstanding during the reporting
period and weighted average share that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares.
(k) Share-Based Compensation
The Company accounts for share-based compensation in accordance with Financial Accounting Standards Board's Accounting Standards
Codification ("ASC") 718, "
Compensation - Stock Compensation"
(ASC 718). Compensation cost is recorded
based on the grant date fair value estimated using the Black-Scholes option-pricing for awards which vest based on a service or performance
condition or the Monte Carlo simulation model for awards with market conditions. The Company recognizes compensation cost for awards on
a straight-line basis over the requisite service period for the entire award, except for performance condition options where vesting is subject to
the Company achieving certain performance criteria. Compensation costs for performance condition options will be recognized when the
achievement of the performance criteria is probable.
(l) Use of Estimates
Management of the Company has made estimates and assumptions relating to reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting
principles (U.S. GAAP). Actual results could differ from those estimates.
(m) Principles of Consolidation
The consolidated financial statements include the accounts of the Company, all subsidiaries in which it owns a majority voting interest
including a variable interest entity in which the Company is the primary beneficiary. The Company eliminates all intercompany accounts and
transactions in consolidation.
(n) Accounting for Impairment of Long-Lived Assets
As described in (f), goodwill is tested for impairment at least annually. The Company reviews all other long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted) expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount, or
fair value, less costs to sell.
(o) Foreign Currency Translation
Assets and liabilities of foreign operations with non-U.S. dollar functional currencies are translated into U.S. dollars at the period end
exchange rates. Income, expenses and cash flows are translated at the average exchange rates prevailing during the period. Adjustments
resulting from translation are reported as a separate component of accumulated other comprehensive loss in stockholders' deficit. Certain
transactions are denominated in currencies other than the functional currency. Transaction gains and losses are included in other income
(expense) for the period in which the transaction occurs.
(p) Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting stockholders' equity (deficit) that, under
U.S. GAAP, are excluded from net income (loss). For the Company, these consist of net unrealized gains or losses on marketable investment
securities and foreign currency translation gains and losses. Accumulated other comprehensive income (loss) as of December 31, 2013
and 2012 consists of accumulated net unrealized losses on marketable investment securities of $15,000 and $22,000, respectively, and
foreign currency translation gains of $71,000 and $27,000, respectively.
74
(q) Concentration of Suppliers
The Company has entered into agreements with contract manufacturers to manufacture clinical and commercial supplies of its product
candidates. In some instances, the Company is dependent upon a single supplier. The loss of one of these suppliers could have a material
adverse effect upon the Company's operations.
(r) Leases
The Company leases its facility under terms of a lease agreement which provides for rent holidays and escalating payments. Rent under
operating leases is recognized on a straight-line basis beginning with lease commencement through the end of the lease term. The Company
records deferred lease payments in other long-term liabilities.
(s) Deferred Financing Costs
Costs incurred in issuing the 5.75% convertible notes are amortized using the straight-line method over the shorter of the term of
the related instrument or the initial date on which the holders can require repurchase of the notes. The amortization of deferred financing costs
is included in Interest expense in the Consolidated Statements of Operations.
Costs incurred in connection with the issuance of the Sensipar Notes and under the agreements with DRI, in which the Company sold to
DRI its right to receive future royalty payments arising from sales of REGPARA under its license agreement with Kyowa Hakko Kirin and a
future royalty in the mid-single digits from the sales of PTH, are amortized using the effective-interest method over the same period and in the
same manner as the related debt. The amortization of deferred financing costs is included in Interest expense in the Consolidated Statements
of Operations.
(t) Deferred License Fees
Cost of license fees are deferred if they are a direct cost of a revenue generating activity and that revenue is being deferred. These
deferred costs are amortized over the same period and in the same manner as the related deferred revenue. The amortization of deferred
license fees is included in Cost of license fees in the Consolidated Statements of Operations.
(2) Collaborative and License Agreements
The Company has granted exclusive development, commercialization, and marketing rights under certain of the below-described
collaborative research, development, and license agreements, the success of each program is dependent upon the efforts of the licensees.
Each of the respective agreements may be terminated early. If any of the licensees terminates an agreement, such termination may have a
material adverse effect on the Company's operations.
Following is a description of significant collaborations and license agreements:
(a) Amgen Inc.
In 1996, the Company licensed worldwide rights (with the exception of China, Japan, North and South Korea, and Taiwan) to Amgen, Inc.
to develop and commercialize cinacalcet HCl for the treatment of hyperparathyroidism and indications other than osteoporosis and related
bone metabolism disorders. Amgen is incurring all costs of developing and commercializing these products. Amgen paid the Company a
$10.0 million nonrefundable license fee and agreed to pay up to $400,000 per year through 2000 in development support, potential additional
development milestone payments totaling $26.0 million, and royalties on any future product sales. Such $26.0 million of potential additional
milestone payments includes the Company's potential to earn a $5.0 million milestone payment upon the FDA approval to sell a compound
under the license agreement having a different structural formula from cinacalcet HC1. The future milestone is tied to future events outside the
Company's control. The Company believes these are substantive in nature and there is no assurance that they will be achieved. Through
December 31, 2013, Amgen has paid the Company $21.0 million in milestone payments, of which none were recognized during 2013, 2012,
and 2011, respectively. The Company recognized royalties from product sales of $112.9 million, $89.3 million and $77.6 million in 2013, 2012
and 2011, respectively, under the contract.
75
The Company receives a royalty from Amgen that represents a percentage in the high single digits to low double digits of Amgen's sales of
cinacalcet HCl. In June 2012, we amended our agreement with Amgen and received a one-time non-refundable $25.0 million payment in July
2012 in exchange for our rights to receive royalties under the license agreement that are earned after December 31, 2018. Amgen has a right
to terminate upon 90 days written notice to the Company, and either party may terminate upon material default by the other party subject to a
right to cure such default.
(b) GlaxoSmithKline
In 1993, the Company entered into an agreement with GlaxoSmithKline (GSK) to collaborate on the research, development and
commercialization of calcium receptor active compounds to treat osteoporosis and other bone metabolism disorders, excluding
hyperparathyroidism. Under the terms of the agreement, the Company may receive milestone payments and royalties from any product sales
under the license and a share of the profits from co-promoted products. To date, GSK has paid the Company $12.0 million in milestone
payments, of which none were recognized during 2013, 2012 or 2011. The Company granted GSK the exclusive license to develop and
market worldwide compounds described under the GSK agreement, subject to the Company's right to co-promote in the United States. Once
compounds have been selected for development, GSK has agreed to conduct and fund all development of such products, including all human
clinical trials and regulatory submissions. In December 2006, the Company entered into an amendment to the agreement with GSK that
permits GSK to develop additional compounds. In consideration for this amendment, the Company received a $3.0 million fee during 2006.
The Company recognized no revenue related to its agreement with GSK in 2013, 2012 or 2011.
The Company is entitled to receive a royalty from GSK that represents a percentage in the high single digits or low double digits,
depending on sales, of such compounds should GSK commercialize any such compounds. The license agreement with GSK is effective for
the longer of ten years from first marketing in the last country in the territory or the expiration of the last patent. GSK may terminate the
agreement on 30-day written notice on a country-by-country basis if it reasonably determines that any compound developed under the
agreement is not worth continued development. NPS may terminate the agreement on 90-day written notice if no compound is under
development or commercialization for a period of twelve consecutive months, subject to GSK showing that it has a compound under
development or commercialization or that it intends to enter development within six months. Either party may terminate upon material default
by the other party subject to a right to cure such default. Upon termination, the rights and licenses the Company granted GSK revert to the
Company.
In August 2011, the Company formed a new agreement with GSK which terminated and replaced the 1993 agreement. Under the
agreement, GSK assigned to NPS the investigational new drug filings for two Phase 1 calcilytic compounds, NPSP790 and NPSP795. The
Company believes calcilytics may have clinical application in treating rare disorders involving increased calcium receptor activity, such as
autosomal dominant hypocalcemia with hypercalciuria (ADHH). The new agreement also expands GSK's licensed field of research for
Ronacaleret to include stem cell transplants, in addition to osteoporosis and other bone disorders. Under the terms of the agreement, the
Company has the potential to earn up to $11.5 million in future milestone payments upon the achievement of certain pre-specified product
development and sales-based milestones plus royalties on product sales. The Company has the potential to earn the next product
development milestone of $1.0 million upon the decision by GSK to continue development in the first indication following the proof of concept
trial. The remaining milestones vary by additional indications, with $7.5 million relating to successful proof of concept studies and acceptance
of regulatory filings, and $4.0 million relating to the first commercial sale of each indication. The future milestones are tied to future events
outside the Company's control. The Company believes these are substantive in nature and there is no assurance that they will be
achieved.
