Company Quick10K Filing
Quick10K
Medicines
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.86 74 $2,350
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-30 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-03-12 Officers
8-K 2019-01-11 Other Events
8-K 2018-12-18 Other Events
8-K 2018-12-18 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-12-13 Other Events, Exhibits
8-K 2018-12-12 Other Events, Exhibits
8-K 2018-12-12 Other Events, Exhibits
8-K 2018-12-11 Officers, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-08-23 Officers
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-05-31 Shareholder Vote
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-03-27 Officers
8-K 2018-02-27 Officers, Exhibits
8-K 2018-02-21 Earnings, Exhibits
8-K 2018-02-20 Officers
8-K 2018-01-31 Officers
8-K 2018-01-05 M&A, Exhibits
NOC Northrop Grumman 50,090
PAG Penske Automotive Group 3,850
ALTR Altair Engineering 2,630
CRVL Corvel 1,350
BCRX Biocryst Pharmaceuticals 862
DX Dynex Capital 440
VNCE Vince Holding 175
TIS Orchids Paper Products 0
JMBA Jamba 0
VPLM Voip-Pal.com 0
MDCO 2019-03-31
Part I. Financial Information
Item 1. Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 mdcoex1013312019-q12019.htm
EX-31.1 mdcoex3113312019-q12019.htm
EX-31.2 mdcoex3123312019-q12019.htm
EX-32.1 mdcoex3213312019-q12019.htm
EX-32.2 mdcoex3223312019-q12019.htm

Medicines Earnings 2019-03-31

MDCO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to

Commission file number 000-31191

THE MEDICINES COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
04-3324394
(I.R.S. Employer
Identification No.)
 
 
 
8 Sylvan Way
Parsippany, New Jersey
(Address of principal executive offices)
 
07054
(Zip Code)

Registrant’s telephone number, including area code: (973) 290-6000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of April 22, 2019, there were 73,899,749 shares of Common Stock, $0.001 par value per share, outstanding (excluding 3,013,143 shares held in treasury).


Table of Contents



THE MEDICINES COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended March 31, 2019
TABLE OF CONTENTS

 
Page
 
 
 
 
EX-10.1
 
EX-31.1
 
EX-31.2
 
EX-32.1
 
EX-32.2
 
EX-101
 



Table of Contents


Part I. Financial Information

Item 1. Condensed Financial Statements



1

Table of Contents
THE MEDICINES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)

 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
199,736

 
$
238,310

Short-term investment
2,353

 
2,627

Inventory, net
1,098

 
864

Prepaid expenses and other current assets
54,912

 
53,002

Total current assets
258,099

 
294,803

Fixed assets, net
8,372

 
8,872

Goodwill
200,571

 
200,571

Restricted cash
6,709

 
6,710

Contingent purchase price from sale of businesses
325,806

 
325,806

Other assets
36,296

 
4,924

Total assets
$
835,853

 
$
841,686

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
11,786

 
$
695

Accrued expenses
43,813

 
57,716

Other current liabilities
7,546

 

Total current liabilities
63,145

 
58,411

Convertible senior notes
808,701

 
792,752

Other liabilities
39,396

 
12,787

Total liabilities
911,242

 
863,950

Stockholders’ (deficit) equity:
 
 
 
Preferred stock, $1.00 par value per share, 5,000,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.001 par value per share, 187,500,000 authorized; 76,884,069 issued and 73,870,926 outstanding at March 31, 2019 and 76,861,668 issued and 73,848,525 outstanding at December 31, 2018
77

 
77

Additional paid-in capital
1,460,545

 
1,452,975

Treasury stock, at cost; 3,013,143 shares at March 31, 2019 and December 31, 2018
(90,016
)
 
(90,016
)
Accumulated deficit
(1,440,589
)
 
(1,380,724
)
Accumulated other comprehensive loss
(5,406
)
 
(4,576
)
Total stockholders’ deficit
(75,389
)
 
(22,264
)
Total liabilities and stockholders’ deficit
$
835,853

 
$
841,686

See accompanying notes to condensed consolidated financial statements.


2

Table of Contents
THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

 
Three Months Ended
March 31,
 
2019
 
2018
Net revenues
$

 
$
7,771

Operating expenses:
 
 
 
Cost of revenues

 
2,737

Research and development
27,011

 
40,366

Selling, general and administrative
16,982

 
28,951

Total operating expenses
43,993

 
72,054

Loss from operations
(43,993
)
 
(64,283
)
Co-promotion and license income

 
228

Loss on short-term investment
(266
)
 
(29,989
)
Interest expense
(16,024
)
 
(12,077
)
Other income
421

 
2,369

Loss from continuing operations before income taxes
(59,862
)
 
(103,752
)
(Provision for) benefit from income taxes
(3
)
 
18,916

Loss from continuing operations
(59,865
)
 
(84,836
)
Income from discontinued operations, net of tax

 
113,985

Net (loss) income
$
(59,865
)
 
$
29,149

 
 
 
 
Basic (loss) earnings per common share:
 
 
 
Loss from continuing operations
$
(0.80
)
 
$
(1.15
)
Earnings from discontinued operations

 
1.54

Basic (loss) earnings per share
$
(0.80
)
 
$
0.39

 
 
 
 
Diluted (loss) earnings per common share:
 
 
 
Loss from continuing operations
$
(0.80
)
 
$
(1.15
)
Earnings from discontinued operations

 
1.54

Diluted (loss) earnings per share
$
(0.80
)
 
$
0.39

 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
Basic
74,463

 
73,802

Diluted
74,463

 
73,802


See accompanying notes to condensed consolidated financial statements.



3


THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
 
Three Months Ended
March 31,
 
2019
 
2018
Net (loss) income
$
(59,865
)
 
$
29,149

Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustment
(830
)
 
(471
)
Amounts reclassified from accumulated other comprehensive loss

 
1,183

Other comprehensive (loss) income
(830
)
 
712

Comprehensive (loss) income
$
(60,695
)
 
$
29,861


See accompanying notes to condensed consolidated financial statements.



4


THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)

 
Common Stock
 
Treasury Stock
 
Additional
Paid-in
 
Accumulated
 
Accumulated
Comprehensive
Income
 
Total
Stockholders’
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
(Loss)
 
Equity (Deficit)
Balance at January 1, 2018
76,191

 
$
76

 
(3,013
)
 
$
(90,016
)
 
$
1,377,393

 
$
(1,257,356
)
 
$
(5,183
)
 
$
24,914

Employee stock purchases
335

 

 
 
 
 
 
8,637

 
 
 
 
 
8,637

Issuance of restricted stock awards
35

 

 
 
 
 
 
 
 
 
 
 
 

Non-cash stock compensation
 
 
 
 
 
 
 
 
4,454

 
 
 
 
 
4,454

Adoption of new accounting standard related to revenue recognition
 
 
 
 
 
 
 
 
 
 
(210
)
 
 
 
(210
)
Net income
 
 
 
 
 
 
 
 
 
 
29,149

 
 
 
29,149

Currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
(471
)
 
(471
)
Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
1,183

 
1,183

Balance at March 31, 2018
76,561

 
$
76

 
(3,013
)
 
$
(90,016
)
 
$
1,390,484

 
$
(1,228,417
)
 
$
(4,471
)
 
$
67,656

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
76,862

 
$
77

 
(3,013
)
 
$
(90,016
)
 
$
1,452,975

 
$
(1,380,724
)
 
$
(4,576
)
 
$
(22,264
)
Employee stock purchases
33

 

 
 
 
 
 
672

 
 
 
 
 
672

Issuance of restricted stock awards
(10
)
 

 
 
 
 
 
 
 
 
 
 
 

Non-cash stock compensation
 
 
 
 
 
 
 
 
4,446

 
 
 
 
 
4,446

Equity component of 2024 Notes issuance, net
 
 
 
 
 
 
 
 
2,452

 
 
 
 
 
2,452

Net loss
 
 
 
 
 
 
 
 
 
 
(59,865
)
 
 
 
(59,865
)
Currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
(830
)
 
(830
)
Balance at March 31, 2019
76,885

 
$
77

 
(3,013
)
 
$
(90,016
)
 
$
1,460,545

 
$
(1,440,589
)
 
$
(5,406
)
 
$
(75,389
)


See accompanying notes to condensed consolidated financial statements.


