UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20162017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to _________________
Commission file number: 001-35902
Insys Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware | ||
51-0327886 | ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
1333 S. Spectrum Blvd, Suite 100, Chandler, Arizona | 85286 | |
(Address of principal executive offices) | (Zip Code) |
(480) 500-3127
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: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 ☒☑ No ☐
Indicate by a checkmarkcheck mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted 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 and post such files). Yes ☒☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ |
| Accelerated filer |
| ||
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ | ||
Emerging growth company | ☐ |
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 revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒☑
As of May 1, 2016,2, 2017, the registrant had 71,546,49172,125,321 shares of Common Stock ($0.01 par value) outstanding.
Explanatory Note
Overview
Insys Therapeutics, Inc. (“we,” “us,” and “our”) is filing this Amendment No. 1 to its Quarterly Report onForm 10-Q (the “AmendedForm 10-Q”) to restate and amend our previously issued, unaudited condensed consolidated financial statements and related financial information as of March 31, 2016 and 2015 and for the three month periods ended March 31, 2016 and 2015, which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2016 (the “Original Form 10-Q”).
As discussed in further detail below and in Note 1 to the accompanying unaudited condensed consolidated financial statements, the restatement is the result of our misapplication of the guidance on accounting for revenue recognition related to accounting for rebate obligations on government payer and managed care contracts. In addition, we had previously recorded an out-of-period adjustment during the three months ended March 31, 2016. We assessed the impact of these errors on our prior period unaudited condensed consolidated financial statements and concluded that the impact was material to these unaudited condensed consolidated financial statements. Consequently, we have restated the prior period unaudited condensed consolidated financial statements identified above.
Background
On March 15, 2017, we issued a press release announcing that the Audit Committee of our Board of Directors was conducting an independent review of our processes related to estimation of, and increases to, certain sales allowances recorded during 2016. The Audit Committee determined, upon the recommendation of our management, that we had miscalculated our rebate obligation on government payer and managed care contracts. We also reversed an out-of-period adjustment related to a stock option modification previously recorded during the three months ended March 31, 2016 that related to the fourth quarter of 2015. This resulted in a decrease in operating expenses of $1,500,000 for the three months ended March 31, 2016 and a corresponding increase in operating expenses during the three months ended December 31, 2015.
The errors were not material to our consolidated financial statements for the year ended December 31, 2015. However, the impact of these errors was material to these unaudited condensed consolidated financial statements. To correctly present net revenue and operating expenses in the appropriate periods during 2016 and 2015, our unaudited condensed consolidated financial statements as of and for the quarters ended September 30, June 30, and March 31, 2016 and 2015 will be restated to make the necessary accounting adjustments.
Items Amended in this Amended Form 10-Q
For reasons discussed above, we are filing this Amended Form 10-Q in order to amend the following items in our Original Form 10-Q to the extent necessary to reflect the adjustments discussed above and restate corresponding financial data cited elsewhere in this Amended Form 10-Q:
Part I, Item 1. Unaudited Financial Statements
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Part I, Item 4. Controls and Procedures
In accordance with applicable SEC rules, this Amended Form 10-Q includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Subsequent to filing of the OriginalForm 10-Q, our former Chief Executive Officer resigned. Accordingly, these certifications are signed by our Interim Chief Executive Officer and our Chief Financial Officer dated as of the date of filing this AmendedForm 10-Q.
This Amended Form 10-Q amends and restates in its entirety each section of the Original Form 10-Q impacted as a result of the restatement and includes certain restated information for the three month periods ended March 31, 2016 and 2015. Each section that has been restated is noted in Note 1 to the financial statements. This Amended Form 10-Q has not been updated to reflect events occurring after May 5, 2016, the date of the filing of the Original Form 10-Q. Therefore, this Amended Form 10-Q should be read in conjunction with filings we have made with the SEC subsequent to May 5, 2016.
Restatement of Other Financial Statements
In addition to the restated financial information for the three month periods ended March 31, 2016 and 2015, included in this Amended Form 10-Q, we are restating our unaudited condensed consolidated financial statements and related disclosures for the periods ended June 30, 2016 and 2015, and September 30, 2016 and 2015. Concurrently with this filing, we are filing the following amended Quarterly Reports on Form 10-Q/A with respect to these periods to address the corrections:
Form 10-Q/A for the quarter ended June 30, 2016, which contains restated unaudited condensed consolidated financial statements and related disclosures for the three and six month periods ended June 30, 2016 and 2015.
Form 10-Q/A for the quarter ended September 30, 2016, which contains restated unaudited condensed consolidated financial statements and related disclosures for the three and nine month periods ended September 30, 2016 and 2015.
Our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) included revised audited results as of and for the years ended December 31, 2015 and 2014, as well as restated unaudited condensed consolidated financial information for the quarterly periods in 2016 and 2015. Our consolidated financial statements as of and for the years ended December 31, 2015 and 2014 included in the 2016 Form 10-K have been revised from the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Disclosure Controls and Procedures
Based on our evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act), our management concluded that, as of March 31, 2016, our internal control over financial reporting was not effective because of the identification of an additional material weakness in the design and operation of our internal control over financial reporting relating specifically to the lack of effective policies and procedures, or timely and effective reviews by personnel at an appropriate level, for accounting for the rebates component in our product sales allowances in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). We did not have controls designed to validate the completeness and accuracy of underlying data used in the determination of these significant estimates. Overall, the management in the finance and accounting group did not display adequate tone at the top with respect to judgment and rigor required to resolve the accounting for the rebates component of our product sales allowances. For a discussion of management’s consideration of the material weakness identified, see Part I, Item 4: Controls and Procedures included in this Amended Form 10-Q.
FORM 10-Q/A10-Q
PAGE | ||||||||
PART I | ||||||||
Item 1. | ||||||||
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||||
Item 3 | 33 | |||||||
Item 4. | ||||||||
33 | ||||||||
PART II | ||||||||
Item 1. | 35 | |||||||
Item 1A. | 35 | |||||||
Item 2. | 35 | |||||||
Item 3. | 35 | |||||||
Item 4. | 35 | |||||||
Item 5. | 35 | |||||||
Item 6. | 35 | |||||||
36 | ||||||||
37 |
The following glossary provides definitions for certain acronyms and terms used in our periodic filings with the United States Securities and Exchange Commission, including this Quarterly Report onForm 10-Q/A.10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our filings, including this document.