76
(c) Kyowa Hakko Kirin
In 1995, the Company entered into an agreement with the pharmaceutical division of Kyowa Hakko Kirin Co. Ltd, formerly Kirin Brewery
Company Limited, to develop and commercialize compounds for the treatment of hyperparathyroidism in Japan, China, North Korea, South
Korea and Taiwan. Kyowa Hakko Kirin paid the Company a $5.0 million license fee during 2005 and agreed to pay up to $7.0 million in
research support, potential additional milestone payments totaling $13.0 million and royalties on product sales. Kyowa Hakko Kirin is incurring
all costs of developing and commercializing products. Any payments subsequent to June 2000 represent milestone and royalty payments.
Through December 31, 2013, Kyowa Hakko Kirin has paid the Company $7.0 million in research support and $13.0 million in milestone
payments none of which were recognized during 2013, 2012 or 2011. In October 2007, Kyowa Hakko Kirin received approval from the
Japanese Pharmaceuticals and Medical Devices Agency to market cinacalcet HCl in Japan for the treatment of patients with secondary
hyperparathyroidism during maintenance dialysis. The parties participate in a collaborative research program utilizing the Company's
parathyroid calcium receptor technology. Under the Company's agreement with Kyowa Hakko Kirin, the Company recognized no milestone
and license fee revenue in 2013, 2012 and 2011, respectively, and royalty revenue of $8.0 million in 2013, $8.7 million in 2012 and $7.6 million
in 2011.
The Company receives a royalty from Kyowa Hakko Kirin that represents a percentage in the single digits of sales. The agreement with
Kyowa Hakko Kirin is effective until expiration of the last patent. Kyowa Hakko Kirin has a right to terminate upon 90 days written notice to the
Company, and either party may terminate upon material default by the other party subject to a right to cure such default. Kyowa Hakko Kirin
also has the right to terminate the agreement with respect to individual countries based upon a reasonable determination by if that continued
development or marketing of a compound is not justified in such country, subject to providing 60 days notice and the Company's right to delay
termination for up to 90 days. Certain agreements between the Company and DRI Capital Inc., or DRI (formerly Drug Royalty L.P.3) limit the
Company's right to terminate this license (see note 8).
(d) Takeda GmbH
On March 18, 2013, the Company entered into a Termination and Transition Agreement, with Takeda GmbH, whereby the
following two agreements were terminated. (see note 10)
Teduglutide
In September 2007 the Company entered into a license agreement with Takeda GmbH, formerly known as Nycomed (Takeda) in
which the Company granted Takeda the right to develop and commercialize teduglutide, outside the United States, Canada and Mexico for the
treatment of gastrointestinal disorders. The Company had been developing teduglutide for the treatment of adults with short bowel syndrome
(SBS). A positive opinion was issued in June 2012 by the Committee for Medicinal Products for Human Use, followed by the European
Commission granting European market authorization on August 30, 2012 for the medicinal product teduglutide (trade name in Europe:
Revestive®) as a once-daily treatment for adult patients with SBS.
The Company received $35.0 million in up-front fees under the agreement during 2007. Additionally, under a previously existing licensing
agreement with a third party, the Company paid $6.6 million in 2007 to the licensor and was required to make future payments based on
teduglutide royalties and milestone payments earned. Due to the Company's continuing involvement, the Company recognized revenue
associated with the upfront fees over the estimated performance period and for the years ended December 31, 2013, 2012 and 2011, the
Company recognized no license fee revenue.
During 2011, Takeda paid the Company $5.0 million for Takeda's submission of a Marketing Authorization Application (MAA) to the
European Medicines Agency (EMA) for clearance to market teduglutide (Revestive®) as a once-daily subcutaneous treatment for SBS.
Additionally, under a previously existing licensing agreement with a third party, the Company paid $2.4 million in 2011 to the licensor and will
be required to make future payments based on teduglutide royalties and milestone payments earned. The Company recognized revenue from
this milestone payment due to the achievement of an as agreed-upon event of a substantive step in the development process and due to the
amount of the milestone payment approximated the fair value of achieving the milestone.
Cumulatively through December 31, 2013, the Company had received $40.0 million in license fees and milestone payments from Takeda
under the license agreement of which none was received during the years ended December 31, 2013 and 2012 and $5.0 million was received
during the year ended December 31, 2011.
77
Preotact® (parathyroid hormone 1-84)
In 2004, the Company signed a distribution and license agreement with Takeda in which the Company granted Takeda the right to develop
and market Preotact® (recombinant parathyroid hormone 1-84) in Europe. The agreement required Takeda to pay the Company up to
22.0 million euros in milestone payments upon regulatory approvals and achievement of certain sales targets. The Company was also entitled
to royalties on product sales. In July 2007, the Company entered into a new license agreement with Takeda which superseded the 2004
agreement, pursuant to which the Company granted to Takeda the right to commercialize Preotact in all non-U.S. territories, excluding Japan
and Israel; however, Takeda's licensed rights in Canada and Mexico, reverted back to the Company if the Company received regulatory
approval for the compound in the U.S. The 2007 license agreement contains milestone and royalty payment obligations which were similar to
those under the 2004 distribution and license agreement. Takeda was required to pay the Company royalties on sales of Preotact only in the
European Union, European countries outside the European Union, the Commonwealth of Independent States and Turkey. As part of the
manufacturing and supply transfer, Takeda paid the Company $11.0 million during 2007, for a significant portion of the Company's existing
bulk drug inventory. Cumulatively through December 31, 2013, the Company has received 7.1 million euros in milestone payments from
Takeda under the 2004 and 2007 agreements, all of which have been recognized as revenue.
The Company received a royalty from Takeda that represented a percentage, depending on the amount of sales of Preotact, in the teens
to low twenties of the Takeda net sales of Preotact in the European Union, European countries outside the European Union, the
Commonwealth of Independent States and Turkey. Either party may have terminated upon material breach by the other party subject to a
right to cure such breach. Certain agreements with DRI Capital Inc., (DRI) limited the Company's right to terminate this license (see note 9).
Revenues from Takeda related to the Preotact agreement, were $0, $4.8 million and $9.1 million for the years ended December 31, 2013,
2012 and 2011, respectively.
(e) Janssen Pharmaceuticals, Inc.
In December 2006, the Company entered into an agreement with Janssen Pharmaceuticals, Inc. formerly known as Ortho-McNeil
Pharmaceutical (Janssen) pertaining to certain NPS patents. Janssen paid the Company an $8.0 million fee and agreed to pay royalties on
sales of licensed products. NPS will not incur any development or commercialization costs for these products. The Company is responsible
for patent prosecution and maintenance of the related patents. The Company may terminate the agreement if Janssen fails to make a
payment and does not cure that default within 30 days, or if it does not cure any other default within sixty days of notice. Janssen may
terminate the agreement on 60 days written notice for material breach if NPS has not cured the breach by that time or on 60 days written
notice. Termination does not affect any previously-matured payment obligations. In November 2008, the U.S. Food and Drug Administration
(FDA) approved Nucynta (tapentadol) hydrochloride immediate release (IR) tablets for the relief of moderate to severe acute pain. This
compound is covered under our agreement and Janssen is required to pay the Company a royalty on the product's sales. Nucynta is a novel
investigational, centrally acting oral analgesic, which was launched in the second quarter of 2009. The Company recognized revenue of $2.9
million, $2.8 million and $2.2 million in 2013, 2012 and 2011, respectively.
(f) Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd.
In December 2008, the Company entered into an agreement with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd. (Roche), under
which the Company granted the Roche entities a non-exclusive license (with the right to grant sublicenses) to develop, make, import, use of for
sale or sell products covered by patents relating to modulation of NMDA receptor activity using glycine uptake antagonists. In return Roche
paid the Company an upfront licensing fee of $2.0 million, and agreed to make additional payments for the achievement of certain regulatory
milestones. Through December 31, 2013, Roche has paid the Company $250,000 in milestone payments. Further, Roche agreed to pay
royalties on sales of licensed products, if any. Either party may terminate the agreement on 30 days written notice due to a material breach by
the other, or in the case of the other party's insolvency. Amounts due prior to termination will remain due thereafter. NPS will not incur any
development or commercialization costs for these products. The Company has not recognized revenue in 2013, 2012 and 2011, respectively,
as the Company had no continuing involvement in the arrangement.