5

Table of Contents
THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(59,865
)
 
$
29,149

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 

Depreciation and amortization
501

 
728

Amortization of debt discount
9,161

 
6,745

Unrealized foreign currency transaction losses, net
706

 
768

Stock compensation expense
4,446

 
4,454

Gain on sale of business

 
(168,955
)
Gain on sale of assets
(500
)
 

Loss on short-term investments
266

 
29,989

Reserve for excess or obsolete inventory

 
(410
)
Changes in contingent purchase price

 
(262
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable

 
(4,206
)
Inventory, net
(138
)
 
1,213

Prepaid expenses and other assets
1,727

 
5,552

Accounts payable
11,098

 
(4,351
)
Accrued expenses
(14,313
)
 
(9,931
)
Other current liabilities

 
(4,047
)
Payments on contingent purchase price

 
(19
)
Other liabilities
(2,912
)
 
4,262

Net cash used in operating activities
(49,823
)
 
(109,321
)
Cash flows from investing activities:
 
 
 
Proceeds from sale of assets
500

 

Purchases of fixed assets

 
(7
)
Proceeds from sale of business

 
166,383

Net cash provided by investing activities
500

 
166,376

Cash flows from financing activities:
 
 
 
Proceeds from issuances of common stock, net
672

 
8,683

Payments on contingent purchase price

 
(171
)
Proceeds from the issuance of convertible senior notes
9,500

 

Debt and equity issuance costs
(280
)
 

Net cash provided by financing activities
9,892

 
8,512

Effect of exchange rate changes on cash
856

 
(962
)
(Decrease) increase in cash, cash equivalents and restricted cash
(38,575
)
 
64,605

Cash, cash equivalents and restricted cash at beginning of period
245,020

 
156,900

Cash, cash equivalents and restricted cash at end of period(a)
$
206,445

 
$
221,505

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
10,534

 
$
10,534

(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheet:
 
Three Months Ended March 31,
 
2019
 
2018
Reconciliation of cash, cash equivalents and restricted cash
 
 
 
Cash and cash equivalents
$
199,736

 
215,962

Restricted cash
6,709

 
5,543

Total cash, cash equivalents and restricted cash at end of period
$
206,445

 
$
221,505


See accompanying notes to condensed consolidated financial statements.


6

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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Medicines Company® name and logo are registered trademarks or trademark applications of The Medicines Company in the United States and/or other countries. All other trademarks, service marks or other tradenames appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. References to “the Company,” “we,” “us” or “our” mean The Medicines Company, a Delaware corporation, and its subsidiaries.

1. Nature of Business

The Medicines Company (the Company) is a biopharmaceutical company driven by its purpose to solve major medical, societal and economic challenges in healthcare. The Company has a singular focus on one of the greatest global healthcare challenges and burdens - that presented by atherosclerotic cardiovascular disease (ASCVD), which remains the number one cause of death in the United States and worldwide. The Company takes on that challenge by developing inclisiran, the investigational RNA interference (RNAi) therapeutic, that specifically inhibits production of proprotein convertase subtilisin/kexin type 9 (PCSK9), a key protein that controls LDL-cholesterol (LDL-C) levels. The Company believes inclisiran is uniquely suited to make a significant difference reducing risk in ASCVD. The Company has the right to develop, manufacture and commercialize inclisiran under its collaboration agreement with Alnylam Pharmaceuticals, Inc. (Alnylam).

2. Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Form 10-K).

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial position, results of operations, comprehensive (loss) income, and cash flows for the periods presented.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries.

The Company’s results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected from the Company for the entire fiscal year or any other quarter of the fiscal year ending December 31, 2019. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the 2018 Form 10-K.

Going Concern

Due to the divestiture of the Company’s rights to branded Angiomax in the United States to Sandoz Inc. (Sandoz) during 2018, the Company is no longer generating revenues from product sales. Prior to such divestiture, the Company’s revenues generated from product sales had been declining significantly since 2014 due to the introduction of generic competition against Angiomax and the divestiture of certain of the Company’s non-core products. The Company has incurred net losses and negative cash flows from operations since 2014 and had an accumulated deficit of $1,440.6 million as of March 31, 2019. The Company expects to incur significant expenses and operating losses for the foreseeable future as it continues to develop, seek regulatory approval for and commercially launch inclisiran. The Company believes that its existing cash and cash equivalents and short term investments of approximately $202.1 million as of March 31, 2019, will not be sufficient to satisfy the Company’s anticipated operating and other funding requirements for the next twelve months from April 26, 2019 (the date of filing this Form 10-Q).

Because the Company expects to continue to incur negative cash flows from operations, the Company will need to raise additional funds by selling additional equity or debt securities or seeking additional financing through other arrangements in order to meet the Company’s anticipated operating and other funding requirements for the next twelve months. There can be no assurances that public or private financings or other financing arrangements will be available in amounts or on terms acceptable to the Company,


7

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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


if at all. The Company’s ability to obtain additional equity or debt financing may be limited by market conditions. If the Company were unable to obtain additional financing, it may be required to delay, reduce the scope of, or eliminate one or more of its planned research, development or commercialization activities. Due to these uncertainties, there is substantial doubt about the Company’s ability to continue as a going concern.

The unaudited condensed consolidated financial statements as of March 31, 2019 have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of the uncertainty discussed above.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, expenses and accumulated other comprehensive loss that are reported in the condensed consolidated financial statements and accompanying disclosures. Actual results may be different.

Contingencies

The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company continually assesses litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. In accordance with the guidance of the Financial Accounting Standards Board (FASB) on accounting for loss contingencies, the Company accrues for all contingencies at the earliest date at which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation, including an estimable range, if possible.

Research and Development

Research and development costs are expensed as incurred. Clinical study costs are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development. Milestone payments that do not represent payments of contingent purchase price from business combinations that are made in connection with regulatory approvals are capitalized and amortized to cost of revenue over the remaining useful life of the asset.

Contingent Purchase Price From Sale of Business

The Company has contingent assets for certain specified calendar year net sales milestones as part of the 2016 divestitures of its hemostasis portfolio consisting of PreveLeak, Raplixa and Recothrom (the Hemostasis Business) to wholly owned subsidiaries of Mallinckrodt plc (Mallinckrodt) and its non-core cardiovascular assets consisting of Kengreal, Cleviprex and rights to Argatroban for Injection (the Non-Core ACC Products) to Chiesi USA, Inc. (Chiesi USA) and its parent company Chiesi Farmaceutici S.p.A. (Chiesi), which in each case are reflected as contingent purchase price from sale of businesses on the accompanying condensed consolidated balance sheets. The Company also has contingent assets for royalties associated with the sale of the infectious disease business to Melinta, which is reflected as contingent purchase price from sale of business on the accompanying condensed consolidated balance sheets.
The Company will recognize any increases in the carrying amount when the milestones or royalties are achieved and reduce the carrying amount as payments are received. The Company will recognize an impairment of the carrying amount when it determines it is probable that the asset has been impaired and the amount of the loss can be reasonably estimated.
The Company noted no impairment on the carrying amount of the contingent assets. In addition, the Company determined that the fair values of these contingent payments to be received from Mallinckrodt, Chiesi and Melinta, respectively, are not readily determinable at March 31, 2019, as the estimated future net sales of each of the respective products are determined by the future actions of such parties.


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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (ASU No. 2016-02 or Topic 842) and subsequent ASUs issued in 2018 and 2019 that contained improvements to this guidance. This new guidance on leasing will require organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The Company adopted this new guidance on leasing on January 1, 2019. The Company elected the package of practical expedients upon transition that allows the Company not to reassess the lease classification for expired and existing leases, whether initial direct costs qualify for capitalization for any expired or existing leases or whether any expired contracts are or contain leases. Additionally, the Company elected the optional transition method that allows for a cumulative effect adjustment in the period of adoption and did not restate prior periods. The adoption of the new guidance on leasing resulted in the recognition of a right-of-use asset of $34.9 million and lease obligations of $41.2 million. The difference between the right-of-use assets and the lease obligations is primarily due to unamortized lease incentives and deferred rent related to the Company’s operating leases at December 31, 2018.

The impact of the adoption of Topic 842 on the accompanying condensed consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
 
December 31, 2018
 
Adoption Adjustment
 
January 1, 2019
Other assets
$
4,924

 
$
34,925

 
$
39,849

 
 
 
 
 
 
Other current liabilities
$

 
$
7,508

 
$
7,508

Other liabilities
$
12,787

 
$
27,417

 
$
40,204



The adoption of the new guidance did not have a material impact on the condensed consolidated statement of operations. For further details regarding the adoption of this standard see Note 16, “Leases.”

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies disclosure requirements on fair value measurements. This ASU is effective for public companies for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted. The Company expects to adopt this guidance when effective and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

3. Stock Compensation Expense

The Company recorded stock compensation expense of approximately $4.4 million and $4.5 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, there was approximately $53.3 million of total unrecognized compensation costs related to non-vested share-based employee compensation arrangements granted under the Company’s equity compensation plans. The Company expects to recognize those costs, exclusive of $38.9 million related to stock options which will vest upon the achievement of specified performance goals, over a weighted average period of 1.7 years.