Abbreviated Term | Defined Term | |
ANDA | Abbreviated New Drug Application | |
API | Active pharmaceutical ingredient | |
Aptar | AptarGroup, Inc. | |
ASC | Accounting Standards Codification | |
ASU | Accounting Standards Update | |
ATRA | American Taxpayer Relief Act of 2012 | |
AUC | Area under the curve | |
AVC | Assurance of Voluntary Compliance | |
BTCP | Breakthrough cancer pain | |
Catalent | Catalent Pharma Solutions, LLC | |
CBD | Synthetic cannabidiol | |
cGMP | Current Good Manufacturing Practices | |
CID | Civil Investigative Demand | |
CINV | Chemotherapy-induced nausea and vomiting | |
CMS | Centers for Medicare & Medicaid Services | |
CRO | Contract Research Organization | |
CSA | Federal Controlled Substances Act of 1970 | |
DEA | U.S. Drug Enforcement Administration | |
DPT | DPT Lakewood, LLC | |
ERP | Enterprise Resource Planning | |
ESI | Express Scripts, Inc. | |
FASB | Financial Accounting Standards Board | |
FDA | U.S. Food and Drug Administration | |
FDCA | Federal Food, Drug, and Cosmetic Act | |
FSS | Federal Supply Schedule | |
|
| |
GAO | Government Accountability Office | |
GCP | Good Clinical Practices | |
GI | Gastrointestinal | |
GLP | Good Laboratory Practices | |
HHS | U.S. Department of Health and Human Services | |
HIPAA | Health Insurance Portability and Accountability Act of 1996 | |
HITECH | Health Information Technology for Economic and Clinical Health Act of 2009 | |
|
| |
IND | Investigational New Drug Application | |
Insys Pharma | Insys Pharma, Inc. | |
Insys Therapeutics | Insys Therapeutics, Inc. | |
IPO | Initial public offering | |
IPR | Inter Partes Review | |
IRB | Institutional Review Board | |
|
| |
MMA | Medicare Prescription Drug, Improvement, and Modernization Act of 2003 | |
Mylan | Mylan Pharmaceuticals, Inc. | |
NDA | New Drug Application | |
NeoPharm | NeoPharm, Inc. | |
NOL | Net operating loss carryforward | |
NRV | Net Realizable Value | |
NSAID | Non-steroidal anti-inflammatory drug | |
Orange Book |
| |
ODOJ | Oregon Department of Justice |
PBM | Pharmacy Benefit Managers |
Abbreviated Term | Defined Term | |
| ||
Prescription Drug Events | ||
PDMA | Prescription Drug Marketing Act | |
PDUFA | Prescription Drug User Fee Act | |
PK | Pharmacokinetics | |
PPACA | Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 | |
QSR | FDA's Quality System Regulation | |
QuintilesIMS | QuintilesIMS Holdings, Inc. | |
REMS | Risk Evaluation and Mitigation Strategy | |
RLD | Reference listed drug | |
SEC | U.S. Securities and Exchange Commission | |
THC | Delta-9-tetrahydrocannabinol | |
TIRF | Transmucosal immediate-release fentanyl | |
TIRF REMS | Transmucosal immediate release fentanyl risk evaluation and mitigation strategy | |
USAO | United States Attorney Office | |
U.S. GAAP | Accounting Principles Generally Accepted in the United States of America | |
USPTO | United States Patent and Trademark Office | |
VC | Vomiting center |
PART I: FINANCIALFINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
INSYS THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, |
|
| December 31, |
| |||||||||||||||
March 31, 2016 (unaudited) | December 31, 2015 | March 31, 2015 (unaudited) |
| 2017 |
|
| 2016 |
| ||||||||||||
(As Restated) | (As Restated) |
| (unaudited) |
|
|
|
|
| ||||||||||||
Assets |
|
|
|
|
|
|
|
| ||||||||||||
Current Assets: |
|
|
|
|
|
|
|
| ||||||||||||
Cash and cash equivalents | $ | 73,820 | $ | 79,515 | $ | 70,074 |
| $ | 68,373 |
|
| $ | 104,642 |
| ||||||
Short-term investments | 89,808 | 79,576 | 31,386 |
|
| 86,914 |
|
|
| 78,238 |
| |||||||||
Accounts receivable, net of allowances of $4,781, $8,367 and 8,333 at March 31, 2016, December 31, 2015 and March 31, 2015, respectively | 20,663 | 47,272 | 31,617 | |||||||||||||||||
Accounts receivable, net of allowances of $4,105 and $6,144 at March 31, 2017 and December 31, 2016, respectively |
|
| 13,313 |
|
|
| 20,654 |
| ||||||||||||
Inventories, net | 32,241 | 41,715 | 35,236 |
|
| 21,288 |
|
|
| 20,414 |
| |||||||||
Prepaid expenses and other current assets | 4,077 | 3,973 | 5,982 |
|
| 7,048 |
|
|
| 5,695 |
| |||||||||
|
|
| ||||||||||||||||||
Total current assets | 220,609 | 252,051 | 174,295 |
|
| 196,936 |
|
|
| 229,643 |
| |||||||||
Property and equipment, net | 39,618 | 38,382 | 33,846 |
|
| 46,009 |
|
|
| 43,172 |
| |||||||||
Long-term investments | 36,443 | 43,219 | 22,891 |
|
| 63,193 |
|
|
| 53,796 |
| |||||||||
Deferred income tax assets, net | 18,192 | 17,607 | 13,635 |
|
| 27,708 |
|
|
| 23,243 |
| |||||||||
Other assets | 11,165 | 26 | 3,518 |
|
| 3,750 |
|
|
| 6,282 |
| |||||||||
|
|
| ||||||||||||||||||
Total assets | $ | 326,027 | $ | 351,285 | $ | 248,185 |
| $ | 337,596 |
|
| $ | 356,136 |
| ||||||
|
|
| ||||||||||||||||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||||||||||||||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
| ||||||||||||
Current Liabilities: |
|
|
|
|
|
|
|
| ||||||||||||
Accounts payable and accrued expenses | $ | 24,590 | $ | 35,611 | $ | 28,434 |
| $ | 28,205 |
|
| $ | 27,359 |
| ||||||
Accrued compensation | 7,239 | 10,225 | 7,009 |
|
| 4,236 |
|
|
| 8,833 |
| |||||||||
Accrued sales allowances | 29,742 | 35,033 | 21,326 |
|
| 19,352 |
|
|
| 28,955 |
| |||||||||
Accrued litigation award and settlements | 9,567 | 9,567 | 8,144 |
|
| 10,067 |
|
|
| 13,467 |
| |||||||||
|
|
| ||||||||||||||||||
Total current liabilities | 71,138 | 90,436 | 64,913 |
|
| 61,860 |
|
|
| 78,614 |
| |||||||||
Uncertain income tax position | 7,390 | 8,544 | 3,736 |
|
| 7,950 |
|
|
| 7,933 |
| |||||||||
|
|
| ||||||||||||||||||
Total liabilities | 78,528 | 98,980 | 68,649 |
|
| 69,810 |
|
|
| 86,547 |
| |||||||||
|
|
| ||||||||||||||||||
Commitments and contingencies (Note 6) | — | — | — |
|
| — |
|
|
| — |
| |||||||||
Stockholders’ Equity: | ||||||||||||||||||||
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2016, December 31, 2015 and March 31, 2015, respectively) | — | — | — | |||||||||||||||||
Common stock (par value $0.01 per share; 100,000,000 shares authorized; 71,532,258, 71,907,858 and 71,337,170 shares issued and outstanding as of March 31, 2016, December 31, 2015 and March 31, 2015, respectively) | 715 | 719 | 713 | |||||||||||||||||
Stockholders' Equity: |
|
|
|
|
|
|
|
| ||||||||||||
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively) |
|
| — |
|
|
| — |
| ||||||||||||
Common stock (par value $0.01 per share; 100,000,000 shares authorized; 72,114,799 and 71,923,550 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively) |
|
| 721 |
|
|
| 719 |
| ||||||||||||
Additional paid in capital | 239,427 | 246,685 | 225,952 |
|
| 261,173 |
|
|
| 256,529 |
| |||||||||
Unrealized gain (loss) on available-for-sale securities | 14 | (152 | ) | 4 | ||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax |
|
| (227 | ) |
|
| (302 | ) | ||||||||||||
Notes receivable from stockholders | (21 | ) | (21 | ) | (21 | ) |
|
| (21 | ) |
|
| (21 | ) | ||||||
Retained earnings (accumulated deficit) | 7,364 | 5,074 | (47,112 | ) | ||||||||||||||||
|
|
| ||||||||||||||||||
Total stockholders’ equity | 247,499 | 252,305 | 179,536 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 326,027 | $ | 351,285 | $ | 248,185 | ||||||||||||||
|
|
| ||||||||||||||||||
Retained earnings |
|
| 6,140 |
|
|
| 12,664 |
| ||||||||||||
Total stockholders' equity |
|
| 267,786 |
|
|
| 269,589 |
| ||||||||||||
Total liabilities and stockholders' equity |
| $ | 337,596 |
|
| $ | 356,136 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