78
(g) In-License and Purchase Agreements
Depending on the commercial success of certain products, the Company may be required to pay license fees or royalties. Additionally, the
Company is required to pay royalties on sales of cinacalcet HCl up to a cumulative maximum of $15.0 million. To date, $15.0 million has been
accrued for related royalties payable on sales of cinacalcet HC1, of which, $9.4 million has been paid. Annual payments due are limited to a
maximum of $1.0 million. Accruals of $4.6 million and $1.0 million at December 31, 2013 are recorded in other liabilities and accrued
expenses and other current liabilities, respectively.
(3) Income (loss) Per Common Share
Basic income (loss) per common share is the amount of income (loss) for the period divided by the weighted average shares of
common stock outstanding during the reporting period. Diluted income (loss) per common share is the amount of income (loss) for the period
plus interest expense on convertible debt divided by the sum of weighted average shares of common stock outstanding during the reporting
period and weighted average shares that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares.
Potential common shares of approximately 7.2 million, 8.0 million and 8.3 million during the years ended
December 31, 2013, 2012, and 2011, respectively, that could potentially dilute basic income (loss) per common share in the future were
not included in the computation of diluted income (loss) per share because to do so would have been anti-dilutive for the periods presented.
Potential dilutive common shares for the years ended December 31, 2013, 2012 and 2011 include approximately 3.0 million, 3.0 million
and 4.7 million common shares related to convertible debentures, respectively, and 4.1 million, 5.0 million, and
3.6 million shares, respectively, related to stock options, restricted stock, and restricted stock units.
(4) Fair Value Measurement
Summary of Assets Recorded at Fair Value
The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels
are as follows:
Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
at the measurement date.
Level 2- Inputs are other than quoted prices included within 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, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.),
and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated
inputs).
Level 3- Inputs are unobservable and reflect the Company's assumptions that market participants would use in pricing the asset or liability.
The Company develops these inputs based on the best information available.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets (all
marketable investment securities) that are required to be measured at fair value as of December 31, 2013 and December 31, 2012 (in thousands):
As of December 31, 2013:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investment securities
|
|
$
|
116,250
|
|
$
|
13,020
|
|
$
|
-
|
|
$
|
129,270
|
As of December 31, 2012:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable investment securities
|
|
$
|
67,723
|
|
$
|
15,521
|
|
$
|
-
|
|
$
|
83,244
|
79
As of December 31, 2013 and December 31, 2012, the fair values of the Company's Level 2 securities were $13.0 million and $15.5
million, respectively. These securities are certificates of deposit or commercial paper issued by domestic companies with an original maturity
of greater than ninety days. These securities are currently rated A-1 or higher. The Company's cash equivalents are classified within Level 1
or Level 2 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets.
These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market
observable data. Data used in the analysis include reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit
spreads. The Company validates the prices provided by its third party pricing providers by reviewing their pricing methods, analyzing pricing
inputs and confirming that the securities have traded in normally functioning markets. The Company did not adjust or override any fair value
measurements provided by its pricing providers as of December 31, 2013 or 2012.
As of December 31, 2013 and 2012, the Company did not have any investments in Level 3 securities.
There were no transfers of assets or liabilities between Level 1 and Level 2 during the years ended December 31, 2013 and 2012.
The carrying amounts reflected in the consolidated balance sheets for certain short-term financial instruments including cash and cash
equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other liabilities approximate
fair value due to their short-term nature except that the estimated fair value and carrying value of the Brigham and Women's Hospital royalty
liability using a discounted cash flow model is approximately $4.3 million and $5.6 million, respectively, at December 31, 2013 and $4.8 million
and $6.6 million, respectively, at December 31, 2012.
Summary of Liabilities Recorded at Carrying Value
The fair and carrying value of our debt instruments are detailed as follows (in thousands):
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
5.75% Convertible Notes
|
|
|
$
|
92,338
|
|
$
|
16,545
|
|
$
|
28,131
|
|
$
|
16,545
|
Sensipar Notes
|
|
|
|
54,097
|
|
|
54,395
|
|
|
79,129
|
|
|
80,234
|
PTH 1-84-Secured Debt
|
|
|
|
50,058
|
|
|
42,790
|
|
|
28,605
|
|
|
42,816
|
Regpara-Secured Debt
|
|
|
|
37,348
|
|
|
35,202
|
|
|
48,887
|
|
|
36,252
|
Total
|
|
|
$
|
233,841
|
|
$
|
148,932
|
|
$
|
184,752
|
|
$
|
175,847
|
The fair values of the Company's convertible notes were estimated using the (i) terms of the convertible notes; (ii) rights, preferences,
privileges, and restrictions of the underlying security; (iii) time until any restriction(s) are released; (iv) fundamental financial and other
characteristics of the Company; (v) trading characteristics of the underlying security (exchange, volume, price, and volatility); and (vi)
precedent sale transactions. The fair values of the Company's non-recourse Sensipar notes, PTH 1-84-secured debt and REGPARA-secured
debt were estimated using a discounted cash flow model. Within the hierarchy of fair value measurements, these are Level 3 fair
values.
(5) Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable
investment securities. The majority of the Company's accounts receivable are payable by large pharmaceutical companies and specialty
pharmacies and collateral is generally not required from these companies. Substantially all of the Company's royalty revenues and the related
accounts receivable balances for the years ended December 31, 2013 and 2012 were from three and four licensees of the Company,
respectively. Substantially all of the Company's product sales revenues for the year ended December 31, 2013 and substantially all of the
Company's trade accounts receivable balances at December 31, 2013 were from six specialty pharmacies. The Company's portfolio of
marketable investment securities is subject to concentration limits set within the Company's investment policy that help to mitigate its credit
exposure.
80
The following is a summary of the Company's marketable investment securities (in thousands):
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
holding
|
|
|
holding
|
|
|
Fair
|
As of December 31, 2013:
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
103,175
|
|
$
|
23
|
|
$
|
(60)
|
|
$
|
103,138
|
Government agency
|
|
|
26,110
|
|
|
22
|
|
|
-
|
|
|
26,132
|
Total marketable investment securites
|
|
$
|
129,285
|
|
$
|
45
|
|
$
|
(60)
|
|
$
|
129,270
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
holding
|
|
|
holding
|
|
|
Fair
|
As of December 31, 2012:
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
50,822
|
|
$
|
3
|
|
$
|
(31)
|
|
$
|
50,794
|
Government agency
|
|
|
32,444
|
|
|
10
|
|
|
(4)
|
|
|
32,450
|
Total marketable investment securites
|
|
$
|
83,266
|
|
$
|
13
|
|
$
|
(35)
|
|
$
|
83,244
|
Marketable investment securities available for sale in an unrealized loss position as of December 31, 2013 and 2012 are
summarized as follows (in thousands):
|
|
|
Held for less than 12 months
|
|
Held for more than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
|
|
Fair value
|
|
|
losses
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
74,407
|
|
$
|
56
|
|
$
|
5,732
|
|
$
|
4
|
|
$
|
80,139
|
|
$
|
60
|
Government agency
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$
|
74,407
|
|
$
|
56
|
|
$
|
5,732
|
|
$
|
4
|
|
$
|
80,139
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
37,974
|
|
$
|
31
|
|
$
|
-
|
|
$
|
-
|
|
$
|
37,974
|
|
$
|
31
|
Government agency
|
|
|
7,110
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
7,110
|
|
|
4
|
|
|
$
|
45,084
|
|
$
|
35
|
|
$
|
-
|
|
$
|
-
|
|
$
|
45,084
|
|
$
|
35
|
Summary of Contractual Maturities
Maturities of marketable investment securities are as follows at December 31, 2013 and December 31, 2012 (in
thousands):
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
cost
|
|
|
Fair value
|
|
|
cost
|
|
|
Fair value
|
Due within one year
|
|
|
$
|
103,280
|
|
$
|
103,266
|
|
$
|
65,637
|
|
$
|
65,632
|
Due after one year through five years
|
|
|
|
26,005
|
|
|
26,004
|
|
|
17,629
|
|
|
17,612
|
Due after five years through ten years
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Due after ten years
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total debt securities
|
|
|
$
|
129,285
|
|
$
|
129,270
|
|
$
|
83,266
|
|
$
|
83,244
|
81
Impairments
No impairment losses were recognized through earnings related to available for sale securities during the years ended December 31, 2013
or 2012.