During the three months ended March 31, 2019 and 2018, the Company issued a total of 32,747 and 427,919, respectively, of shares of its common stock upon the exercise of stock options, grants of restricted stock, and purchases under the Company’s 2010 employee stock purchase plan (ESPP). Cash received from the exercise of stock options and purchases through the ESPP during the three months ended March 31, 2019 and 2018 was $0.7 million and $8.7 million, respectively, and is included within the financing activities section of the accompanying condensed consolidated statements of cash flows.

4. Earnings (Loss) Per Share

Basic (loss) earnings per share is computed by dividing consolidated net (loss) income by the weighted average number of shares of common stock outstanding during the period, excluding unvested restricted common shares. The potentially dilutive effect of the Company’s stock options, unvested restricted common stock, and convertible senior notes due 2022 (2022 Notes) on earnings per share is computed under the treasury stock method.  In addition, the Company analyzes the potential dilutive effect of the convertible senior notes due 2023 (2023 Notes) and 2024 (2024 Notes) on earnings per share under the “if converted” method, in which it is assumed that the outstanding security converts into common stock at the beginning of the period.

For periods of income from continuing operations when the effects are not anti-dilutive, diluted (loss) earnings per share is computed by dividing consolidated net (loss) income by the weighted average number of shares outstanding and the impact of all


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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


potential dilutive common shares, consisting primarily of stock options, unvested restricted common stock, shares issuable upon conversion of the 2022 Notes, 2023 Notes and 2024 Notes and stock purchase warrants.

For periods of loss from continuing operations, diluted loss per share is calculated similar to basic loss per share as the effect of including all potentially dilutive common share equivalents is anti-dilutive. Due to the periods of loss from continuing operations, the calculation of diluted loss per share for the three months ended March 31, 2019 excluded 15,476,913 of potentially dilutive stock options, warrants, restricted common shares, and shares issuable upon conversion of the 2022 Notes, 2023 Notes and 2024 Notes as their inclusion would have an anti-dilutive effect.

The calculation of diluted loss per share for the three months ended March 31, 2018 excluded 8,962,583 of potentially dilutive stock options, stock purchase warrants, restricted common shares, and shares issuable upon conversion of the 2022 Notes and 2023 Notes as their inclusion would have an anti-dilutive effect.


5. Income Taxes

For the three months ended March 31, 2019 and 2018, the Company recorded a provision for income taxes of less than $0.1 million and benefit from income taxes of $18.9 million, respectively. The worldwide effective income tax rates for the Company for the three months ended March 31, 2019 and 2018 was not significant and 18.2%, respectively.

For the three months ended March 31, 2019, the Company’s income tax provision is primarily attributable to minimum state taxes and foreign taxes based on income.

For the three months ended March 31, 2018, the Company’s benefit from income taxes is primarily attributable to the utilization of current period losses against a discrete provision for income taxes of $51.0 million from the sale of the Company’s infectious disease business. For further details regarding the sale of the infectious disease business see Note 15, “Discontinued Operations.”

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company placed significant weight on the fact that the Company expects to be in a cumulative net book loss for the three-year period ending December 31, 2019 in recording valuation allowances on substantial portions of its deferred tax assets as of March 31, 2019.

The Company will continue to evaluate its ability to realize its deferred tax assets on a periodic basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of products currently under development. Any additional changes to the valuation allowance recorded on deferred tax assets in the future would impact the Company’s income taxes.

6. Cash and Cash Equivalents and Investments

The Company considers all highly liquid investments purchased with original maturities at the date of purchase of three months or less to be cash equivalents. At March 31, 2019 and December 31, 2018, the Company had cash and cash equivalents of $199.7 million and $238.3 million, respectively, which consisted of cash of $187.4 million and $226.0 million, and money market funds with original maturities of less than three months of $12.4 million and $12.3 million at March 31, 2019 and December 31, 2018, respectively.

As of March 31, 2019 and December 31, 2018, the Company’s common stock investment in Melinta had a readily determinable fair value of $2.4 million and $2.6 million, respectively. During the three months ended March 31, 2019 and 2018, the Company recognized losses of $0.3 million and $30.0 million, respectively, all of which was unrealized, in the accompanying condensed consolidated statements of operations, relating to the Company’s investment in Melinta.


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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



Restricted Cash

The Company had restricted cash of $6.7 million and $6.7 million at March 31, 2019 and December 31, 2018, respectively which included $6.3 million and $6.3 million, respectively, reserved for outstanding letters of credit associated with foreign taxes, and $0.4 million and $0.4 million, respectively, reserved for other U.S. operating expenses. These funds are invested in certificates of deposit.

7. Fair Value Measurements

The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1
Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of money market investments.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates and yield curves.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial assets and liabilities measured at fair value on a recurring basis

Financial assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Except for the Company’s Level 2 liabilities which are discussed in Note 9, “Convertible Senior Notes,” the following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018, by level, within the fair value hierarchy:

 
As of March 31, 2019
 
As of December 31, 2018
Assets and Liabilities
Quoted Prices In
Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
 (Level 2)
 
Significant
Unobservable
Inputs
 (Level 3)
 
Balance as of March 31, 2019
 
Quoted Prices In
Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
 (Level 2)
 
Significant
Unobservable
Inputs
 (Level 3)
 
Balance as of December 31, 2018
 
(in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
$
12,366

 
$

 
$

 
$
12,366

 
$
12,298

 
$

 
$

 
$
12,298

Short-term investment
2,353

 

 

 
2,353

 
2,627

 

 

 
2,627

Total assets at fair value
$
14,719

 
$

 
$

 
$
14,719

 
$
14,925

 
$

 
$

 
$
14,925





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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


8. Inventory

The major classes of inventory were as follows:
 
 
March 31,
2019
 
December 31,
2018
 
 
(in thousands)
Raw materials
 
$

 
$
864

Work-in-progress
 
1,089

 

Finished goods
 
9

 

Total
 
$
1,098

 
$
864



The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate. If annual volume is less than expected, the Company may be required to make additional allowances for excess or obsolete inventory in the future.


9. Convertible Senior Notes

Convertible Senior Notes Due 2024

In December 2018 and January 2019, the Company issued, at par value, $172.5 million aggregate principal amount of 3.5% 2024 Notes. The 2024 Notes bear cash interest at a rate of 3.5% per year, payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2019. The 2024 Notes will mature on January 15, 2024. The net proceeds to the Company from the offering were $166.8 million after deducting commissions and the offering expenses payable by the Company.

The 2024 Notes are governed by an indenture (the 2024 Notes Indenture) with Wells Fargo Bank, National Association, a national banking association, as trustee (the 2024 Notes Trustee).

The 2024 Notes are senior unsecured obligations of the Company and will rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by the Company’s subsidiaries.

Holders may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2023 only under the following circumstances:

during any calendar quarter commencing on or after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the 2024 Notes Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or

upon the occurrence of specified corporate events.

On or after October 15, 2023, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s option, based upon a daily conversion value calculated on a proportionate basis for each trading day in a 40 trading day observation period (as more fully described in the 2024 Notes Indenture). The conversion rate for the 2024 Notes was initially, and remains, 39.692


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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


shares of the Company’s common stock per $1,000 principal amount of the 2024 Notes, which is equivalent to an initial conversion price of approximately $25.19 per share of the Company’s common stock.

If the Company undergoes a fundamental change (as defined in the 2024 Notes Indenture), subject to certain conditions, holders of the 2024 Notes may require the Company to repurchase for cash all or part of their 2024 Notes at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The 2024 Notes Indenture governing the 2024 Notes contains customary events of default with respect to the 2024 Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the 2024 Notes when due and payable) occurring and continuing, the 2024 Notes Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2024 Notes by notice to the Company and the 2024 Notes Trustee, may, and the 2024 Notes Trustee at the request of such holders (subject to the provisions of the 2024 Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2024 Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2024 Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.

In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2024 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the five-year term of the 2024 Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2024 Notes is $44.4 million and is recorded in additional paid-in capital on the accompanying consolidated balance sheet.

In accounting for the transaction costs related to the issuance of the 2024 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2024 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the five-year term of the 2024 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $12.5 million in connection with the 2024 Notes. As of March 31, 2019 the value of the convertible portion of the 2024 Notes exceeds the principal amount by $18.9 million. As of March 31, 2019 the 2024 Notes are not convertible.

The 2024 Notes consist of the following:
Liability component
 
March 31, 2019
 
December 31, 2018
 
 
(in thousands)
Principal
 
$
172,500

 
$
163,000

Less: Debt discount, net(1)
 
(47,816
)
 
(47,010
)
Net carrying amount
 
$
124,684

 
$
115,990

_______________________________________
(1) 
Included in the accompanying consolidated balance sheets within convertible senior notes (due 2024) and amortized to interest expense over the remaining life of the 2024 Notes using the effective interest rate method.