(unaudited)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Net revenue |
| $ | 35,962 |
|
| $ | 60,421 |
|
Cost of revenue |
|
| 4,639 |
|
|
| 4,638 |
|
Gross profit |
|
| 31,323 |
|
|
| 55,783 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 15,658 |
|
|
| 19,800 |
|
Research and development |
|
| 12,934 |
|
|
| 19,035 |
|
General and administrative |
|
| 15,042 |
|
|
| 14,698 |
|
Total operating expenses |
|
| 43,634 |
|
|
| 53,533 |
|
Operating income (loss) |
|
| (12,311 | ) |
|
| 2,250 |
|
Other income: |
|
|
|
|
|
|
|
|
Interest income |
|
| 435 |
|
|
| 225 |
|
Other income, net |
|
| 26 |
|
|
| 49 |
|
Total other income |
|
| 461 |
|
|
| 274 |
|
Income (loss) before income taxes |
|
| (11,850 | ) |
|
| 2,524 |
|
Income tax expense (benefit) |
|
| (5,326 | ) |
|
| 234 |
|
Net income (loss) |
|
| (6,524 | ) |
|
| 2,290 |
|
Unrealized gain on available-for-sale securities, net of tax |
|
| 75 |
|
|
| 166 |
|
Total comprehensive income (loss) |
| $ | (6,449 | ) |
| $ | 2,456 |
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
| $ | (0.09 | ) |
| $ | 0.03 |
|
Diluted |
| $ | (0.09 | ) |
| $ | 0.03 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
| 71,945,743 |
|
|
| 71,592,089 |
|
Diluted |
|
| 71,945,743 |
|
|
| 74,462,878 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF INCOME AND COMPREHENSIVE INCOMESTOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
(unaudited)
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(As Restated) | ||||||||
Net revenue | $ | 60,421 | $ | 67,692 | ||||
Cost of revenue | 4,638 | 6,375 | ||||||
|
|
|
| |||||
Gross profit | 55,783 | 61,317 | ||||||
|
|
|
| |||||
Operating expenses: | ||||||||
Sales and marketing | 19,800 | 20,916 | ||||||
Research and development | 19,035 | 10,602 | ||||||
General and administrative | 14,698 | 13,246 | ||||||
Charges related to litigation award and settlements | — | 8,000 | ||||||
|
|
|
| |||||
Total operating expenses | 53,533 | 52,764 | ||||||
|
|
|
| |||||
Operating income | 2,250 | 8,553 | ||||||
|
|
|
| |||||
Other income: | ||||||||
Interest income | 225 | 125 | ||||||
Other income, net | 49 | — | ||||||
|
|
|
| |||||
Total other income | 274 | 125 | ||||||
|
|
|
| |||||
Income before income taxes | 2,524 | 8,678 | ||||||
Less: income tax expense | 234 | 2,811 | ||||||
|
|
|
| |||||
Net income | 2,290 | 5,867 | ||||||
Unrealized gain on available-for-sale securities | 166 | 28 | ||||||
|
|
|
| |||||
Total comprehensive income | $ | 2,456 | $ | 5,895 | ||||
|
|
|
| |||||
Net income per common share: | ||||||||
Basic | $ | 0.03 | $ | 0.08 | ||||
|
|
|
| |||||
Diluted | $ | 0.03 | $ | 0.08 | ||||
|
|
|
| |||||
Weighted average common shares outstanding | ||||||||
Basic | 71,592,089 | 70,916,828 | ||||||
|
|
|
| |||||
Diluted | 74,462,878 | 74,918,318 | ||||||
|
|
|
|
|
| Common Stock |
|
| Additional Paid in |
|
| Unrealized Gain (Loss) on Available- For-Sale |
|
| Notes Receivable From |
|
| Retained |
|
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Securities |
|
| Stockholders |
|
| Earnings |
|
| Total |
| |||||||
Balance at December 31, 2016 |
|
| 71,923,550 |
|
| $ | 719 |
|
| $ | 256,529 |
|
| $ | (302 | ) |
| $ | (21 | ) |
| $ | 12,664 |
|
| $ | 269,589 |
|
Exercise of stock options |
|
| 191,249 |
|
|
| 2 |
|
|
| 652 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 654 |
|
Stock based compensation- stock options and awards |
|
| — |
|
|
| — |
|
|
| 3,992 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,992 |
|
Unrealized gain on available-for -sale securities, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,524 | ) |
|
| (6,524 | ) |
Balance at March 31, 2017 |
|
| 72,114,799 |
|
| $ | 721 |
|
| $ | 261,173 |
|
| $ | (227 | ) |
| $ | (21 | ) |
| $ | 6,140 |
|
| $ | 267,786 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(In thousands, except share data)thousands)
(unaudited)
Unrealized | Notes | |||||||||||||||||||||||||||
Additional | Gain (Loss) on | Receivable | ||||||||||||||||||||||||||
Common Stock | Paid in | Available-For-Sale | From | Retained | ||||||||||||||||||||||||
Shares | Amount | Capital | Securities | Stockholders | Earnings | Total | ||||||||||||||||||||||
Balance at December 31, 2015 | 71,907,858 | $ | 719 | $ | 246,685 | $ | (152 | ) | $ | (21 | ) | $ | 5,074 | $ | 252,305 | |||||||||||||
Exercise of stock options | 265,325 | 2 | 1,308 | — | — | — | 1,310 | |||||||||||||||||||||
Excess tax benefits on stock options and awards | — | — | 653 | — | — | — | 653 | |||||||||||||||||||||
Stock based compensation - stock options and awards | — | — | 4,126 | — | — | — | 4,126 | |||||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 166 | — | — | 166 | |||||||||||||||||||||
Repurchase of common stock | (640,925 | ) | (6 | ) | (13,345 | ) | — | — | — | (13,351 | ) | |||||||||||||||||
Net income | — | — | — | — | — | 2,290 | 2,290 | |||||||||||||||||||||
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Balance at March 31, 2016 (As Restated) | 71,532,258 | $ | 715 | $ | 239,427 | $ | 14 | $ | (21 | ) | $ | 7,364 | $ | 247,499 | ||||||||||||||
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| Three Months Ended March 31, |
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| 2017 |
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| 2016 |
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Cash flows from operating activities: |
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Net income (loss) |
| $ | (6,524 | ) |
| $ | 2,290 |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
|
| 1,774 |
|
|
| 1,527 |
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Stock-based compensation |
|
| 3,992 |
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|
| 4,126 |
|
Deferred income tax benefit |
|
| (4,465 | ) |
|
| (585 | ) |
Excess tax benefits on stock options and awards |
|
| — |
|
|
| (653 | ) |
Amortization of investment discount |
|
| 347 |
|
|
| 569 |
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Changes in operating assets and liabilities: |
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|
|
|
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|
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Accounts receivable |
|
| 7,341 |
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|
| 26,609 |
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Inventories |
|
| 1,658 |
|
|
| (1,665 | ) |
Prepaid expenses and other current assets |
|
| (1,353 | ) |
|
| (104 | ) |
Accounts payable, accrued expenses and other current liabilities |
|
| (16,039 | ) |
|
| (19,939 | ) |
Accrued litigation award and settlements |
|
| (3,400 | ) |
|
| — |
|
Net cash provided by (used in) operating activities |
|
| (16,669 | ) |
|
| 12,175 |
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Cash flows from investing activities: |
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|
|
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Purchase of investments |
|
| (46,510 | ) |
|
| (22,574 | ) |
Proceeds from sales of investments |
|
| 1,620 |
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|
| 2,108 |
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Proceeds from maturities of investments |
|
| 26,545 |
|
|
| 16,607 |
|
Purchases of property and equipment |
|
| (1,909 | ) |
|
| (2,623 | ) |
Net cash used in investing activities |
|
| (20,254 | ) |
|
| (6,482 | ) |
Cash flows from financing activities: |
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Excess tax benefits on stock options and awards |
|
| — |
|
|
| 653 |