Proceeds from Available for Sale Securities
The proceeds from maturities and sales of available for sale securities and resulting realized gains and losses, were as follows (in thousands):
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
Proceeds from sales and maturities
|
|
|
$
|
107,871
|
|
$
|
119,507
|
|
$
|
86,668
|
Realized gains
|
|
|
|
4
|
|
|
4
|
|
|
-
|
Realized losses
|
|
|
|
-
|
|
|
-
|
|
|
-
|
(6) Inventory
Inventories, stated at the lower of cost or market, consisted of raw materials of $29.3 million and finished goods of $705,000 as of
December 31, 2013. The Company began to capitalize inventory after the FDA approval of Gattex in December 2012. The Company
acquired approximately $16.6 million of Revestive raw materials and $17.1 million of PTH raw materials related to the March 18, 2013
Transition and Termination Agreement with Takeda (See note 10). During June 2013, certain lots of this PTH inventory were designated for
research and development activities and were accordingly expensed during the period.
(7) Property and Equipment, Net
Property and equipment is recorded at cost and consists of the following (in thousands):
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
Office Equipment
|
|
|
|
|
$
|
5,519
|
|
$
|
4,379
|
Laboratory Equipment
|
|
|
|
|
|
216
|
|
|
216
|
Leasehold Improvements
|
|
|
|
|
|
2,023
|
|
|
1,795
|
Total property and equipment
|
|
|
|
|
|
7,758
|
|
|
6,390
|
Less accumulated depreciation
|
|
|
|
|
|
(3,356)
|
|
|
(2,197)
|
Total equipment, net
|
|
|
|
|
$
|
4,402
|
|
$
|
4,193
|
82
(8) Leases
The Company has a non-cancelable operating lease for its office space in Bedminster, New Jersey that expires in 2016. The Company
also has non-cancelable operating leases for office space in Europe for the expansion of the Company's global business and certain
equipment that expire between 2014 and 2015. Rent-free periods and other incentives granted under the leases and scheduled rent increases
are charged to rent expense on a straight-line basis over the related terms of the lease. Rental expense for operating leases was
approximately $1.7 million, $1.6 million, and $1.3 million for 2013, 2012, and 2011, respectively. The future lease payments under
non-cancelable operating leases as of December 31, 2013 are as follows (in thousands):
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
leases
|
Year ending December 31:
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
$
|
1,992
|
2015
|
|
|
|
|
|
|
1,910
|
2016
|
|
|
|
|
|
|
1,287
|
2017
|
|
|
|
|
|
|
-
|
2018
|
|
|
|
|
|
|
-
|
Total minimum lease payments
|
|
|
|
|
|
$
|
5,189
|
(9) Long-term Debt
The following table reflects the carrying value of our long-term debt under various financing arrangements as of December 31, 2013
and 2012 (in thousands):
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
Convertible notes
|
|
$
|
16,545
|
|
$
|
16,545
|
Non-recourse debt
|
|
|
132,387
|
|
|
159,302
|
Total debt
|
|
|
148,932
|
|
|
175,847
|
Less current portion
|
|
|
25,297
|
|
|
6,278
|
Total long-term debt
|
|
$
|
123,635
|
|
$
|
169,569
|
(a) Convertible Notes
In August 2007, the Company completed a private placement of $50.0 million in 5.75% Convertible Notes due August 7, 2014
(5.75% Convertible Notes). The Company received net proceeds from the 5.75% Convertible Notes of approximately $49.4 million, after
deducting costs associated with the offering. The 5.75% Convertible Notes accrue interest at an annual rate of 5.75% payable quarterly in
arrears on the first day of the succeeding calendar quarter commencing January 1, 2008. As of December 31, 2013, the Company
classified the 5.75% Convertible Notes as current debt. Accrued interest on the 5.75% Convertible Notes was $0 as of December 31,
2013 and 2012, respectively. The holders may convert all or a portion of the 5.75% Convertible Notes into common stock at any time, subject
to certain limitations, on or before August 7, 2014. The 5.75% Convertible Notes are convertible into common stock at a conversion
price of $5.44 per share (see below), subject to adjustments in certain events. The 5.75% Convertible Notes are unsecured debt obligations
and rank equally in right of payment with all existing and future unsecured senior indebtedness. The 5.75% Convertible Notes provide for
certain events of default, including payment defaults, breaches of covenants and certain events of bankruptcy, insolvency and reorganization.
The 5.75% Convertible Notes also provide that if there shall occur a fundamental change, as defined, at any time prior to the maturity of the
Note, then the holder shall have the right, at the Holder's option, to require the Company to redeem the notes, or any portion thereof plus
accrued interest and liquidated damages, if any. If a change of control, as defined, occurs and if the holder converts notes in connection with
any such transaction, the Company will pay a make whole premium by increasing the conversion rate applicable to the notes. If any event of
default occurs and is continuing, the principal amount of the 5.75% Convertible Notes, plus accrued and unpaid interest, if any, may be
declared immediately due and payable. The Company incurred debt issuance costs of approximately $600,000, which have been deferred
and which are being amortized over a seven-year period. The effective interest rate on the 5.75% Convertible Notes, including debt issuance
costs, is 5.9%.
83
On January 31, 2011 and April 14, 2011, certain holders of the 5.75% Convertible Notes converted portions of the outstanding notes at a
conversion price of $5.44 per share. The Company issued 529,282 and 5,620,445 shares on January 31, 2011 and April 14, 2011,
respectively, pursuant to this conversion and retired $2.9 million and $30.6 million, respectively, of the outstanding 5.75% Convertible Notes.
The Company has $16.5 million of the 5.75% Convertible Notes outstanding as of December 31, 2013.
Pursuant to the Registration Rights Agreement, the Company has filed
a shelf registration
statement
with the SEC, covering resales of the
common
stock issuable upon conversion
of the 5.75% Convertible Notes
. The registration statement has been declared effective. The Company agreed to use its reasonable best
efforts to keep the registration statement effective until the earlier of (i) the date as of which holders may sell all of the securities covered by the
registration statement without restriction pursuant to Rule 144(k) promulgated under the Securities Act of 1933 or (ii) the date on which holders
shall have sold all of the securities covered by the registration statement. If the Company fails to comply with these covenants or suspends
use of the registration statement for periods of time that exceed what is permitted
under
the Registration Rights Agreement
, the Company is required
to pay liquidated damages
in an amount equivalent to 1% per annum of (a) the
principal amount of the notes outstanding, or (b) the conversion price of each underlying share of
common stock that has been issued upon conversion of a
note, in each case, until
the Company is in compliance with these covenants. The Company believes the likelihood of such an event occurring is remote and, as such,
the Company has not recorded a liability as of December 31, 2013.
(b) Non-recourse Debt
Sensipar and Mimpara-secured Non-recourse Debt
As of December 31, 2013 and 2012, the outstanding principal balances on Sensipar and Mimpara-secured debt were $54.4 million and
$80.2 million, respectively. The Sensipar and Mimpara-secured debt is non-recourse to the Company and solely secured and serviced by its
Sensipar and Mimpara (cinacalcet HCl) royalty revenues and milestone payments. The Sensipar and Mimpara-secured non-recourse debt
relates to the following royalty monetization transactions: (i) the private placement of $175.0 million in non-recourse 8.0% Notes due March 30,
2017 (Class A Notes), (ii) the private placement of $100.0 million in non-recourse 15.5% Notes due March 30, 2017 (Class B Notes), and (iii)
the amendment of the Company's agreement with Amgen in August 2011.
The Class A Notes were paid in full on March 30, 2011 and the Class B Notes were paid in full on September 30, 2011 when they were
redeemable at their par value.