The fair value of the 2024 Notes was approximately $222.6 million as of March 31, 2019. The Company estimates the fair value of its 2024 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2024 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. As of March 31, 2019, the remaining contractual life of the 2024 Notes is approximately 4.8 years.



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THE MEDICINES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


The following table sets forth total interest expense recognized related to the 2024 Notes:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands)
Contractual interest expense
$
1,518

 
$

Amortization of debt discount
1,905

 

Total
$
3,423

 
$

Effective interest rate of the liability component
11.125
%
 
%


Convertible Senior Notes Due 2023

In June 2016, the Company issued, at par value, $402.5 million aggregate principal amount of 2.75% 2023 Notes. The 2023 Notes bear cash interest at a rate of 2.75% per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2017. The 2023 Notes will mature on July 15, 2023. The net proceeds to the Company from the offering were $390.8 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by the Company.

The 2023 Notes are governed by an indenture (the 2023 Notes Indenture) with Wells Fargo Bank, National Association, a national banking association, as trustee (the 2023 Notes Trustee).

The 2023 Notes are senior unsecured obligations of the Company and will rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2023 Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by the Company’s subsidiaries.

Holders may convert their 2023 Notes at their option at any time prior to the close of business on the business day immediately preceding April 15, 2023 only under the following circumstances:

during any calendar quarter commencing on or after September 30, 2016 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the 2023 Notes Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

during any period after the Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or

upon the occurrence of specified corporate events.

On or after April 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2023 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s option, based upon a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period (as more fully described in the 2023 Notes Indenture). The conversion rate for the 2023 Notes was initially, and remains, 20.4198 shares of the Company’s common stock per $1,000 principal amount of the 2023 Notes, which is equivalent to an initial conversion price of approximately $48.97 per share of the Company’s common stock.

The Company may not redeem the 2023 Notes prior to July 15, 2020. The Company may redeem for cash all or any portion of the 2023 Notes, at its option, on or after July 15, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which


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the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No redemption date may be designated that falls on or after the 52nd scheduled trading date prior to maturity. No sinking fund is provided for the 2023 Notes, which means that the Company is not required to redeem or retire the 2023 Notes periodically.

If the Company undergoes a fundamental change (as defined in the 2023 Notes Indenture), subject to certain conditions, holders of the 2023 Notes may require the Company to repurchase for cash all or part of their 2023 Notes at a repurchase price equal to 100% of the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The 2023 Notes Indenture governing the 2023 Notes contains customary events of default with respect to the 2023 Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the 2023 Notes when due and payable) occurring and continuing, the 2023 Notes Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2023 Notes by notice to the Company and the 2023 Notes Trustee, may, and the 2023 Notes Trustee at the request of such holders (subject to the provisions of the 2023 Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2023 Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2023 Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.

In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2023 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the seven-year term of the 2023 Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2023 Notes is $101.0 million and is recorded in additional paid-in capital on the accompanying condensed consolidated balance sheet.

In accounting for the transaction costs related to the issuance of the 2023 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2023 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2023 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $33.5 million in connection with the 2023 Notes.

The 2023 Notes consist of the following:
Liability component
 
March 31, 2019
 
December 31, 2018
 
 
(in thousands)
Principal
 
$
402,500

 
$
402,500

Less: Debt discount, net(1)
 
(73,329
)
 
(76,925
)
Net carrying amount
 
$
329,171

 
$
325,575

_______________________________________
(1) 
Included in the accompanying condensed consolidated balance sheets within convertible senior notes (due 2023) and amortized to interest expense over the remaining life of the 2023 Notes using the effective interest rate method.

The fair value of the 2023 Notes was approximately $336.6 million as of March 31, 2019. The Company estimates the fair value of its 2023 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2023 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. As of March 31, 2019, the remaining contractual life of the 2023 Notes is approximately 4.3 years.



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The following table sets forth total interest expense recognized related to the 2023 Notes:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands)
Contractual interest expense
$
2,767

 
$
2,767

Amortization of debt discount
3,597

 
3,331

Total
$
6,364

 
$
6,098

Effective interest rate of the liability component
7.5
%
 
7.5
%


Capped call transactions

In June 2016, the Company entered into capped call transactions with certain counterparties of the 2023 Notes or their respective affiliates or other financial institutions. The Company used approximately $33.9 million of the net proceeds from the offering to pay the cost of the capped call transactions, which is included as a net reduction to additional paid-in capital on the accompanying condensed consolidated balance sheet.

The capped call transactions are expected to reduce the potential dilution with respect to shares of the Company’s common stock upon any conversion of the 2023 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2023 Notes, as the case may be, if the market price of the Company’s common stock is then greater than the strike price of the capped call transactions. Such reduction of potential dilution or offset of cash payments is subject to a cap based on the cap price of the capped call transactions. The cap price of the capped calls is currently $64.68.

For any conversions of the 2023 Notes prior to the close of business on the 52nd scheduled trading day immediately preceding the stated maturity date of the 2023 Notes, including without limitation upon an acquisition of the Company or similar business combination, a corresponding portion of the capped calls will be terminated. Upon such termination, the portion of the capped calls being terminated will be settled at fair value (subject to certain limitations), as determined by the counterparties to the capped calls and no payments will be due from the Company to such counterparties. The capped calls expire on the earlier of (i) the last day on which any Convertible Securities remain outstanding and (ii) the second “Scheduled Trading Day” (as defined in the 2023 Notes Indenture) immediately preceding the “Maturity Date” (as defined in the 2023 Notes Indenture).

Convertible Senior Notes Due 2022

The 2022 Notes bear cash interest at a rate of 2.5% per year, payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2015. The 2022 Notes will mature on January 15, 2022. The net proceeds to the Company from the offering were $387.2 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by the Company.

The 2022 Notes are governed by an indenture (the 2022 Notes Indenture) with Wells Fargo Bank, National Association, a national banking association, as trustee (the 2022 Notes Trustee).

The 2022 Notes are senior unsecured obligations of the Company and will rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by the Company’s subsidiaries.

Holders may convert their 2022 Notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2021 only under the following circumstances:

during any calendar quarter commencing on or after March 31, 2015 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;



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during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the 2022 Notes Indenture) per $1,000 principal amount of 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

during any period after the Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or

upon the occurrence of specified corporate events.

On or after October 15, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2022 Notes at any time, regardless of the circumstances described above. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2022 Notes to be converted and deliver shares of its common stock in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of 2022 Notes being converted, subject to a daily share cap.

The conversion rate for the 2022 Notes was initially, and remains, 29.8806 shares of the Company’s common stock per $1,000 principal amount of the 2022 Notes, which is equivalent to an initial conversion price of approximately $33.47 per share of the Company’s common stock.

The Company may not redeem the 2022 Notes prior to January 15, 2019. The Company may redeem for cash all or any portion of the 2022 Notes, at its option, on or after January 15, 2019 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2022 Notes, which means that the Company is not required to redeem or retire the 2022 Notes periodically.

If the Company undergoes a “fundamental change” (as defined in the Indenture governing the 2022 Notes Indenture), subject to certain conditions, holders of the 2022 Notes may require the Company to repurchase for cash all or part of their 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The 2022 Notes Indenture contains customary events of default with respect to the 2022 Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the 2022 Notes when due and payable) occurring and continuing, the 2022 Notes Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2022 Notes by notice to the Company and the 2022 Notes Trustee, may, and the 2022 Notes Trustee at the request of such holders (subject to the provisions of the 2022 Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2022 Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2022 Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.

In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the seven-year term of the 2022 Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2022 Notes was $88.9 million and was recorded in additional paid-in capital on the accompanying condensed consolidated balance sheets.

In accounting for the transaction costs related to the issuance of the 2022 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2022 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $31.8 million in connection with the 2022 Notes.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)



The 2022 Notes consist of the following:
Liability component
 
March 31, 2019
 
December 31, 2018
 
 
(in thousands)
Principal
 
$
399,997

 
$
399,997

Less: Debt discount, net(1)
 
(45,151
)
 
(48,810
)
Net carrying amount
 
$
354,846

 
$
351,187

_______________________________________
(1) 
Included in the accompanying condensed consolidated balance sheets within convertible senior notes (due 2022) and amortized to interest expense over the remaining life of the 2022 Notes using the effective interest rate method.

The fair value of the 2022 Notes was approximately $393.6 million as of March 31, 2019. The Company estimates the fair value of its 2022 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2022 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. As of March 31, 2019, the remaining contractual life of the 2022 Notes is approximately 2.8 years.