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Proceeds from exercise of stock options |
|
| 654 |
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|
| 1,310 |
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Repurchase of common stock |
|
| — |
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|
| (13,351 | ) |
Net cash provided by (used in) financing activities |
|
| 654 |
|
|
| (11,388 | ) |
Change in cash and cash equivalents |
|
| (36,269 | ) |
|
| (5,695 | ) |
Cash and cash equivalents, beginning of period |
|
| 104,642 |
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| 79,515 |
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Cash and cash equivalents, end of period |
| $ | 68,373 |
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| $ | 73,820 |
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Supplemental cash flow disclosures: |
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Cash paid for income taxes |
| $ | 14 |
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| $ | — |
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Non-cash capital expenditures |
| $ | 2,702 |
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| $ | 140 |
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Unrealized | Notes | |||||||||||||||||||||||||||
Additional | Gain (Loss) on | Receivable | ||||||||||||||||||||||||||
Common Stock | Paid in | Available-For-Sale | From | Accumulated | ||||||||||||||||||||||||
Shares | Amount | Capital | Securities | Stockholders | Deficit | Total | ||||||||||||||||||||||
Balance at December 31, 2014 | 70,702,688 | $ | 707 | $ | 215,507 | $ | (24 | ) | $ | (21 | ) | $ | (52,979 | ) | $ | 163,190 | ||||||||||||
Exercise of stock options | 634,482 | 6 | 3,124 | — | — | — | 3,130 | |||||||||||||||||||||
Excess tax benefits on stock options and awards | — | — | 3,601 | — | — | — | 3,601 | |||||||||||||||||||||
Stock based compensation - stock options and awards | — | — | 3,720 | — | — | — | 3,720 | |||||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 28 | — | — | 28 | |||||||||||||||||||||
Net income | — | — | — | — | — | 5,867 | 5,867 | |||||||||||||||||||||
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Balance at March 31, 2015 (As Restated) | 71,337,170 | $ | 713 | $ | 225,952 | $ | 4 | $ | (21 | ) | $ | (47,112 | ) | $ | 179,536 | |||||||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(As Restated) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 2,290 | $ | 5,867 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,527 | 1,175 | ||||||
Stock-based compensation | 4,126 | 3,720 | ||||||
Deferred income tax benefit | (585 | ) | (942 | ) | ||||
Loss on disposal of assets | — | 41 | ||||||
Excess tax benefits on stock options and awards | (653 | ) | (3,601 | ) | ||||
Amortization of investment discount | 569 | 194 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 26,609 | (8,115 | ) | |||||
Inventories | (1,665 | ) | (1,079 | ) | ||||
Prepaid expenses and other current assets | (104 | ) | (214 | ) | ||||
Accounts payable, accrued expenses and other current liabilities | (19,799 | ) | 11,806 | |||||
Accrued litigation award and settlements | — | 8,000 | ||||||
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Net cash provided by operating activities | 12,315 | 16,852 | ||||||
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Cash flows from investing activities: | ||||||||
Purchase of investments | (22,574 | ) | (10,469 | ) | ||||
Proceeds from sales of investments | 2,108 | — | ||||||
Proceeds from maturities of investments | 16,607 | 4,045 | ||||||
Purchases of property and equipment | (2,763 | ) | (5,191 | ) | ||||
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Net cash used in investing activities | (6,622 | ) | (11,615 | ) | ||||
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Cash flows from financing activities: | ||||||||
Excess tax benefits on stock options and awards | 653 | 3,601 | ||||||
Proceeds from exercise of stock options | 1,310 | 3,130 | ||||||
Repurchase of common stock | (13,351 | ) | — | |||||
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Net cash (used in) provided by financing activities | (11,388 | ) | 6,731 | |||||
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Change in cash and cash equivalents | (5,695 | ) | 11,968 | |||||
Cash and cash equivalents, beginning of period | 79,515 | 58,106 | ||||||
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Cash and cash equivalents, end of period | $ | 73,820 | $ | 70,074 | ||||
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Supplemental cash flow disclosures: | ||||||||
Cash paid for interest expense | $ | — | $ | — | ||||
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Cash paid for income taxes | $ | — | $ | — | ||||
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See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Nature of Business and Basis of Presentation |
Insys Therapeutics, Inc., which was incorporated in Delaware in June 1990, and our subsidiaries (collectively, “we,” “us,” and “our”) maintain headquarters in Chandler, Arizona.
We are a commercial-stage specialty pharmaceutical company that develops and commercializes innovative supportive care products. We have one marketed product: Subsys,SUBSYS®, a proprietary sublingual fentanyl spray for BTCP in opioid-tolerant adult patients.patients; and one product: SYNDROS™, awaiting final labeling approval by the FDA, prior to commercial launch, after receiving FDA approval in July 2016 and DEA scheduling in March 2017.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles,GAAP, pursuant to rules and regulations of the SEC. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 20152016, included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 20162017 and 20152016 are not necessarily indicative of results to be expected for the full fiscal year or any other periods.
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition (which is affected by prescriptions dispensed, wholesaler discounts, patient discount programs, rebates, and chargebacks), inventories, stock-based compensation expense, and deferred tax valuation allowances. We base our estimates on historical experience and on various other assumptions that are believed by management to be reasonable under the circumstances. Actual results may materially differ from these estimates.
On May 5, 2015, our Board of Directors approved a two-for-one stock split of our common stock that was effected through a stock dividend. The record date for the stock split was the close of business on May 26, 2015, with share distribution occurring on June 8, 2015. As a result of the dividend, shareholders received one additional share of Insys Therapeutics, Inc. common stock, par value $0.01, for each one share they held as of the record date. All share and per share amounts have been retroactively restated for the effects of this stock split.
Certain prior period amounts have been reclassified to conform with current period presentation.
All significant intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.
Restatement of Financial Statements
We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Amended Form 10-Q”) to restate and amend our previously issued, unaudited condensed consolidated financial statements and related financial information as of March 31, 2016 and 2015 and for the quarters ended March 31, 2016 and 2015, which was originally filed with the U.S. Securities and Exchange Commission on May 5, 2016 (the “OriginalForm 10-Q”).