The Company amended its agreement with Amgen effective September 30, 2011 whereby Amgen advanced $145.0 million of Sensipar
and Mimpara royalties to the Company. The Sensipar Notes accrue interest at an annual rate of 9%, compounded quarterly and payable forty-five days
after the close of each quarter. The payment of the royalty advance and discount shall be satisfied solely by Amgen's withholding of
royalties and except in the event of a breach of certain customary representations and warranties under the agreement, the Company will have
no obligation to repay any unsettled amount. The Company further amended the agreement with Amgen effective June 29, 2012, limiting the
royalty offset of the royalty advance up to $8.0 million per quarter with royalties in excess of $8.0 million paid to the Company for the respective
quarter, thereby extending the royalty advance repayment period. After the payment of the royalty advance and a 9 percent per annum
discount on the balance of the advance, Amgen will resume paying NPS all royalties earned through December 31, 2018. As of December 31,
2013, the Company classified $6.8 million of the Sensipar Notes as current based on royalty payments accrued as of December 31, 2013.
The Sensipar Notes are non-recourse to the Company. The outstanding principal balance on the Sensipar Notes, was $54.4 million and $80.2
million as of December 31, 2013 and 2012, respectively. Accrued interest on the Sensipar Notes was approximately $592,000 and $874,000
as of December 31, 2013 and 2012, respectively. The Company incurred debt issuance costs of $96,000, which are being amortized using the
effective interest method. The effective interest rate on the Sensipar Notes, including debt issuance costs, is approximately 9%.
Under the Company's agreement for the Sensipar Notes, the Company would potentially be liable for its breaches or defaults, if any.
84
PTH 1-84-secured Non-recourse Debt
As of December 31, 2013 and 2012, the outstanding principal balances on the PTH 1-84-secured debt were $42.8 million,
respectively. In July 2007, the Company entered into an agreement with DRI Capital, or DRI, formerly Drug Royalty L.P.3, in which the
Company sold to DRI its right to receive future royalty payments arising from sales of recombinant human parathyroid hormone 1-84 [rDNA
origin] ("PTH") under its license agreement with Takeda. Under the agreement, DRI paid the Company an up-front purchase price
of $50.0 million. If and when DRI receives two and a half times the amount paid to the Company, the agreement will terminate and the
remainder of the royalties, if any, will revert back to the Company. In connection with the Company's July 2007 agreement with DRI, the
Company granted DRI a security interest in its license agreement with Takeda for Preotact and certain of its patents and other intellectual
property underlying that agreement. In the event of a default by NPS under the agreement with DRI, DRI would be entitled to enforce its
security interest against NPS and the property described above.
In December 2013, the Company entered into an amendment and restatement (the "Amendment and Restatement") to its
agreement with DRI. Pursuant to the Termination and Transition Agreement between NPS and Takeda (See note 10), NPS' license
agreement with Takeda was terminated and NPS re-acquired exclusive rights worldwide, excluding Israel, to develop and commercialize PTH.
Preotact is the brand name that Takeda had used to market PTH for the treatment of osteoporosis in certain of its licensed territories. NPS is
developing PTH in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism. NPS filed a BLA for Natpara with the FDA
in October 2013.
Pursuant to the Amendment and Restatement, (i) DRI has consented to the commercialization of PTH by the Company,
(ii) the terms of the 2007 Agreement are tolled, and (iii) the parties' rights and obligations regarding PTH and related technology
are governed by the Amendment and Restatement.
The Company will be required to pay royalties in the mid-single digits to DRI based upon sales of PTH by the Company and its licensees
(if any) worldwide, excluding Israel. The Company has agreed to undertake certain efforts to commercialize PTH. If the Company does not
submit a Marketing Authorization Application to the European Medicines Agency for PTH in the European Union by an agreed upon date, DRI
will have the right to revoke the consent granted in the Amendment and Restatement, reinstate the 2007 Agreement, and either cause the
Company to enter into a new license agreement with a third party with respect to PTH on terms that are substantially similar and no more
extensive (when taken as a whole) than the terms contained in the terminated Takeda License Agreement, or negotiate such an agreement on
NPS' behalf.
The Company's obligation to pay royalties to DRI under the Amendment and Restatement shall expire on a country-by-country basis upon
the later of (i) the last to expire patent controlled by the Company with claims covering PTH in such country or (ii) the expiration of
any period of regulatory exclusivity applicable to PTH in such country. The Company's obligation to pay royalties to DRI under the Amendment
and Restatement shall terminate in its entirety once cumulative royalty payments made to DRI by Takeda and the Company total
$125.0 million. As of December 31, 2013, $45.5 million in royalties had been paid to DRI.
DRI continues to maintain a security interest in NPS patents that contain claims covering PTH and certain other NPS intellectual property
related to PTH. In the event of a default by NPS under the Amendment and Restatement, DRI would be entitled to enforce its security interest
against NPS and such intellectual property.
The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest
method over the estimated life. Accrued interest under the DRI agreement was $0 as of December 31, 2013 and 2012, respectively. The
repayment of the remaining $42.8 million is secured solely by future royalty payments arising from sales of PTH by the Company. The PTH-
secured debt is non-recourse to the Company.
REGPARA-secured Non-recourse Debt
As of December 31, 2013 and 2012, the outstanding principal balances on REGPARA-secured debt were $35.2 million and $36.3 million,
respectively. In February 2010, the Company entered into an agreement with an affiliate of DRI, in which the Company sold to DRI its right to
receive future royalty payments arising from sales of REGPARA
®
(cinacalcet HC1) under its license agreement with Kyowa
Hakko Kirin. Under the agreement, DRI paid the Company an up-front purchase price of $38.4 million. If and when DRI receives two and a
half times the amount paid to the Company, the agreement will terminate and the remainder of the royalties, if any, will revert back to the
Company. In connection with the Company's February 2010 agreement with DRI, the Company granted DRI a security interest in its license
agreement with Kyowa Hakko Kirin for REGPARA and certain of its patents and other intellectual property
85
underlying that agreement. In the event of a default by NPS under the agreement with DRI, DRI would be entitled to enforce its security interest against NPS and the property
described above. The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective
interest method over the estimated life of approximately 11 years. In accordance with the agreement, on March 1, 2010, DRI received the $2.1
million royalty owed to NPS for REGPARA sales during the six months ended December 31, 2009, which reduced the liability recorded for the
DRI transaction to $36.3 million. As of December 31, 2013 and 2012, the Company classified $1.9 million and $0, respectively, of the
REGPARA-secured debt as current based on royalty payments accrued as of December 31, 2013 and 2012, respectively. Accrued interest
under the DRI agreement was $1.1 million and $3.1 million as of December 31, 2013 and 2012, respectively. Through December 31, 2013,
$27.9 million has been paid to DRI. The repayment of the remaining $35.2 million is secured solely by future royalty payments arising from
sales of REGPARA by Kyowa Hakko Kirin. The effective interest rate under the agreement, including issuance costs, is approximately 15.7%.
The REGPARA-secured debt is non-recourse to the Company.
(c) Contractual maturities of long-term debt
The aggregate contractual maturities of long-term debt, including estimated maturities of the Non-recourse Debt, due subsequent to
December 31, 2013 are as follows (in thousands):
Year ending December 31:
|
|
|
|
|
|
|
2014
|
|
|
|
|
$
|
48,909
|
2015
|
|
|
|
|
|
31,334
|
2016
|
|
|
|
|
|
5,005
|
2017
|
|
|
|
|
|
4,648
|
2018
|
|
|
|
|
|
18,948
|
Thereafter
|
|
|
|
|
|
40,088
|
Total long-term debt
|
|
|
|
|
$
|
148,932
|
(10) Takeda Termination and Transition Agreement
On March 18, 2013, the Company entered into a Termination and Transition Agreement (the Agreement), with Takeda GmbH
(Takeda GmbH), and Takeda Pharma A/S (Takeda Pharma and, together with Takeda GmbH, Takeda).
The Agreement provides for the termination of the license agreement, dated July 2, 2007, as amended, which granted Takeda
Pharma the exclusive license to sell, market and commercialize recombinant human parathyroid hormone 1-84 [rDNA origin] (rhPTH 1-84)
worldwide, except for the U.S., Israel, and Japan, and a non-exclusive license to manufacture and develop rhPTH 1-84 (the rhPTH 1-84
License Agreement). Pursuant to the rhPTH 1-84 License Agreement the rights were returned to the Company without consideration. Preotact
is the brand name that Takeda Pharma has used to market rhPTH 1-84 for the treatment of osteoporosis in certain of its licensed territories.
The Company is developing rhPTH 1-84 in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism.