The following table sets forth total interest expense recognized related to the 2022 Notes:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in thousands)
Contractual interest expense
$
2,500

 
$
2,500

Amortization of debt discount
3,659

 
3,414

Total
$
6,159

 
$
5,914

Effective interest rate of the liability component
6.5
%
 
6.5
%


10. Accumulated Other Comprehensive Loss

The following tables provide a reconciliation of the components of accumulated other comprehensive loss, net of tax, attributable to the Company for the three months ended March 31, 2019 and 2018:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
Foreign currency translation adjustment
 
Foreign currency translation adjustment
 
 
(in thousands)
Balance at beginning of period
 
$
(4,576
)
 
$
(5,183
)
Other comprehensive loss
 
(830
)
 
(471
)
Amounts reclassified from accumulated other comprehensive loss(1)
 

 
1,183

Total other comprehensive (loss) income
 
(830
)
 
712

Balance at end of period
 
$
(5,406
)
 
$
(4,471
)


(1) See Note 15, “Discontinued Operations,” for a discussion of this reclassification of foreign currency translation adjustment.

11. Segment and Geographic Information

The Company manages its business and operations as one segment and is focused on inclisiran as a transformative treatment for ASCVD. The Company allocates resources and assesses financial performance on a consolidated basis. In August 2018, the Company divested its rights to branded Angiomax in the United States to Sandoz, as a result, it no longer has any marketed products.


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The geographic segment information provided below is classified based on the major geographic regions in which the Company operates. Long-lived assets are comprised of the Company’s noncurrent assets.


 
March 31, 2019
 
December 31, 2018
 
($ in thousands)
Long-lived assets:
 
 
 
 
 
 
 
United States
$
572,158

 
99.0
%
 
$
541,268

 
99.0
%
Europe
5,596

 
1.0
%
 
5,615

 
1.0
%
Total long-lived assets
$
577,754

 
100.0
%
 
$
546,883

 
100.0
%


12. Contingencies

The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company accrues for loss contingencies when available information indicates that it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation, including an estimable range, if possible.

The Company is currently party to certain legal proceedings, which are principally contractual litigation matters related to license agreements and divestiture agreements. The Company has assessed such legal proceedings and recorded a loss contingency of $5.2 million during 2018 as a result of settlement of the litigation with Biogen Idec (Biogen) related to Angiomax under the Company’s license agreement with Biogen. For all other matters the Company does not believe that it is probable that a liability has been incurred or that the amount of any potential liability can be reasonably estimated. As a result, the Company did not record a loss contingency related to any of these matters. While it is not possible to determine the outcome of these matters, the Company believes that the resolution of all such matters will not have a material adverse effect on its financial position or liquidity, but could possibly be material to its results of operations in any one accounting period.

13. Restructuring

2018 Workforce Reduction

In October 2017, the Company announced its intention to commence a series of workforce reductions, independent of the divestiture of the Company’s infectious disease business (the Workforce Reductions), to improve efficiencies and better align its costs and structure. As a result of the Workforce Reductions and the infectious disease business divestiture, the Company reduced its personnel to less than 60 full time employees. Upon signing release agreements, affected employees received the Company’s severance package, including reduction payments and fully paid health care coverage and outplacement services for six months to a year. The impacted employees were eligible to receive severance payments in specified amounts, health benefits and outplacement services. For the three months ended March 31, 2019, there were no material restructuring charges. For the three months ended March 31, 2018, the Company recorded $0.5 million, $0.8 million, and $6 million in costs of revenue, research and development and selling, general and administrative expenses, respectively, in the accompanying condensed consolidated statement of operations based on responsibilities of the impacted employees.

The following table sets forth details regarding the activities described above during the three months ended March 31, 2019:
 
Balance as of January 1, 2019
 
Expenses,
Net
 
Cash
 
Noncash
 
Balance as of March 31, 2019
 
(in thousands)
 2018 Workforce reduction
$
2,334

 
$

 
$
(1,517
)
 
$

 
$
817




14. Related Party Transactions

Arrangements Involving the Company’s Executive Officers



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In January 2018, Christopher Cox, the Company’s former executive vice president and chief corporate development officer, rejoined the law firm Cadwalader, Wickersham & Taft, LLP (Cadwalader) as a partner. During 2018, Mr. Cox remained employed with the Company and continued to lead certain company functions and initiatives, including corporate strategy, business development and investor relations. In March 2019, Mr. Cox separated from the Company and rejoined Cadwalader on a full-time basis. Stephen Rodin, the Company’s executive vice president, general counsel and secretary, has been, and will continue to be, responsible for the retention and management of outside counsel. Since 2015, the Company has retained Cadwalader as corporate and transactional legal counsel. The Company and Cadwalader had agreed on certain procedures to address potential conflicts that could have arisen out of Mr. Cox’s dual roles from January 2018 to March 2019.

15. Discontinued Operations

Sale of Infectious Disease Business
 
On January 5, 2018, the Company completed the sale of its infectious disease business, consisting of the products Vabomere, Orbactiv and Minocin IV and line extensions thereof, and substantially all of the assets related thereto, other than certain pre-clinical assets, to Melinta. At the completion of the sale, the Company received approximately $166.4 million and 3,313,702 shares of Melinta common stock having a market value, based on Melinta's closing share price on January 5, 2018, of approximately $54.5 million. The Company’s common stock investment in Melinta was recorded as a short-term investment with a readily determinable fair value at March 31, 2019 of $2.4 million on the accompanying condensed consolidated balance sheet. See Note 6 “Cash, Cash Equivalents and Investments” for further details.

In addition, the Company is entitled to receive a cash payment payable 12 months following the closing of the transaction equal to $25.0 million and a cash payment payable 18 months following the closing of the transaction equal to $25.0 million. On January 5, 2018 the fair value of such payments was approximately $45.9 million, of which $23.3 million was originally recorded in prepaid expenses and other current assets and $22.6 million was originally recorded in other assets on the condensed consolidated balance sheet. Such fair value was estimated using a discounted cash flow model and was classified as a Level 3 fair value measurement due to the use of significant unobservable inputs. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. The excess of the cash payments payable to the Company over the initial fair value is amortized to interest income over the 12 and 18 month periods using the effective interest rate method. As of March 31, 2019, the carrying amounts of these assets of $49.6 million approximate their fair value due to the short term nature of the payments.

The Company is also entitled to tiered royalty payments of 5% to 25% on worldwide net sales of (a) Vabomere and (b) Orbactiv and Minocin IV, collectively. On January 5, 2018, the fair value of these contingent payments to be received from Melinta was $246.2 million and was recorded as contingent purchase price from sale of businesses in the accompanying condensed consolidated balance sheet. Substantially all of the fair value was estimated using Monte Carlo simulation models to compute contractual payments which were present valued using a risk-adjusted discount rate. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels.

In addition, Melinta assumed the Company’s obligation to make potential milestone payments due under the Company’s acquisition agreement with Rempex Pharmaceuticals, Inc. (Rempex) related to regulatory and sales based milestones of up to $35 million and $120 million, respectively. This is inclusive of a $30 million milestone payment to the former owners of the infectious disease business (Vabomere Milestone Payment), achieved upon receipt of regulatory approval of Vabomere by the European Medicines Agency. As regulatory approval was received by Melinta in November 2018, the Vabomere Milestone Payment is due. The Company remains ultimately responsible to pay the Vabomere Milestone Payment under its agreement with the former owners of the infectious disease business; however the Company believes that it is responsible for such payment only if the former owners of the infectious disease business are unable to collect from Melinta after exercising due diligence in attempting to collect from Melinta before seeking to collect from the Company. In December 2018, Melinta filed a complaint in the Court of Chancery of the State of Delaware alleging that the Company breached certain representations and warranties in the purchase and sale agreement pursuant to which Melinta acquired the Company’s infectious disease business. In connection with the lawsuit, Melinta is seeking indemnification under the purchase and sale agreement and notified the Company that it would not be paying the Vabomere Milestone Payment or the first of two $25 million deferred payments due to the Company under the purchase and sale agreement because Melinta believes it has the right to set-off such payments against its claimed damages in its lawsuit. On December 28, 2018, the Company sent a demand letter to Melinta regarding its failure to pay the Vabomere Milestone Payment. On January 7, 2019, the Company received a letter on behalf of Fortis Advisors LLC, (Fortis), in its capacity as the representative for the interests of former equity holders of Rempex, demanding that the Company pay the Vabomere Milestone Payment. On January 28, 2019, the Company notified Fortis that, while the Company agrees it is ultimately responsible for the Vabomere Milestone Payment even


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though the payment was assumed by Melinta, the Company believes it is responsible for such payment only if Fortis is unable to collect from Melinta after exercising due diligence in attempting to collect from Melinta before seeking to collect from the Company. On March 28, 2019, Fortis filed a complaint in the Court of Chancery of the State of Delaware against Melinta and the Company regarding the non-payment of the Vabomere Milestone Payment. On April 18, 2019, the Company filed an answer to Fortis’s complaint and a crossclaim against Melinta, alleging breach of contract and requesting that the Court order Melinta to fulfill its obligations under the purchase and sale agreement, including complying with payment obligations in connection with the Vabomere Milestone Payment, among other relief. Although the Company will vigorously contest Fortis’s claims on the basis they must first exercise due diligence in attempting to collect the Vabomere Milestone Payment from Melinta before they seek to collect from the Company, litigation is subject to inherent uncertainty. The Company believes Melinta’s claims are meritless and it will vigorously defend any and all claims brought against itself by Melinta and seek full payment by Melinta of its obligations under the purchase and sale agreement.