The restatement is the result of a misapplication of the accounting guidance in Accounting Standards Codification (“ASC”) No. 605, “Revenue Recognition” related to accounting for rebate obligations on government payer and managed care contracts. We also reversed an out-of-period adjustment related to a stock option modification previously recorded during the three months ended March 31, 2016 that related to the fourth quarter of 2015. This resulted in a decrease in operating expenses of $1,500,000 for the three months ended March 31, 2016 and a corresponding increase in operating expenses during the three months ended December 31, 2015. We assessed the impact of these errors on our prior unaudited condensed consolidated financial statements and concluded that the impact was material to these unaudited condensed consolidated financial statements. In order to correctly present net revenue and operating expenses in the appropriate periods during 2016 and 2015, we have restated the unaudited condensed consolidated financial information included herein.
We also reclassified certain prior period amounts to conform with current period presentation.
Effects of Restatement on Previously Filed March 31, 2016 Form 10-Q
The effect of the restatement on the previously filed unaudited condensed consolidated balance sheets as of March 31, 2016 and 2015 is as follows, in thousands:
March 31, 2016 | March 31, 2015 | |||||||||||||||||||||||||||||||
As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | |||||||||||||||||||||||||
Accounts receivable, net | $ | 20,963 | $ | (300 | ) | $ | — | $ | 20,663 | $ | 34,176 | $ | (2,559 | ) | $ | — | $ | 31,617 | ||||||||||||||
Prepaid expenses and other current assets | 3,918 | (1,156 | ) | 1,315 | 4,077 | 2,734 | 2,559 | 689 | 5,982 | |||||||||||||||||||||||
Deferred income tax assets, net | — | — | — | — | 8,479 | (8,479 | ) | — | — | |||||||||||||||||||||||
Total current assets | 220,750 | (1,456 | ) | 1,315 | 220,609 | 182,085 | (8,479 | ) | 689 | 174,295 | ||||||||||||||||||||||
Deferred income tax assets, net | 17,046 | — | 1,146 | 18,192 | 4,874 | 8,479 | 282 | 13,635 | ||||||||||||||||||||||||
Total assets | 325,022 | (1,456 | ) | 2,461 | 326,027 | 247,214 | — | 971 | 248,185 | |||||||||||||||||||||||
Accounts payable and accrued expenses | 25,746 | (1,156 | ) | — | 24,590 | 36,578 | (8,144 | ) | — | 28,434 | ||||||||||||||||||||||
Accrued sales allowances | 24,994 | (300 | ) | 5,048 | 29,742 | 15,215 | — | 6,111 | 21,326 | |||||||||||||||||||||||
Accrued litigation award and settlements | 9,567 | — | — | 9,567 | — | 8,144 | — | 8,144 | ||||||||||||||||||||||||
Total current liabilities | 67,546 | (1,456 | ) | 5,048 | 71,138 | 58,802 | — | 6,111 | 64,913 | |||||||||||||||||||||||
Uncertain income tax position | 7,481 | — | (91 | ) | 7,390 | 3,778 | — | (42 | ) | 3,736 | ||||||||||||||||||||||
Total liabilities | 75,027 | (1,456 | ) | 4,957 | 78,528 | 62,580 | — | 6,069 | 68,649 | |||||||||||||||||||||||
Additional paid in capital | 239,433 | — | (6 | ) | 239,427 | 227,327 | (356 | ) | (1,019 | ) | 225,952 | |||||||||||||||||||||
Retained earnings (accumulated deficit) | 9,854 | — | (2,490 | ) | 7,364 | (43,033 | ) | — | (4,079 | ) | (47,112 | ) | ||||||||||||||||||||
Total stockholders’ equity | 249,995 | — | (2,496 | ) | 247,499 | 184,634 | — | (5,098 | ) | 179,536 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 325,022 | $ | (1,456 | ) | $ | 2,461 | $ | 326,027 | $ | 247,214 | $ | — | $ | 971 | $ | 248,185 |
The effect of the restatement on the previously filed unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2016 and 2015 is as follows, in thousands (except share and per share data):
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||||||||||||||||||||||||||
As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | |||||||||||||||||||||||||
Net revenue | $ | 61,962 | $ | — | $ | (1,541 | ) | $ | 60,421 | $ | 70,770 | $ | — | $ | (3,078 | ) | $ | 67,692 | ||||||||||||||
Gross profit | 57,324 | — | (1,541 | ) | 55,783 | 64,395 | — | (3,078 | ) | 61,317 | ||||||||||||||||||||||
Research and development expenses | 20,535 | — | (1,500 | ) | 19,035 | 10,602 | — | — | 10,602 | |||||||||||||||||||||||
Total operating expenses | 55,033 | — | (1,500 | ) | 53,533 | 52,764 | — | — | 52,764 | |||||||||||||||||||||||
Operating income | 2,291 | — | (41 | ) | 2,250 | 11,631 | — | (3,078 | ) | 8,553 | ||||||||||||||||||||||
Income before income taxes | 2,565 | — | (41 | ) | 2,524 | 11,756 | — | (3,078 | ) | 8,678 | ||||||||||||||||||||||
Less: income tax expense | 131 | — | 103 | 234 | 3,733 | — | (922 | ) | 2,811 | |||||||||||||||||||||||
Net income | 2,434 | — | (144 | ) | 2,290 | 8,023 | — | (2,156 | ) | 5,867 | ||||||||||||||||||||||
Total comprehensive income | $ | 2,600 | — | $ | (144 | ) | $ | 2,456 | $ | 8,051 | — | $ | (2,156 | ) | $ | 5,895 | ||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.03 | $ | — | $ | — | $ | 0.03 | $ | 0.11 | $ | — | $ | (0.03 | ) | $ | 0.08 | |||||||||||||||
Diluted | $ | 0.03 | $ | — | $ | — | $ | 0.03 | $ | 0.11 | $ | — | $ | (0.03 | ) | $ | 0.08 |
The effect of the restatement on the previously filed unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 is as follows, in thousands:
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||||||||||||||||||||||||||
As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | As Reported | Reclassification Adjustments | Restatement Adjustments | As Restated | |||||||||||||||||||||||||
Net income | $ | 2,434 | $ | — | $ | (144 | ) | $ | 2,290 | $ | 8,023 | $ | — | $ | (2,156 | ) | $ | 5,867 | ||||||||||||||
Stock-based compensation | 5,626 | — | (1,500 | ) | 4,126 | 3,720 | — | — | 3,720 | |||||||||||||||||||||||
Deferred income tax benefit, net | (715 | ) | — | 130 | (585 | ) | (1,140 | ) | — | 198 | (942 | ) | ||||||||||||||||||||
Excess tax benefits on stock options and awards | (108 | ) | — | (545 | ) | (653 | ) | (4,069 | ) | 3 | 465 | (3,601 | ) | |||||||||||||||||||
Amortization of investment (premium) discount | — | 569 | — | 569 | — | 194 | — | 194 | ||||||||||||||||||||||||
Change in accounts receivable | 27,496 | (887 | ) | — | 26,609 | (7,632 | ) | (483 | ) | — | (8,115 | ) | ||||||||||||||||||||
Change in inventories | 9,474 | (11,139 | ) | — | (1,665 | ) | (455 | ) | (624 | ) | — | (1,079 | ) | |||||||||||||||||||
Change in prepaid expenses and other current assets | (11,083 | ) | 12,294 | (1,315 | ) | (104 | ) | (666 | ) | 1,107 | (655 | ) | (214 | ) | ||||||||||||||||||
Change in accounts payable, accrued expenses and other current liabilities | (22,361 | ) | (267 | ) | 2,829 | (19,799 | ) | 17,197 | (8,004 | ) | 2,613 | 11,806 | ||||||||||||||||||||
Change in accrued litigation award and settlements | — | — | — | — | — | 8,000 | — | 8,000 | ||||||||||||||||||||||||
Net cash provided by operating activities | 12,290 | 570 | (545 | ) | 12,315 | 16,194 | 193 | 465 | 16,852 | |||||||||||||||||||||||
Purchase of investments | (3,289 | ) | (19,285 | ) | — | (22,574 | ) | (6,602 | ) | (3,867 | ) | — | (10,469 | ) | ||||||||||||||||||
Proceeds from sales of investments | — | 2,108 | — | 2,108 | 371 | (371 | ) | — | — | |||||||||||||||||||||||
Proceeds from maturity of investments | — | 16,607 | — | 16,607 | — | 4,045 | — | 4,045 | ||||||||||||||||||||||||
Purchases of property and equipment | (2,763 | ) | — | — | (2,763 | ) | (5,191 | ) | — | — | (5,191 | ) | ||||||||||||||||||||
Net cash used in investing activities | (6,052 | ) | (570 | ) | — | (6,622 | ) | (11,422 | ) | (193 | ) | — | (11,615 | ) | ||||||||||||||||||
Excess tax benefits on stock options and awards | 108 | — | 545 | 653 | 4,069 | (3 | ) | (465 | ) | 3,601 | ||||||||||||||||||||||
Proceeds from exercise of stock options | 1,310 | — | — | 1,310 | 3,127 | 3 | — | 3,130 | ||||||||||||||||||||||||
Net cash (used in) provided by financing activities | $ | (11,933 | ) | $ | — | $ | 545 | $ | (11,388 | ) | $ | 7,196 | $ | — | $ | (465 | ) | $ | 6,731 |
RecentRecently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)Effective January 1, 2017, we adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,Accounting. Among other requirements, the new guidance requires all tax effects related to reduce complexityshare-based payments at settlement (or expiration) to be recorded through the income statement. Previously, tax benefits in excess of compensation cost ("windfalls") were recorded in equity, and tax deficiencies ("shortfalls") were recorded in equity to the extent of previous windfalls, and then to the income statement. As required, this change was applied prospectively to all excess tax benefits and tax deficiencies resulting from settlements.