The Agreement also provides for the termination of the license agreement, dated September 24, 2007, as amended, which granted
Takeda GmbH the exclusive license to develop and commercialize teduglutide worldwide, except for North America and Israel (the Revestive
License Agreement). Takeda GmbH developed and obtained approval in the EU in August 2012 for teduglutide under the trade name
Revestive for the treatment of Short Bowel Syndrome (SBS) in adults. The Company obtained U.S. Food and Drug Administration approval in
the U.S. in December 2012 for teduglutide under the trade name Gattex for adult patients with SBS who are dependent on parenteral
support. As a result of the termination of the License Agreements, the Company now has the exclusive rights worldwide to develop and
commercialize teduglutide and PTH, except as noted in Note 9.
Takeda assigned to NPS its assets related to the two products, including all of its active pharmaceutical ingredient inventory and
information related to the products' continued development, manufacture, and commercialization, including life cycle management assets.
Takeda received 6.1 million shares of NPS common stock that were valued at $54.9 million as of the date of the transaction. Takeda will also
earn a $30.0 million milestone payment in the first calendar year that combined worldwide net sales of both products exceed $750 million. This
milestone includes an early payment trigger upon a qualified change of control. NPS has the option of making this milestone payment in cash
or NPS common stock.
86
The Company engaged an independent valuation firm to assist it in determining the fair value of the assets acquired. Using these fair
values, the Company assigned $16.6 million to the Revestive active pharmaceutical ingredient (API), $17.1 million to the PTH API and $20.7
million to the Revestive product rights. The Company capitalized the Revestive and PTH API as inventory and capitalized the product rights to
intangibles, net on the Company's balance sheet due to the fact that Revestive and Preotact are approved in the EU for SBS and
Osteoporosis, respectively. The Company is amortizing the Revestive product rights on a straight-line basis over the estimated useful life of
approximately 12 years. Through December 31, 2013, $1.4 million of the Revestive products rights have been amortized and expensed. The
estimated amortization expense for each of the next five years is approximately $1.8 million.
(11) Capital Stock
Equity Financing
In May 2013, the Company completed a public sale of 6,900,000 shares of its common stock at a per share price of $14.53. Net proceeds
to the Company from the sale totaled approximately $93.5 million, after deducting expenses and the commission in connection with the
offering paid by the Company.
In April 2011, the Company completed a public sale of 12,650,000 shares of its common stock at a per share price of $9.00. Net proceeds
to the Company from the sale totaled approximately $106.8 million, after deducting expenses and the commission in connection with the
offering paid by the Company.
Convertible Debt
As of December 31, 2013, the Company had outstanding $16.5 million in aggregate principal amount of its 5.75% Convertible
Notes and has classified it as current debt. The holders of the 5.75% Convertible Notes may convert all or a portion of their notes into
common stock at any time, subject to certain limitations, on or before August 7, 2014 at a conversion price equal to approximately $5.44 per
share, subject to adjustment in certain events. The Company has reserved 3,041,451 shares of its common stock for issuance upon
conversion of the 5.75% Convertible Notes.
(12) Share-Based Compensation Plans
As of December 31, 2013, the Company has four equity incentive plans: the 1994 Nonemployee Directors' Stock Option Plan (the
Directors' Plan), the 1998 Stock Option Plan (the 1998 Plan), the 2005 Omnibus Incentive Plan (the 2005 Plan), and the Employee Stock
Purchase Plan ("ESPP"). These plans provide that in the event of certain change in control transactions, including a merger or
consolidation in which the Company is not the surviving corporation or a reorganization in which more than fifty-percent (50%) of the shares of
the Company's common stock entitled to vote are exchanged, all outstanding, unvested equity awards under these plans will vest, and in the
case of stock options, will become immediately exercisable.
As of December 31, 2013, there are no shares reserved for future grant under the Directors' Plan and the 1998 Plan. As of
December 31, 2013, there are 4,497,990 shares reserved for future grant under the 2005 Plan. The Company's 2005 Plan provides for
the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock
units, performance shares, cash-based awards and other stock-based awards. Under the Company's 2005 Plan, the exercise price of stock
options, the grant price of stock appreciation rights and the initial value of performance awards, must be equal to at least 100% of the fair
market value of the Company's common stock on the date of grant. Stock options generally vest 28% after year one and 2% per month
thereafter or 25% after year one and 6.25% every three months thereafter. Under the Company's 1998 Plan, the exercise price of options is
not less than the fair market value of the Company's common stock on the date of grant. The number of shares, terms, and exercise period
are determined by the board of directors on a grant-by-grant basis, and the exercise period does not extend beyond ten years from the date of
the grant. Stock options generally vest 28% after one year and 2% or 3% per month thereafter or 25% after year one and 6.25% every three
months thereafter.
During the year ended December 31, 2010, the Company's Board of Directors awarded a total of 1,130,700 performance condition options
to certain of the Company's employees. Vesting of these options are subject to the Company achieving certain performance criteria
established at the grant date and the individuals fulfilling a service condition (continued employment). As of December 31, 2013, the
performance criteria of 825,340 of these options had been satisfied and these options will become exercisable based on the following vesting
schedule: 25% on each of the first four anniversaries of the date of grant, which was February 20, 2010 (the date of grant). The Company
recognized $277,000, $1.1 million and $153,000 of compensation expense during the years ended December 31, 2013, 2012 and
87
2011, respectively, related to these options. The next performance criteria is the acceptance of the BLA filing for Natpara by the FDA. The BLA was
accepted by the FDA in January 2014 and will trigger approximately $111,000 of compensation expense related to these options being
recognized in the first quarter of 2014.
The Company utilized the Black-Scholes option pricing model to determine the grant date fair value of the awards. As of December 31,
2013, except for the 825,340 options discussed above, the Company does not believe that the achievement of the performance criteria for the
other options is probable and therefore has not recognized any compensation expense related to those options during the years ended
December 31, 2013, 2012 and 2011, respectively. Compensation expense will be recognized only once the performance condition is probable
of being achieved and then only the cumulative amount related to the service condition that has been fulfilled.
On May 19, 2010, the shareholders approved an ESPP whereby qualified employees are allowed to purchase limited amounts of the
Company's common stock at the lesser of 85% of the market price at the beginning or end of the offering period. The shareholders have
authorized 500,000 shares for purchase by employees. During the years ended December 31, 2013, 2012 and 2011, employees purchased
72,937, 45,553 and 37,065 shares, respectively, under the ESPP. The Company has 329,585 shares available for future purchase as of
December 31, 2013.
The Company estimates expected volatility considering implied volatility based on market-traded options on the Company's common stock
and historical volatility of the Company's common stock over the expected life of the options. In estimating volatility for the years ended
December 31, 2013, 2012 and 2011 the Company weighted implied volatility at zero percent and historical volatility at 100%. The
Company recognizes compensation cost for awards on a straight-line basis over the requisite service period for the entire award. Additionally,
the Company's policy is to issue new shares of common stock to satisfy stock option exercises, ESPP purchases or grants of restricted shares
or deferred stock units.
The compensation expense related to stock options, ESPP purchases, restricted shares and deferred stock units are recorded in expense
categories based on where other compensation cost is recorded for employees receiving the awards.
The following table summarizes the effect of compensation cost arising from share-based payment arrangements in the Company's
Statements of Operations for the years ended December 31, 2013, 2012 and 2011 for the Company's stock option plans, the ESPP and
other share-based awards (in thousands):
|
|
|
Years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
Research and development
|
|
$
|
4,107
|
|
$
|
3,343
|
|
$
|
1,544
|
Selling, general and administrative
|
|
|
5,330
|
|
|
4,205
|
|
|
2,556
|
Amounts charged against income, before
|
|
|
|
|
|
|
|
|
|
income tax expense
|
|
$
|
9,437
|
|
$
|
7,548
|
|
$
|
4,100
|
The fair value of each option award is estimated, on the date of grant using the Black-Scholes option-pricing valuation model, which
incorporates ranges of assumptions for inputs as shown in the following table. The assumptions are as follows:
|
•
|
|
The expected volatility is a blend of implied volatility based on market-traded options on the Company's common stock
and historical volatility of the Company's stock over the expected term of the options.
|
|
•
|
|
The Company uses historical data to estimate the expected term of the option; separate groups of employees that have
similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the
period of time the options are expected to be outstanding.
|
|
•
|
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the
expected term of the option.