Financial results of the infectious disease business are presented as “Income (loss) from discontinued operations, net of tax” on the accompanying condensed consolidated statements of operations for the three months ended March 31, 2018.

The following table presents key financial results of the infectious disease business included in “Income (loss) from discontinued operations, net of tax” for the three months ended March 31, 2018.
 
Three Months Ended March 31, 2018
 
(In thousands)
Net product revenues
$
(26
)
Operating expenses:
 
Cost of revenue
214

Research and development
412

Selling, general and administrative
3,096

Total operating expenses
3,722

Loss from operations
(3,748
)
Gain from sale of business
168,955

Other income (expense), net
(74
)
Income (loss) from discontinued operations before income taxes
165,133

Provision for (benefit from) income taxes
51,148

Income (loss) from discontinued operations, net of tax
$
113,985


Cumulative translation adjustment (CTA) gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. At the completion of the sale of the infectious disease business, the Company reclassified $1.2 million of CTA gains from accumulated comprehensive loss to the Company’s results of discontinued operations. This amount was included in gain from sale of business for the three months ended March 31, 2018.
Disposition related costs during the three months ended March 31, 2018 of approximately $11.9 million for advisory, legal and regulatory fees incurred in connection with the sale of the infectious disease business were recorded in the gain from the sale of the business.
The significant cash flow items from discontinued operations for the three months ended March 31, 2018 were as follows:
 
Three months ended March 31, 2018
 
(In thousands)
Gain on sale of business
$
(168,955
)
Proceeds from sale of business
166,383




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16. Leases

The Company leases its principal office in Parsippany, New Jersey, U.S. The lease for the Parsippany office covers 173,146 square feet and expires January 2024. The Company also leases 63,000 square feet of office and laboratory space in San Diego, California. This lease expires in September 2028. On January 11, 2018, the Company entered into an agreement to sublease 32,039 square feet of the office and laboratory space in San Diego. On August 24, 2018, the Company entered into an agreement to sublease the remaining office and laboratory space in San Diego. The sublease agreements have initial terms of 84 months and 48 months, respectively.

The Company recognizes lease expense on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company elected to account for non-lease components associated with its leases and lease components as a single lease component.

The Company’s lease and sublease portfolio consists of operating leases and are included on the accompanying condensed consolidated balance sheet as follows:

 
 
March 31,
2019
 
 
(in thousands)
Other assets
 
$
33,819

 
 
 
Liabilities
 
 
Other current liabilities
 
$
7,546

Other liabilities
 
32,513

Total Lease Liabilities
 
$
40,059



Equipment leases with an initial term of 12 months or less and are not recorded on the accompanying condensed consolidated balance sheet. The Company recognizes rent expense for these leases on a straight-line basis over the lease term and is not material.

The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments are calculated using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s weighted average discount rate and lease terms for its operating leases as of March 31, 2019 was 8.61% and 7.6 years, respectively.

For the three months ended March 31, 2019 the Company recorded operating lease costs and sublease income of $2.0 million and $0.8 million, respectively, in selling, general and administrative expenses, in the accompanying condensed consolidated statement of operations.

The accompanying statement of cash flows includes $1.2 million in net cashed used in operating activities, related to net cash payments for operating leases.

The Company’s operating lease payments for the remainder of 2019 is expected to be $5.9 million, and for the years ended December 31, 2020, 2021, 2022, 2023 and thereafter are expected to be $8.6 million, $8.7 million, $8.8 million, $6.6 million and $15.4 million, respectively, inclusive of interest of approximately $13.8 million.




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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to the historical information, the discussion in this Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to our critical accounting estimates discussed below and important factors set forth in this Quarterly Report on Form 10-Q, including under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Overview
Our Business

We are a biopharmaceutical company driven by our purpose solve major medical, societal and economic challenges in healthcare. We have a singular focus on one of the greatest global healthcare challenges and burdens - that presented by atherosclerotic cardiovascular disease, or ASCVD, which remains the number one cause of death in the United States and worldwide. We take on that challenge by developing inclisiran, the investigational RNA interference, or RNAi, therapeutic, that specifically inhibits production of proprotein convertase subtilisin/kexin type 9, or PCSK9, a key protein that controls LDL-cholesterol, or LDL-C, levels. We believe inclisiran is uniquely suited to make a significant difference reducing risk in ASCVD. We have the right to develop, manufacture and commercialize inclisiran under our collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam.
 
On August 22, 2018, we completed the sale of our rights to branded Angiomax in the United States to Sandoz Inc., or Sandoz, for $9.9 million. Following such divestiture, we no longer market any products. Historically, our revenues have been generated primarily from sales of Angiomax in the United States, but competition from generic versions of Angiomax following the loss of market exclusivity in the United States in July 2015 and in Europe in August 2015 resulted in a significant decline in revenue from Angiomax prior to our divestiture of the product. Based on our current business, we expect to incur net losses for the foreseeable future.

Business Development Activity

Sale of Angiomax. On August 22, 2018, we completed the sale of our rights to branded Angiomax in the United States to Sandoz for $9.9 million. Prior to the divestiture, Sandoz had been selling an authorized generic of Angiomax (bivalirudin) as of July 2, 2015 pursuant to a supply and distribution agreement with us. As a result of the divestiture, Sandoz is the holder of the new drug application, or NDA, for Angiomax in the United States and will be responsible for manufacturing and supply of Angiomax in the second quarter of 2019. In February 2019, we sold our rights to branded Angiomax in Canada to Sandoz AG for $500,000 and, as a result of the transaction, Sandoz AG is the holder of the marketing authorization for Angiomax in Canada and is responsible for manufacturing and supply of Angiomax.

Sale of Infectious Disease Products. On January 5, 2018, we completed the sale of our infectious disease portfolio, consisting of the products Vabomere, Orbactiv and Minocin IV and line extensions thereof, and substantially all of the assets related thereto, other than certain pre-clinical assets, to Melinta Therapeutics, Inc., or Melinta. At the completion of the sale, we received approximately $166.4 million and 3,313,702 shares of Melinta common stock having a market value, based on Melinta's closing share price on March 31, 2019, of approximately $2.4 million. In addition, we are entitled to receive (i) a cash payment that was due 12 months following the closing of the transaction equal to $25 million; (ii) a cash payment payable 18 months following the closing of the transaction equal to $25 million; and (iii) tiered royalty payments of 5% to 25% on worldwide net sales of (a) Vabomere and (b) Orbactiv and Minocin IV, collectively, and Melinta assumed potential milestone payments due under our agreement with Rempex Pharmaceuticals, Inc., or Rempex. None of the future payments due from Melinta are secured by collateral and we are currently in litigation with Melinta with respect to its obligations to us. See Part II, Item 1 Legal Proceedings of this Quarterly Report on Form 10-Q for a description of our litigation related to Melinta.

In October 2018, we divested certain pre-clinical infectious disease assets not acquired by Melinta, which included the funding agreement with the Biomedical Advanced Research and Development Authority, or BARDA, of the U.S. Department of Health and Human Services, or HHS. The assets were purchased by Qpex Biopharma, Inc., or Qpex, a new company formed by a syndicate of venture firms led by New Enterprise Associates and accompanied by Adams Street Partners, LYZZ Capital, Hatteras Venture Partners and Stanford University Draper Fund. At the completion of the sale, we received approximately $2.8 million and are entitled to receive up to $29 million upon the achievement of certain milestones related to the pre-clinical assets. In addition,


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Qpex assumed potential milestone payments due under our agreement with Rempex related to the development of the pre-clinical assets.