Under the new guidance, the windfall tax benefit is to be recorded when it arises, subject to normal valuation allowance considerations. Excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable were recorded through a cumulative effect adjustment as of the date of the adoption. As required, this change was applied on a modified retrospective basis, with a cumulative effect adjustment of change in accounting standards involving several aspectsprinciple of approximately $368,000 as a deferred tax asset with a corresponding valuation allowance of $368,000, which were offset in retained earnings. Additionally, our condensed consolidated statement of cash flows now presents excess tax benefits as an operating activity, adjusted prospectively with no adjustments made to prior periods.
Additionally, ASU No. 2016-09 addressed the accounting forpresentation of employee share-based payment transactions, including (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classificationtaxes paid on the statement of cash flows. We are now required to present the cost of shares withheld from the employee to satisfy the employees’ income tax liability as a financing activity on the statement of cash flows rather than as an operating cash flow. This change was applied on a retrospective basis, as required, but did not impact the condensed consolidated statement of cash flows for the three months ended March 31, 2016.
5
ASU 2016-09 also permits entities to make an accounting policy election related to how forfeitures will impact the recognition of compensation cost for stock-based compensation to either estimate the total number of awards for which the requisite service period will not be rendered, as currently required, or to account for forfeitures as they occur. Upon adoption of ASU 2016-09, we elected to change our accounting policy to account for forfeitures as they occur. As required, this change was applied on a modified retrospective basis; however, as of December 31, 2016, we had estimated no forfeitures relating to the outstanding equity awards. As a result, no adjustment was required.
Going forward, the adoption of ASU 2016-09 could cause volatility in the effective tax rate, as the excess tax benefits associated with the exercise of stock options could generate a significant discrete income tax benefit in a particular interim period, potentially creating volatility in net income and net income per share period-to-period and period-over-period.
Effective January 1, 2017, we adopted ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Prior to January 1, 2017, we measured inventory at the lower of cost or market. This guidance requires us to measure inventory at the lower of cost and NRV, which eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements
In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, to amend the amortization period for certain purchased callable debt securities held at a premium. The ASU shortens the amortization period for the premium to the earliest call date. Under current U.S. GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments willshould be applied on a modified retrospective basis and are effective for financial statements issued for fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact of this amendment on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current U. S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in U. S. GAAP. The amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments should be applied on a modified retrospective transition basis, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. Amendments relatedWe are currently evaluating the impact of these amendments on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments effected by this ASU affect entities required to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied usingpresent a modified retrospective transition, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively, and amendments related to the presentation of excess tax benefitsprovide specific guidance on the statementa variety of cash flows can be applied using either a prospective transition method or a retrospective transition method.flow issues to reduce current and potential future diversity in practice. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact of these amendments on itsour consolidated financial statements.
In MarchJune 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers2016-13, Financial Instruments - Credit Losses (Topic 606)326): Principal versus Agent Considerations,Measurement of Credit Losses on Financial Instruments. The amendments effected by this ASU affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income and are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. ASU 2016-13 amends the impairment model to clarifyutilize an expected loss methodology in place of the implementation guidance on principal versus agent considerations and address how an entity should assess whether it iscurrently used incurred loss methodology, which will result in the principal or the agent in contracts that include three or more parties. The effective date and transition requirements for these amendments are the same as the effective date and transition requirementstimelier recognition of ASU 2014-09 (discussed below).losses. We are currently evaluating the impact of these amendments on itsour consolidated financial statements.
6
In February 2016, the FASB issued ASU No. 2016-02, Leases: (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP.U.S. GAAP guidance. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the balance sheet. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.U.S. GAAP guidance. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commencecommenced before the effective date in accordance with previous U.S. GAAP guidance unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.U.S. GAAP guidance. We are currently evaluating the impact of these amendments on itsour consolidated financial statements and related disclosures; however, based on our current operating leases, we do not expect that the adoption of this guidance will have a material impact on the consolidated financial statements. See Note 6, Commitments and Contingencies, for information about our lease commitments.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the Financial Instruments topic of the Accounting Standards CodificationASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. These amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. We are is currently evaluating the impact of these amendments on itsour consolidated financial statements.statements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers which will supersede nearly all existing(Topic 606). The new standard aims to achieve a consistent application of revenue recognition guidancewithin the United States, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. The core principleUnder the new model, recognition of ASU 2014-09 is to recognize revenuesrevenue occurs when a customer obtains control of promised goods or services are transferred to customers in an amount that reflects the consideration to which anthe entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five step processIn addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is required to achieve this core principlebe applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. In March 2016 and in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. As amended byApril 2016, the FASB issued ASU No. 2016-08 and ASU No. 2016-10, respectively, which further clarified the implementation guidance on principal versus agent considerations contained in July 2015,ASU No. 2014-09 and the standard isidentification of performance obligations and licensing, respectively. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. These standards will be effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is permitted, but not before December 15, 2016, the original effective date of the standard. We are currently evaluatinganalyzing ASU 2014-09, and the related ASUs, to evaluate the impact of the new standard on existing contracts with our pending adoptioncustomers. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. We initiated a contract review process during 2016 and expect to complete the contract evaluations and validate results by the end of ASU 2014-09the second quarter of 2017. We have also started evaluating our existing accounting policies and the new disclosure requirements and expect to complete our evaluation of the impacts of the accounting and disclosure requirements on our consolidated financial statementsbusiness processes, controls and systems by the end of the second quarter of 2017. Additionally, we will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust our assessment and implementation plans accordingly. Full implementation will be completed by the end of 2017. We have not yet determined theour selected method by which we will adopt the standard in 2018.of transition.