|
|
•
|
|
The expected dividend yield is based on the Company's current dividend yield as the best estimate of projected dividend
yield for periods within the expected term of the option.
|
88
|
|
|
Years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
Dividend yield
|
|
|
—
|
|
|
—
|
|
|
—
|
Expected volatility
|
|
|
59.15% - 60.69%
|
|
|
61.22% - 67.58%
|
|
|
60.5% - 67.8%
|
Risk-free interest rate
|
|
|
0.7% - 3.7%
|
|
|
0.6% - 1.1%
|
|
|
0.9% - 3.0%
|
Expected term (in years)
|
|
|
5.2 - 6.0
|
|
|
5.1 - 5.9
|
|
|
4.8 - 5.9
|
A summary of activity related to aggregate stock options under all plans is indicated in the following table (in thousands, except per share amounts):
|
|
Year ended December 31, 2013
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
average
|
|
|
average remaining
|
|
|
Aggregate
|
|
|
of
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
options
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
(in thousands)
|
|
|
|
|
|
(in years)
|
|
|
(in thousands)
|
Options outstanding at beginning
|
|
|
|
|
|
|
|
|
|
|
|
of year
|
|
7,390
|
|
$
|
6.75
|
|
|
|
|
|
|
Options granted
|
|
2,178
|
|
|
10.69
|
|
|
|
|
|
|
Options exercised
|
|
2,522
|
|
|
5.76
|
|
|
|
|
|
|
Options forfeited/expired
|
|
390
|
|
|
13.29
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
6,656
|
|
|
8.03
|
|
|
7.49
|
|
$
|
148,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
6,264
|
|
|
7.87
|
|
|
7.40
|
|
$
|
140,880
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
2,690
|
|
$
|
6.69
|
|
|
6.05
|
|
$
|
63,690
|
The weighted-average grant-date fair value of options granted during the years ended December 31,
2013, 2012 and 2011 was $5.66, $4.46 and $4.57, respectively. The intrinsic value for stock options is defined as the difference between the
current market value and the grant price. The total intrinsic value of stock options exercised during the years ended December 31,
2013, 2012 and 2011 was $33.4 million, $2.0 million and $1.0 million, respectively.
Restricted stock, restricted stock units and deferred stock unit grants consist of the Company's common stock. The fair value of each
restricted stock grant, restricted stock unit and deferred stock unit is equal to the market price of the Company's stock at the date of grant.
Restricted stock and restricted stock unit grants are time vested. During the years ended December 31, 2013, 2012 and 2011, the
Company granted 35,097, 20,334 and 64,792 deferred stock units, respectively, to directors for services, which did not contain any vesting
restrictions. During the years ended December 31, 2013, 2012 and 2011, the Company granted 75,940, 106,575 and 0 restricted stock
units, respectively, to directors for services, which vest over one year. At December 31, 2013, there are 642,506 deferred stock units
outstanding. During the years ended December 31, 2013, 2012 and 2011 the Company granted to employees 458,719, 307,720 and
10,000 shares of restricted stock, respectively, which will vest over a period of one to three years.
A summary of activity related to aggregate restricted stock, restricted stock units and deferred stock units as of December 31, 2013,
is indicated in the following table (shares in thousands):
|
|
Number of
|
|
|
Weighted-average
|
|
|
shares
|
|
|
grant date fair value
|
Nonvested at beginning of year
|
|
505
|
|
$
|
6.96
|
Granted
|
|
570
|
|
|
9.18
|
Vested
|
|
(318)
|
|
|
6.37
|
Forfeited
|
|
(5)
|
|
|
8.21
|
Nonvested at December 31, 2013
|
|
752
|
|
$
|
8.89
|
89
As of December 31, 2013, there was $17.0 million of total unrecognized compensation cost related to all unvested share-based
compensation arrangements that is expected to be recognized over a weighted-average period of 2.55 years.
(13) Income Taxes
The components of loss before income taxes for the years ended December 31, 2013, 2012 and 2011 includes the following (in thousands):
|
|
|
Years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(9,748)
|
|
$
|
(18,735)
|
|
$
|
(36,249)
|
Foreign
|
|
|
(3,574)
|
|
|
-
|
|
|
-
|
Loss before income taxes
|
|
$
|
(13,322)
|
|
$
|
(18,735)
|
|
$
|
(36,249)
|
The Company has recorded income tax expense for the years ended December 31, 2013, 2012 and 2011 of $182,000, $0, and
$18,000, respectively. The income tax expense for the years ended December 31, 2013 and 2011 was primarily related to a non-cash charge
for state income taxes and to the Company's Canadian subsidiary based in the Canadian province of Quebec, respectively.
Income tax differed from the amounts computed by applying the U.S. federal income tax rate of 34% to loss before income tax expense
(benefit) as a result of the following (in thousands):
|
|
|
Years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Computed "expected" tax benefit
|
|
$
|
(4,529)
|
|
$
|
(6,370)
|
|
$
|
(12,325)
|
Expiration of tax attributes
|
|
|
-
|
|
|
-
|
|
|
360
|
IRC §382 adjustment
|
|
|
6,575
|
|
|
59,822
|
|
|
94,442
|
Change in the valuation allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
attributable to operations and other adjustments
|
|
|
2,840
|
|
|
(42,124)
|
|
|
(70,514)
|
U.S. and foreign credits
|
|
|
(12,237)
|
|
|
(10,231)
|
|
|
(11,732)
|
State income taxes, net of federal tax effect
|
|
|
182
|
|
|
-
|
|
|
-
|
Equity based compensation expense
|
|
|
678
|
|
|
513
|
|
|
578
|
Intellectual property
|
|
|
5,440
|
|
|
-
|
|
|
-
|
Foreign tax rate differences
|
|
|
940
|
|
|
-
|
|
|
-
|
Other
|
|
|
293
|
|
|
(1,610)
|
|
|
(791)
|
|
|
$
|
182
|
|
$
|
-
|
|
$
|
18
|
90
The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2013 and 2012 are presented
below (in thousands):
|
|
|
2013
|
|
|
2012
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
132,101
|
|
$
|
140,416
|
Research credit carryforward
|
|
|
68,277
|
|
|
49,960
|
Capital loss carryforward
|
|
|
4,186
|
|
|
4,169
|
Non-recourse debt
|
|
|
27,769
|
|
|
32,619
|
Acquired intellectual property
|
|
|
29,452
|
|
|
29,287
|
Capitalization of inventory
|
|
|
9,429
|
|
|
13,146
|
Stock compensation expense
|
|
|
2,935
|
|
|
5,631
|
Accrued compensation
|
|
|
3,117
|
|
|
2,105
|
Other
|
|
|
555
|
|
|
273
|
Total deferred tax assets
|
|
|
277,821
|
|
|
277,606
|
Less valuation allowance
|
|
|
(277,821)
|
|
|
(277,606)
|
Deferred tax assets
|
|
|
-
|
|
|
-
|
Deferred tax liabilities
|
|
|
-
|
|
|
-
|
Net deferred tax asset (liability)
|
|
$
|
-
|
|
$
|
-
|
Carryfowards
At December 31, 2013, the Company had U.S. federal net operating loss carryforwards of approximately $381.0 million which begin
to expire in 2018, U.S. federal research credit carryforwards of $68.3 million, which begin to expire in 2030, and U.S. federal capital loss
carryforwards of $10.7 million which begin to expire in 2015. The Company's domestic tax loss carryforwards for alternative minimum tax
purposes is approximately the same as the Company's regular tax loss carryforwards. The Company also has New Jersey state net operating
loss and capital loss carryforwards of approximately $369.9 million and $18.1 million, respectively, which begin to expire in 2014, and other
domestic state net operating loss carryforwards and tax credit carryforwards in varying amounts depending on the different state laws.
The Company uses the "with-and-without" approach in determining the order in which tax attributes are utilized. Using the
"with-and-without" approach, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if
an incremental tax benefit is realized after all other net operating loss carryforwards currently available to the Company have been utilized, but
prior to the utilization of other tax attributes.
The U.S. federal net operating loss carryforwards of approximately $381.0 million include approximately $10.1 million of excess tax
benefits related to share-based payments that are presented on a tax effected basis within the deferred tax assets. Since this amount was
recorded through additional paid-in capital, the related valuation allowance on these net operating loss carryforwards will be reversed through
additional paid-in capital when these excess tax benefits are realized. Also, included in the U.S. federal net operating loss carryforwards are
excess tax benefits related to share-based payments of approximately $24.5 million that are not recognized as a deferred tax asset as the
amounts would not have resulted in a reduction in current taxes payable if all other net operating loss carryforwards currently available to the
Company were utilized. The benefit of these deductions will be recognized through additional paid-in capital at the time the tax deduction
results in a reduction of current taxes payable.