Sale of Non-Core Cardiovascular Products. On June 21, 2016, we completed the sale of Cleviprex, Kengreal and rights to Argatroban for Injection, which we refer to collectively as Non-Core ACC Assets, to Chiesi USA, Inc., or Chiesi USA, and its parent company Chiesi Farmaceutici S.p.A., or Chiesi. Under the terms of the purchase and sale agreement, Chiesi and Chiesi USA acquired our Non-Core ACC Assets and related assets, and assumed substantially all of the liabilities arising out of the operation of the businesses and the acquired assets after closing, including any obligations with respect to future milestones relating to each of the products.  At the completion of the sale, we received approximately $263.8 million in cash, which included the value of product inventory, and may receive up to an additional $480.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of each of Cleviprex and Kengreal. As part of the transaction to sell Non-Core ACC Assets, we sublicensed to Chiesi all of our rights to Cleviprex and Kengreal under our license from AstraZeneca AB, or AstraZeneca. Subsequent to the completion of the sale, these sublicenses from us to Chiesi were terminated, Chiesi purchased from AstraZeneca all or substantially all of AstraZeneca’s assets relating to Cleviprex and Kengreal, the parties released certain claims against one another, and we paid Chiesi $7.5 million.

Sale of Hemostasis Business. On February 1, 2016, we completed the sale of our hemostasis business, consisting of PreveLeak, Raplixa and Recothrom products to wholly-owned subsidiaries of Mallinckrodt plc, or Mallinckrodt. Under the terms of the purchase and sale agreement, Mallinckrodt acquired all of the outstanding equity of Tenaxis Medical, Inc. and ProFibrix B.V. and assets exclusively related to the Recothrom product. Mallinckrodt assumed all liabilities arising out of Mallinckrodt's operation of the businesses and the acquired assets after closing, including all obligations with respect to milestones relating to the PreveLeak and Raplixa products. At the completion of the sale, we received approximately $174.1 million in cash from Mallinckrodt, and may receive up to an additional $235.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of PreveLeak and Raplixa. The amount paid at closing was subject to a post-closing purchase price adjustment process with respect to the Recothrom inventory and the net working capital of the hemostasis business as of the date of the closing. In the first quarter of 2018, Mallinckrodt announced it would no longer commercialize Raplixa and sold Recothrom and PreveLeak to Baxter International Inc., or Baxter, with Baxter assuming the sales milestones associated with PreveLeak.

Alnylam License Agreement. In February 2013, we entered into a license and collaboration agreement with Alnylam to develop, manufacture and commercialize therapeutic products targeting the PCSK9 gene based on certain of Alnylam’s RNA interference technology. Under the terms of the agreement, we obtained the exclusive, worldwide right under Alnylam’s technology to develop, manufacture and commercialize PCSK9 products for the treatment, palliation and/or prevention of all human diseases. We paid Alnylam $25.0 million in an initial license payment and agreed to pay up to $180.0 million in success-based development, regulatory and commercialization milestones. In December 2014, we paid a development milestone payment of $10.0 million based upon the initiation of a Phase 1 clinical trial for inclisiran and in January 2018 we paid a development milestone payment of $20.0 million based upon the initiation of our phase 3 study for inclisiran. In addition, Alnylam will be eligible to receive scaled double-digit royalties based on annual worldwide net sales of PCSK9 products by us or our affiliates and sublicensees. Royalties to Alnylam are payable on a product-by-product and country-by-country basis until the last to occur of the expiration of patent rights in the applicable country that cover the applicable product, the expiration of non-patent regulatory exclusivities for such product in such country, and the twelfth anniversary of the first commercial sale of the product in such country. The royalties are subject to reduction in specified circumstances. We are also responsible for paying royalties, and in some cases milestone payments, owed by Alnylam to its licensors with respect to intellectual property covering these products. Alnylam was responsible for developing the lead product through the end of the first Phase 1 clinical trial and to supply the lead product for the first Phase 1 clinical trial and the first phase 2 clinical trial. Alnylam bore the costs for these activities. We are responsible for all other development, manufacturing and commercialization activities under the agreement.

Workforce Restructuring

In 2017 and 2018, we conducted a series of workforce reductions, as described below and reduced our personnel to less than 60 full time employees. Upon signing release agreements, affected employees have received a severance package, including reduction payments and fully paid health care coverage and outplacement services for six months to a year.

In June 2017, in connection with our voluntary discontinuation and withdrawal of Ionsys from the market in the United States, we commenced a workforce reduction, which resulted in the reduction of 57 employees, which represented approximately 15% of our workforce.

Commencing in December 2017 and continuing through 2018, we implemented a series of workforce reductions to focus on inclisiran, improve efficiencies and better align costs and structure. Through December 31, 2018, 136 employees have been


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terminated and 136 employees were transferred as part of the sale of the infectious disease business unit to Melinta. These workforce reductions are expected to reduce headcount costs included in operating expenses by approximately $74.0 million on an annualized basis.

Convertible Senior Note Offerings

2024 Notes
On December 18, 2018, we completed our private offering of $150.0 million aggregate principal amount of our 3.50% convertible senior notes due 2024, or the 2024 notes, and entered into an indenture with Wells Fargo Bank, National Association, a national banking association, as trustee, governing the 2024 notes. On December 28, 2018 and January 11, 2019, we completed the sale of an additional $13.0 million and $9.5 million, respectively, in aggregate principal amount of the 2024 notes pursuant to exercises of the initial purchaser’s option to purchase additional notes to cover over-allotments. The additional notes have the same terms in all respects as the 2024 notes. The net proceeds from the offering (inclusive of the full exercise of the over-allotment option) were $166.8 million, after deducting the commissions and our offering expenses.
The 2024 notes bear cash interest at a rate of 3.50% per year, payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2019. The 2024 notes will mature on January 15, 2024. The 2024 notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, incurrence of other indebtedness, or issuance or repurchase of securities by us.
Holders may convert their 2024 notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2023 only under the following circumstances: (1) during any calendar quarter commencing on or after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or measurement period, in which the trading price, as defined in the indenture governing the 2024 notes, per $1,000 principal amount of 2024 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after October 15, 2023, until the close of business on business day immediately preceding the maturity date, holders may convert their 2024 notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election based upon a daily conversion value calculated on a proportionate basis for each trading day in a 40 trading day observation period (as more fully described in the 2024 notes indenture).
The conversion rate for the 2024 notes was initially, and remains, 39.692 shares of our common stock per $1,000 principal amount of the 2024 notes, which is equivalent to an initial conversion price of approximately $25.19 per share of our common stock. The conversion rate and the conversion price are subject to customary adjustments for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers, as described in the indenture governing the 2024 notes.
If we undergo a fundamental change, as defined in the indenture governing the 2024 notes, subject to certain conditions, holders of the 2024 notes may require us to repurchase for cash all or part of their 2024 notes at a repurchase price equal to 100% of the principal amount of the 2024 notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Following certain corporate transactions that constitute a change of control, we would increase the conversion rate for a holder who elects to convert the 2024 notes in connection with such change of control in certain circumstances.
The 2024 notes are our senior unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2024 notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated (including the 2022 notes and 2023 notes); effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by our subsidiaries.
The indenture governing the 2024 notes contains customary events of default with respect to the 2024 notes, including that upon certain events of default (including our failure to make any payment of principal on the 2024 notes when due and payable or our failure to make any interest payment on the 2024 notes when due and payable and such failure continues for a period of thirty days) occurring and continuing, the trustee for the 2024 notes by notice to us, or the holders of at least 25% in principal amount of the outstanding 2024 notes by notice to us and the trustee for the 2024 notes, may, and the trustee at the request of such holders (subject to the provisions of the indenture governing the 2023 notes) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2024 notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2024 notes


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will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.

2023 Notes
On June 10, 2016, we completed our private offering of $402.5 million aggregate principal amount of our 2.75% convertible senior notes due 2023, or the 2023 notes, and entered into an indenture with Wells Fargo Bank, National Association, a national banking association, as trustee, governing the 2023 notes. The net proceeds from the offering were $390.8 million, after deducting the initial purchasers’ discounts and commissions and our offering expenses.
The 2023 notes bear cash interest at a rate of 2.75% per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2017. The 2023 notes will mature on July 15, 2023. The 2023 notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, incurrence of other indebtedness, or issuance or repurchase of securities by us.
Holders may convert their 2023 notes at their option at any time prior to the close of business on the business day immediately preceding April 15, 2023 only under the following circumstances: (1) during any calendar quarter commencing on or after September 30, 2016 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or measurement period, in which the trading price, as defined in the indenture governing the 2023 notes, per $1,000 principal amount of 2023 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) during any period after we have issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate events. On or after April 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2023 notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election based upon a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period (as more fully described in the 2023 notes indenture).
The conversion rate for the 2023 notes was initially, and remains, 20.4198 shares of our common stock per $1,000 principal amount of the 2023 notes, which is equivalent to an initial conversion price of approximately $48.97 per share of our common stock. The conversion rate and the conversion price are subject to customary adjustments for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers, as described in the indenture governing the 2023 notes.
We may not redeem the 2023 notes prior to July 15, 2020. We may redeem for cash all or any portion of the 2023 notes, at our option, on or after July 15, 2020 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2023 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. However, no redemption date may be designated that falls on or after the 52nd scheduled trading date prior to maturity. No sinking fund is provided for the 2023 notes, which means that we are not required to redeem or retire the 2023 notes periodically.
If we undergo a fundamental change, as defined in the indenture governing the 2023 notes, subject to certain conditions, holders of the 2023 notes may require us to repurchase for cash all or part of their 2023 notes at a repurchase price equal to 100% of the principal amount of the 2023 notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Following certain corporate transactions that constitute a change of control, we would increase the conversion rate for a holder who elects to convert the 2023 notes in connection with such change of control in certain circumstances.
The 2023 notes are our senior unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2023 notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated (including the 2022 notes); effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by our subsidiaries.
The indenture governing the 2023 notes contains customary events of default with respect to the 2023 notes, including that upon certain events of default (including our failure to make any payment of principal on the 2023 notes when due and payable or our failure to make any interest payment on the 2023 notes when due and payable and such failure continues for a period of


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thirty days) occurring and continuing, the trustee for the 2023 notes by notice to us, or the holders of at least 25% in principal amount of the outstanding 2023 notes by notice to us and the trustee for the 2023 notes, may, and the trustee at the request of such holders (subject to the provisions of the indenture governing the 2023 notes) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2023 notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2023 notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
Capped Call Transactions
To minimize the impact of potential dilution upon conversion of the 2023 notes, we entered into capped call transactions separate from the issuance of the 2023 notes with certain counterparties. The capped calls have a strike price of $48.97 per share and a cap price of $64.68 per share and are exercisable when and if the 2023 notes are converted. If upon conversion of the 2023 notes, the price of our common stock is above the strike price of the capped calls, the counterparties will deliver shares of our common stock and/or cash with an aggregate value equal to the difference between the price of our common stock at the conversion date and the strike price, multiplied by the number of shares of our common stock related to the capped calls being exercised. We paid $33.9 million for these capped call transactions.
For any conversions of the 2023 notes prior to the close of business on the 52nd scheduled trading day immediately preceding the stated maturity date of the 2023 notes, including without limitation upon an acquisition of us or similar business combination, a corresponding portion of the capped calls will be terminated. Upon such termination, the portion of the capped calls being terminated will be settled at fair value (subject to certain limitations), as determined by the counterparties to the capped calls and no payments will be due from us to such counterparties. The capped calls expire on the earlier of (i) the last day on which any Convertible Securities remain outstanding and (ii) the second “Scheduled Trading Day” (as defined in the indenture) immediately preceding the “Maturity Date” (as defined in the indenture).
2022 Notes
On January 13, 2015, we completed our private offering of $400.0 million aggregate principal amount of our 2.50% convertible senior notes due 2022, or the 2022 notes, and entered into an indenture with Wells Fargo Bank, National Association, a national banking association, as trustee, governing the 2022 notes. The aggregate principal amount of 2022 notes sold reflects the exercise in full by the initial purchasers of the 2022 notes of their option to purchase up to an additional $50.0 million in aggregate principal amount of the 2022 notes. The net proceeds from the offering were $387.2 million, after deducting the initial purchasers’ discounts and commissions and our offering expenses.
The 2022 notes bear cash interest at a rate of 2.50% per year, payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2015. The 2022 notes will mature on January 15, 2022. The 2022 notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, incurrence of other indebtedness, or issuance or repurchase of securities by us.
Holders may convert their 2022 notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2021 only under the following circumstances: (1) during any calendar quarter commencing on or after March 31, 2015 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or measurement period, in which the trading price, as defined in the indenture governing the 2022 notes, per $1,000 principal amount of 2022 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) during any period after we have issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate events.
On or after October 15, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2022 notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay cash up to the aggregate principal amount of the 2022 notes to be converted and deliver shares of our common stock in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of 2022 notes being converted, subject to a daily share cap, as described in the indenture governing the 2022 notes. Holders of 2022 notes will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, accrued but unpaid interest will be deemed to be paid by the cash and shares, if any, of our common stock, together with any cash payment for any fractional share, paid or delivered, as the case may be, upon conversion of a 2022 note.


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The conversion rate for the 2022 notes was initially, and remains, 29.8806 shares of our common stock per $1,000 principal amount of the 2022 notes, which is equivalent to an initial conversion price of approximately $33.47 per share of our common stock. The conversion rate and the conversion price are subject to customary adjustments for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers, as described in the indenture governing the 2022 notes.
We may not redeem the 2022 notes prior to January 15, 2019. We may redeem for cash all or any portion of the 2022 notes, at our option, on or after January 15, 2019 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2022 notes, which means that we are not required to redeem or retire the 2022 notes periodically.
If we undergo a fundamental change, as defined in the indenture governing the 2022 notes, subject to certain conditions, holders of the 2022 notes may require us to repurchase for cash all or part of their 2022 notes at a repurchase price equal to 100% of the principal amount of the 2022 notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Following certain corporate transactions that constitute a change of control, we would increase the conversion rate for a holder who elects to convert the 2022 notes in connection with such change of control in certain circumstances.
The 2022 notes are our senior unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2022 notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated (including the 2023 notes); effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by our subsidiaries.
The indenture governing the 2022 notes contains customary events of default with respect to the 2022 notes, including that upon certain events of default (including our failure to make any payment of principal or interest on the 2022 notes when due and payable) occurring and continuing, the trustee for the 2022 notes by notice to us, or the holders of at least 25% in principal amount of the outstanding 2022 notes by notice to us and the trustee for the 2022 notes, may, and the trustee at the request of such holders (subject to the provisions of the indenture governing the 2022 notes) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2022 notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2022 notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.

U.S. Healthcare Reform

We are continually evaluating the impact of healthcare reform-related programs and regulations on our business. As of the date of this Quarterly Report on Form 10-Q, we have not identified any provisions that currently materially impact our business and results of operations. However, the potential impact of healthcare reform measures on our business and results of operations is inherently difficult to predict because many of the details regarding the implementation of this legislation have not been determined. In addition, the impact on our business and results of operations may change as and if our business evolves. President Trump and HHS Secretary Azar have announced support for regulatory provisions that would limit a number of healthcare reform programs initiated under the Obama administration, and have proposed or are considering additional reforms. It remains unclear whether these reforms will include similar limitations affecting reimbursement, although scrutiny over drug pricing and government costs is expected to continue. Similarly, efforts in Congress to reform Medicare and Medicaid may impact the pharmaceutical and healthcare industries.




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Results of Operations

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Net Revenues:

Net revenues decreased for the three months ended March 31, 2019 as a result of the divesture of our rights to branded Angiomax in the United States to Sandoz, which had been selling an authorized generic of Angiomax (bivalirudin) as of July 2, 2015 pursuant to a supply and distribution agreement with us. As a result, we no longer have any marketed products.
 
Three Months Ended March 31,
 
2019
 
2018
 
Change $
 
Change %
 
(in thousands)
 
 
Net revenues
$

 
$
7,771

 
$
(7,771
)
 
(100.0
)%

Cost of Revenues:

As described above, in August 2018, we divested our rights to branded Angiomax in the United States to Sandoz, which had been selling an authorized generic of Angiomax (bivalirudin) as of July 2, 2015 pursuant to a supply and distribution agreement with us. As a result, we no longer have any marketed products, and have not incurred any cost of revenues for the three months ended March 31, 2019, compared to $2.7 million, or 35.2% of net revenues, in the three months ended March 31, 2018.

Cost of revenues during the three months ended March 31, 2018 consisted of:

expenses in connection with the manufacture of our products sold, including expenses related to excess inventory offset by the positive impact of sales of previously reserved units;

logistics costs related to Angiomax and Ionsys, including distribution, storage, and handling costs;

royalty expenses under our agreement with Biogen Idec, or Biogen, and Health Research Inc. related to Angiomax; and

expenses associated with severance and other exit costs

 
Three Months Ended March 31,
 
 
2018
 
% of Total
 
 
(in thousands)
 
 
Manufacturing/Logistics
 
$
2,606

 
95.2
%
Royalties
 
131

 
4.8
%
Total cost of revenues
 
$
2,737

 
100.0
%



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Research and Development Expenses:
 
Three Months Ended March 31,
 
2019
 
% of Total
 
2018
 
% of Total
 
(in thousands)
 
 
 
(in thousands)
 
 
Marketed products
 
 
 
 
 
 

Total marketed products
$
2

 
%
 
$
148

 
0.4
%
Research and development product candidates
 
 
 
 
 
 
 
Inclisiran
26,344

 
97.5
%
 
36,622

 
90.7
%
Other
665

 
2.5
%
 
3,596

 
8.9
%