In July 2015, the FASB issued guidance that requires entities to measure most inventory at the lower of cost and NRV, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is measured at the lower of cost and NRV, which eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” The guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of adoption of this guidance on our financial position and results of operations.7
We recognize revenue from the sale of Subsys.SUBSYS®. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.
Subsys
SubsysSUBSYS® was commercially launched in March 2012 and is monitored by an FDA mandatedFDA-mandated REMS program known as the TIRF REMS. We sell SubsysSUBSYS® in the United States to wholesale pharmaceutical distributors and directly to retail pharmacies, collectively our customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. SubsysSUBSYS® currently has a shelf life of 36 months from the date of manufacture. We record revenue for SubsysSUBSYS® at the time the wholesalercustomer receives the shipment.
We recognize estimated product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with customers and third-party payorspayers and the levels of inventory within the distribution channels that may result in future discounts taken. In certain cases, such as patient assistance programs, we recognize the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, we may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. Our product sales allowances include:
Product Returns. We allow customers to return product for credit beginning six months prior to, and ending 12 months following, the product expiration date. The shelf life of SubsysSUBSYS® is currently 36 months from the date of manufacture. We have monitored actual return history since product launch, which provides us with a basis to reasonably estimate future product returns, taking into consideration the shelf life of product at the time of shipment, shipment and prescription trends, estimated distribution channel inventory levels, and consideration of the introduction of competitive products.
Because of the shelf life of our products and our return policy of issuing credits on returned product that is within six months before, and up to 12 months after, the product expiration date, there may be a significant period of time between when the product is shipped and when we issue credits on returned product. Accordingly, we may have to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. The allowance for product returns is included in accrued sales allowances.
Wholesaler and Retailer Discounts. We offer discounts to certain wholesale distributors and specialty retailers based on contractually determined rates. We accrue the discount as a reduction of receivables due from the wholesalers and retailers upon shipment to the respective wholesale distributors and retail pharmacies.
Prompt Pay Discounts. We offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. We account for cash discounts by reducing accounts receivable by the full amount of the discount.
Stocking Allowances. We may offer discounts and extended payment terms, generally in the month of the initial commercial launch of a new product and on the first order made by certain wholesale distributors and retail pharmacies based on contractually determined rates. We accrue the discount as a reduction of receivables due from the wholesalers upon shipment to the respective wholesale distributors and retail pharmacies.
Prompt Pay Discounts. We offer cash discounts to our customers, generally 2.0% of the sales price, as an incentive for prompt payment. We account for cash discounts by reducing accounts receivable by the full amount.
Patient Discount Programs. We offer discount card programs to patients for SubsysSUBSYS®, in which patients receive discounts on their prescriptions that are reimbursed by us to the retailer. We estimate the total amount that will be redeemed based on a percentage of actual redemption applied to inventory in the distribution and retail channel. The allowance for patient discount programs is included in accrued sales allowances.
Rebates. We participate in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, we pay a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. We estimate and accrue these rebates based on current and estimated future contract prices, historical and estimated future percentages of products sold to qualified patients and estimated levels of inventory in the distribution channel. The allowance for rebates is included in accrued sales allowances.
8
Chargebacks. We provide discounts primarily to authorized users of the FSS of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid contracts and regulations. These organizations purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to us the difference between the current retail price and the price the organization paid for the product. We estimate and accrue chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity. Estimated chargebacks are recognized as a reduction of revenue in the same period the related revenue is recognized. The allowance for chargebacks is included as a reduction to accounts receivable.
3. | Short-Term and Long-Term Investments |
Our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Short-term and long-term investments consist of corporate and various government agency and municipal debt securities, commercial paper, as well as certificates of deposit that have maturity dates that are greater than 90 days. Certificates of deposit and commercial paper are carried at cost, which approximates fair value. We classify our marketable securities as available-for-sale in accordance with FASB Accounting Standards Codification TopicASC No. 320,Investments — Debt and Equity Securities.Securities. Available-for-sale securities are carried at fair value with unrealized gains and losses reported in stockholders’ equity.equity, net of related tax effects. There were no reclassifications on available-for-sale securities during the three months ended March 31, 2017 and 2016. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in impairment of the fair value of the investment. We did not have any realizedunrealized gains or losses or decline in values judged to be other than temporary during the three months ended March 31, 2106.2017 and 2016. If we had realizedunrealized gains and losses and declines in value judged to be other than temporary, we would have been required to include those changes in other income/expense in the condensed consolidated statements of incomeoperations and comprehensive income.income (loss). Premiums and discounts are amortized or accreted over the life of the related available-for-sale security. The cost of securities sold is calculated using the specific identification method. At March 31, 2016,2017, our certificates of deposit and commercial paper as well as our marketable securities have been recorded at an estimated fair value of $1,134,000, $89,808,000$5,009,000, $86,914,000, and $36,443,000$63,193,000 in cash and cash equivalents, short-term and long-term investments, respectively.