Section 382 of the Internal Revenue Code can potentially limit a company's ability to use net operating loss, tax credits, capital loss, and
other tax attributes in periods subsequent to a change in ownership. The Company periodically updates its Section 382 study to assess
whether the Company has undergone certain greater than 50% changes of ownership as defined in Section 382 of the Internal Revenue Code.
This study concluded that the Company had an ownership change in 2010. As a result, the Company determined that certain net
operating loss, tax credit and capital loss carryforwards will expire prior to their utilization due to the expected annual Section 382 limitation,
and accordingly the net operating loss, tax credit, and capital loss carryforwards on the above deferred tax asset table have been reduced.
91
Valuation Allowance
The Company determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into
consideration all available positive and negative evidence, including historical operating results, expectations of future taxable income,
carryforward periods available to the Company for tax reporting purposes, various income tax strategies and other relevant factors. Significant
judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the
recoverability of its deferred tax assets at that time.
At December 31, 2013 and 2012, the Company maintained a full valuation allowance on its deferred tax assets. The Company has a
history of cumulative losses. The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation
allowance. The valuation allowance for deferred tax assets increased by $215,000 in 2013 and decreased by $49.1 million in 2012.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows (in
thousands):
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
|
Tax Benefits
|
Balance as of January 1, 2012
|
|
|
|
|
$
|
4,614
|
Additions for current year tax positions
|
|
|
|
|
|
-
|
Reductions for prior year tax positions
|
|
|
|
|
|
-
|
Balance as of December 31, 2012
|
|
|
|
|
|
4,614
|
Additions for current year tax positions
|
|
|
|
|
|
-
|
Reductions for prior year tax positions
|
|
|
|
|
|
(677)
|
Balance as of December 31, 2013
|
|
|
|
|
$
|
3,937
|
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events
including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes
and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits will not change
during the next 12 months. However, changes in the occurrence, expected outcomes and timing of those events could cause the
Company's current estimate to change materially in the future.
Due to the Company's net operating loss carryforwards, any adjustment related to an unrecognized tax benefit would not be expected to
result in a cash tax liability. Accordingly, the Company has not accrued for interest or penalties for the U.S. (both Federal and State) as of
December 31, 2013 and 2012. Assuming the continued existence of a full valuation allowance on the Company's deferred tax assets, future
recognition of any of the Company's unrecognized tax benefits would not impact the effective tax rate.
The Company files income tax returns in the United States and various foreign jurisdictions. Of the major jurisdictions, the Company is
subject to examination in: the United States for U.S. federal purposes for 2010 and forward and for New Jersey for 2011 and forward. In
August 2012, the IRS completed its examination of the Company's U.S. federal income tax returns for the year ended December 31,
2009. In May 2013, the State of New Jersey completed its examination of the Company's New Jersey income tax returns through the
year ended December 31, 2010. There were no adjustments as a result of these examinations.
92
(14) Employee Benefit Plans
The Company maintains a tax-qualified employee savings and retirement plan (401(k) Plan) covering all of the Company's
employees in the United States. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation up to the maximum
percent allowable, not to exceed the limits of code section 401(k), 403(b), 404 and 415, of eligible compensation or the prescribed IRS annual
limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional matching
contributions to the 401(k) Plan by the Company on behalf of all participants. During the years ended December 31, 2013, 2012 and
2011, the Company matched 100% of employee contributions up to 3% of employee pre-tax contributions and 50% of employee contribution
on the next 3% of employee pre-tax contributions. The Company recorded an expense associated with these matching contributions for the
years ended December 31, 2013, 2012, and 2011 of $1.1 million, $620,000 and $432,000, respectively.
(15) Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards
that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In February 2013, the FASB issued ASU 2013-02
Reporting of Amounts Reclassified out of Accumulated Other Comprehensive
Income
(ASU 2013-02), an Accounting Standards Update to the
Comprehensive Income Topic
in the Accounting Standards
Codifications (ASC). This update requires separate presentation of the components that are reclassified out of accumulated other
comprehensive income either on the face of the financial statements or in the notes to the financial statements. This update also requires
companies to disclose the income statement line items impacted by any significant reclassifications, such as the realized gain on marketable
investment securities. These items are required for both interim and annual reporting for public companies and became effective for the
Company beginning with its quarterly report on Form 10-Q for the period ending March 31, 2013. The Company adopted this ASU on January
1, 2013. The adoption of this ASU did not have a material impact on the Company's financial position or results of operations.
(16) Commitments and Contingencies
The Company has agreed to indemnify, under certain circumstances, certain manufacturers and service providers from and against any
and all losses, claims, damages or liabilities arising from services provided by such manufacturers and service providers or from any use,
including clinical trials, or sale by the Company or any Company agent of any product supplied by the manufacturers.
The Company has contractual commitments of $15.9 million with external marketing, commercial readiness and market research
organizations relating to pre-launch activities for Revestive and Natpara. These agreements are cancellable on notice of up to six months.
The Company also has approximately $29.5 million in contractual commitments for other service agreements with varying terms and
conditions.
The Company has entered into long-term agreements with various third-party contract manufacturers for the production and packaging of
drug substance and drug product. Under the terms of these various contracts, the Company will be required to purchase certain minimum
quantities of drug product each year.
The Company has contractual commitments of $26.1 million for drug substance, drug product and other manufacturing processes as of
December 31, 2013 for the manufacture of clinical and commercial supplies of Gattex/Revestive and Natpara. Amounts owed to third-
party contract manufacturers are based on firm commitments for the purchase of drug product. Amounts purchased under contractual
inventory commitments from third-party contract manufacturers for the years ended December 31, 2013, 2012 and 2011 were $15.0
million, $25.9 million and $14.5 million, respectively.
93
In December 2009, the Company sold a majority interest in its subsidiary, Allelix, to a group of investors ("Investors"). NPS
received $5.6 million in connection with the transactions in 2009. NPS is entitled to receive an additional Canadian. $4.8 million, which would
only be paid upon further investment in Allelix by the Investors, which would be expected to occur upon the successful completion of certain
Canadian court proceedings. In connection with the transaction, the Company has indemnified the Investors for various items including
product liabilities arising from the past operations of Allelix and has guaranteed that certain tax attributes exist as of the closing date. The
maximum potential future payments related to these indemnifications or guarantees shall not exceed the amounts the Company has received
in connection with the transaction ($5.5 million at December 31, 2013).
(17) Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2013
and 2012 (in thousands, except for per share amounts):
|
|
Quarters Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
25,434
|
|
$
|
36,505
|
|
$
|
39,202
|
|
$
|
54,451
|
Operating (loss) income
|
|
|
(4,531)
|
|
|
(9,321)
|
|
|
1,769
|
|
|
10,588
|
Net (loss) income
|
|
|
(7,796)
|
|
|
(12,389)
|
|
|
(1,087)
|
|
|
7,768
|
Basic (loss) income per common share
|
|
$
|
(0.09)
|
|
$
|
(0.13)
|
|
$
|
(0.01)
|
|
$
|
0.08
|
Diluted (loss) income per common
|
|
|
|
|
|
|
|
|
|
|
|
|
and potential common share
|
|
$
|
(0.09)
|
|
$
|
(0.13)
|
|
$
|
(0.01)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,924
|
|
$
|
53,517
|
|
$
|
27,019
|
|
$
|
27,184
|
Operating (loss) income
|
|
|
(5,045)
|
|
|
11,206
|
|
|
733
|
|
|
(8,018)
|
Net (loss) income
|
|
|
(10,563)
|
|
|
7,355
|
|
|
(3,324)
|
|
|
(12,203)
|
Basic (loss) income per common share
|
|
$
|
(0.12)
|
|
$
|
0.08
|
|
$
|
(0.04)
|
|
$
|
(0.14)
|
Diluted (loss) income per common
|
|
|
|
|
|
|
|
|
|
|
|
|
and potential common share
|
|
$
|
(0.12)
|
|
$
|
0.08
|
|
$
|
(0.04)
|
|
$
|
(0.14)
|
94