Investments consisted of the following at March 31, 20162017 (in thousands):
Cost | Unrealized Gains | Unrealized Losses | Other- Than- Temporary Impairment Losses | Fair Value | Cash and Cash Equivalents | Short-term Investments | Long-term Investments |
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Other- Than- Temporary Impairment Losses |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-term Investments |
|
| Long-term Investments |
| |||||||||||||||||||||||||||||||||
Cash | $ | 53,683 | $ | — | $ | — | $ | — | $ | 53,683 | $ | 53,683 | $ | — | $ | — |
| $ | 28,562 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 28,562 |
|
| $ | 28,562 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||
Money market securities | 19,003 | — | — | — | 19,003 | 19,003 | — | — |
|
| 34,802 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,802 |
|
|
| 34,802 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Certificates of deposit | 29,523 | — | — | — | 29,523 | — | 19,642 | 9,881 |
|
| 25,919 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,919 |
|
|
| — |
|
|
| 14,055 |
|
|
| 11,864 |
| ||||||||||||||||||||||||
Marketable securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial paper |
|
| 11,963 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,963 |
|
|
| 4,497 |
|
|
| 7,466 |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Corporate securities | 29,374 | 13 | (16 | ) | — | 29,371 | 175 | 24,259 | 4,937 |
|
| 53,815 |
|
|
| 6 |
|
|
| (120 | ) |
|
| — |
|
|
| 53,701 |
|
|
| — |
|
|
| 34,371 |
|
|
| 19,330 |
| |||||||||||||||||||||||
Federal agency securities | 18,053 | 3 | (10 | ) | — | 18,046 | 899 | 10,396 | 6,751 |
|
| 33,320 |
|
|
| 3 |
|
|
| (94 | ) |
|
| — |
|
|
| 33,229 |
|
|
| — |
|
|
| 10,502 |
|
|
| 22,727 |
| |||||||||||||||||||||||
Municipal securities | 50,421 | 36 | (12 | ) | — | 50,445 | 60 | 35,511 | 14,874 |
|
| 30,326 |
|
|
| 6 |
|
|
| (28 | ) |
|
| — |
|
|
| 30,304 |
|
|
| 512 |
|
|
| 20,520 |
|
|
| 9,272 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total marketable securities | 97,848 | 52 | (38 | ) | — | 97,862 | 1,134 | 70,166 | 26,562 |
|
| 155,343 |
|
|
| 15 |
|
|
| (242 | ) |
|
| — |
|
|
| 155,116 |
|
|
| 5,009 |
|
|
| 86,914 |
|
|
| 63,193 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| $ | 218,707 |
|
| $ | 15 |
|
| $ | (242 | ) |
| $ | — |
|
| $ | 218,480 |
|
| $ | 68,373 |
|
| $ | 86,914 |
|
| $ | 63,193 |
| |||||||||||||||||||||||||
$ | 200,057 | $ | 52 | $ | (38 | ) | $ | — | $ | 200,071 | $ | 73,820 | $ | 89,808 | $ | 36,443 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
9
Investments consisted of the following at December 31, 20152016 (in thousands):
Cost | Unrealized Gains | Unrealized Losses | Other- Than- Temporary Impairment Losses | Fair Value | Cash and Cash Equivalents | Short-term Investments | Long-term Investments |
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Other- Than- Temporary Impairment Losses |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-term Investments |
|
| Long-term Investments |
| |||||||||||||||||||||||||||||||||
Cash | $ | 55,987 | $ | — | $ | — | $ | — | $ | 55,987 | $ | 55,987 | $ | — | $ | — |
| $ | 49,331 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 49,331 |
|
| $ | 49,331 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||
Money market securities | 20,373 | — | — | — | 20,373 | 20,373 | — | — |
|
| 54,015 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 54,015 |
|
|
| 54,015 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Certificates of deposit | 26,223 | — | — | — | 26,223 | — | 16,637 | 9,586 |
|
| 26,114 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,114 |
|
|
| — |
|
|
| 13,855 |
|
|
| 12,259 |
| ||||||||||||||||||||||||
Marketable securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial paper |
|
| 1,485 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,485 |
|
|
| — |
|
|
| 1,485 |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Corporate securities | 27,186 | — | (68 | ) | — | 27,118 | 1,621 | 19,181 | 6,316 |
|
| 39,562 |
|
|
| — |
|
|
| (135 | ) |
|
| — |
|
|
| 39,427 |
|
|
| 500 |
|
|
| 25,681 |
|
|
| 13,246 |
| |||||||||||||||||||||||
Federal agency securities | 18,823 | — | (65 | ) | — | 18,758 | — | 10,129 | 8,629 |
|
| 30,660 |
|
|
| 4 |
|
|
| (92 | ) |
|
| — |
|
|
| 30,572 |
|
|
| — |
|
|
| 10,854 |
|
|
| 19,718 |
| |||||||||||||||||||||||
Municipal securities | 53,870 | 16 | (35 | ) | — | 53,851 | 1,534 | 33,629 | 18,688 |
|
| 35,811 |
|
|
| 2 |
|
|
| (81 | ) |
|
| — |
|
|
| 35,732 |
|
|
| 796 |
|
|
| 26,363 |
|
|
| 8,573 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total marketable securities | 99,879 | 16 | (168 | ) | — | 99,727 | 3,155 | 62,939 | 33,633 |
|
| 133,632 |
|
|
| 6 |
|
|
| (308 | ) |
|
| — |
|
|
| 133,330 |
|
|
| 1,296 |
|
|
| 78,238 |
|
|
| 53,796 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| $ | 236,978 |
|
| $ | 6 |
|
| $ | (308 | ) |
| $ | — |
|
| $ | 236,676 |
|
| $ | 104,642 |
|
| $ | 78,238 |
|
| $ | 53,796 |
| |||||||||||||||||||||||||
$ | 202,462 | $ | 16 | $ | (168 | ) | $ | — | $ | 202,310 | $ | 79,515 | $ | 79,576 | $ | 43,219 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of the marketable securities at March 31, 2016, by maturity, are shown below (in thousands):
March 31, 2016 | December 31, 2015 |
| March 31, 2017 |
|
| December 31, 2016 |
| |||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value |
| Amortized Cost |
|
| Fair Value |
|
| Amortized Cost |
|
| Fair Value |
| |||||||||||||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Due in one year or less | $ | 71,310 | $ | 71,300 | $ | 66,148 | $ | 66,094 |
| $ | 93,976 |
|
| $ | 93,924 |
|
| $ | 80,092 |
|
| $ | 80,027 |
| ||||||||
Due after one year through 5 years | 26,538 | 26,562 | 33,731 | 33,633 |
|
| 61,367 |
|
|
| 61,192 |
|
|
| 53,540 |
|
|
| 53,303 |
| ||||||||||||
Due after 5 years through 10 years | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Due after 10 years | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
|
|
|
|
| $ | 155,343 |
|
| $ | 155,116 |
|
| $ | 133,632 |
|
| $ | 133,330 |
| |||||||||||||
$ | 97,848 | $ | 97,862 | $ | 99,879 | $ | 99,727 | |||||||||||||||||||||||||
|
|
|
|
The following table shows the gross unrealized losses and the fair value of our investments, with unrealized losses that are not deemed to be other-than-temporarily impaired aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2016 (in thousands):
March 31, 2016 | December 31, 2015 |
| March 31, 2017 |
|
| December 31, 2016 |
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Less Than 12 Months | Greater Than 12 Months | Less Than 12 Months | Greater Than 12 Months |
| Less Than 12 Months |
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| Greater Than 12 Months |
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| Less Than 12 Months |
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| Greater Than 12 Months |
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Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss |
| Fair Value |
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| Unrealized Loss |
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| Fair Value |
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| Unrealized Loss |
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| Fair Value |
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| Unrealized Loss |
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| Fair Value |
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| Unrealized Loss |
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Marketable securities: |
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Corporate securities | $ | 16,945 | $ | (16 | ) | $ | — | $ | — | $ | 25,137 | $ | (68 | ) | $ | — | $ | — |
| $ | 48,277 |
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| $ | (120 | ) |
| $ | — |
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| $ | — |
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| $ | 38,027 |
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| $ | (134 | ) |
| $ | 401 |
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| $ | (1 | ) | ||||||||||||||
Federal agency securities | 9,408 | (10 | ) | — | — | 18,759 | (65 | ) | — | — |
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| 26,878 |
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| (93 | ) |
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| 1,205 |
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| (1 | ) |
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| 26,449 |
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| (91 | ) |
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| 1,217 |
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| (1 | ) | ||||||||||||||||||||||
Municipal securities | 15,872 | (12 | ) | — | — | 22,981 | (35 | ) | — | — |
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| 16,870 |
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| (28 | ) |
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| — |
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| — |
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| 30,373 |
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| (81 | ) |
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| 100 |
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| — |
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| $ | 92,025 |
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| $ | (241 | ) |
| $ | 1,205 |
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| $ | (1 | ) |
| $ | 94,849 |
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| $ | (306 | ) |
| $ | 1,718 |
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| $ | (2 | ) | |||||||||||||||||||||||||
$ | 42,225 | $ | (38 | ) | $ | — | $ | — | $ | 66,877 | $ | (168 | ) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
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As of March 31, 2017 and 2016, we have concluded that all the unrealized losses on our marketable securities are temporary in nature. Marketable securities are reviewed quarterly for possible other-than-temporary impairment. This review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the expectation for that security’s performance and the creditworthiness of the issuer. Additionally, we do not intend to sell, and it is not probable that we will be required to sell, any of the securities before the recovery of their amortized cost basis.
10
FASB ASC No. 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: