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Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2019
Accounting Policies [Abstract] |
Significant Accounting Policies |
(2) | Significant Accounting Policies
Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash, deposits with banks and short-term highly liquid money market instruments with remaining maturities at the date of purchase of 90 days or less. Restricted cash represents cash and cash equivalents pledged to guarantee repayment of certain expenses which may be incurred for business travel under corporate credit cards held by employees. Accounts Receivable, net Accounts receivable, net, comprised of trade receivables, are generally due within 30 days and are stated at amounts due from customers. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of any recoveries. The allowance is based primarily on assessment of specific identifiable customer accounts considered at risk or uncollectible, as well as an analysis of current receivables aging and expected future write-offs. The expense associated with the allowance for doubtful accounts is recognized as selling, general, and administrative expense. The Company has not historically experienced any significant credit losses. The following table summarizes the impact of accounts receivable reserves on the gross trade accounts receivable balances as of September 30, 2019 and December 31, 2018:
In thousands |  | September 30, 2019 |  |  | December 31, 2018 |
Gross trade accounts receivable |  | $ | 133,531 |  |  | $ | 86,133 |
Trade allowances |  |  | (27,947 | ) |  |  | (19,495 | )
Chargebacks |  |  | (2,001 | ) |  |  | (115 | )
Accounts receivable, net |  | $ | 103,583 |  |  | $ | 66,523 |
Inventory The Company states inventories at the lower of cost or net realizable value. Cost is determined based on actual cost using the average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. An allowance is established when management determines that certain inventories may not be saleable. If inventory cost exceeds expected net realizable value due to obsolescence, damage or quantities in excess of expected demand, changes in price levels or other causes, the Company will reduce the carrying value of such inventory to net realizable value and recognize the difference as a component of cost of goods sold in the period in which it occurs. The Company capitalizes inventory purchases of saleable product from approved suppliers while inventory purchases from suppliers prior to regulatory approval are included as a component of research and development expense. The Company expenses inventory identified for use as marketing samples when they are packaged. The average cost reflects the actual purchase price of Vascepa active pharmaceutical ingredient, or API. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other tax attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized. Deferred tax assets and liabilities are classified as non-current in the condensed consolidated balance sheet. The Company provides reserves for potential payments of tax to various tax authorities and does not recognize tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be decided based on its technical merits. The Company’s policy is to record interest and penalties in the provision for income taxes, as applicable. The Company regularly assesses its ability to realize deferred tax assets. Changes in historical earnings performance, future earnings projections, and changes in tax laws, among other factors, may cause the Company to adjust its valuation allowance on deferred tax assets, which would impact the Company’s income tax expense in the period in which it is determined that these factors have changed. Excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments are recognized as an income tax benefit and expense, respectively, in the condensed consolidated statement of operations. Excess income tax benefits are classified as cash flows from operating activities and cash paid to taxing authorities arising from the withholding of shares from employees are classified as cash flows from financing activities. The Company’s and its subsidiaries’ income tax returns are periodically examined by various tax authorities, including the Internal Revenue Service (IRS) and states. The Company completed the audit by the IRS for the years 2013 to 2014 in the prior year with no material changes to the filed income tax returns. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, the Company does not believe the outcome of these audits will have a material adverse effect on its consolidated financial position or results of operations. Loss per Share Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as common stock options calculated using the treasury stock method and convertible notes using the “if-converted” method. In periods with reported net operating losses, all common stock options are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal. The Company’s preferred stock is entitled to receive dividends on an as-if-converted basis in the same form as dividends actually paid on common shares. Accordingly, the preferred stock is considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred stock on the calculation of basic and diluted earnings per share. The Company is currently in a net loss position and is therefore not required to present the two-class method, however, in the event the Company is in a net income position, the two-class method must be applied by allocating all earnings during the period to common shares and preferred stock based on their contractual entitlements assuming all earnings were distributed. The calculation of net loss and the number of shares used to compute basic and diluted net loss per share for the three and nine months ended September 30, 2019 and 2018 are as follows:
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
In thousands |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net loss—basic and diluted |  | $ | (3,462 | ) |  | $ | (24,471 | ) |  | $ | (29,713 | ) |  | $ | (82,776 | )
Weighted average shares outstanding—basic and diluted |  |  | 350,994 |  |  |  | 295,595 |  |  |  | 336,938 |  |  |  | 291,526 |
Net loss per share—basic and diluted |  | $ | (0.01 | ) |  | $ | (0.08 | ) |  | $ | (0.09 | ) |  | $ | (0.28 | )
For the three and nine months ended September 30, 2019 and 2018, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
In thousands |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Stock options |  |  | 16,259 |  |  |  | 21,037 |  |  |  | 16,259 |  |  |  | 21,037 |
Restricted stock and restricted stock units |  |  | 9,359 |  |  |  | 9,634 |  |  |  | 9,359 |  |  |  | 9,634 |
Exchangeable senior notes (if converted) |  |  | — |  |  |  | 7,716 |  |  |  | — |  |  |  | 7,716 |
Preferred stock (if converted) |  |  | 28,932 |  |  |  | 28,932 |  |  |  | 28,932 |  |  |  | 28,932 |
Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains substantially all of its cash and cash equivalents in financial institutions believed to be of high-credit quality. A significant portion of the Company’s sales are to wholesalers in the pharmaceutical industry. The Company monitors the creditworthiness of customers to whom it grants credit terms and has not experienced any credit losses. The Company does not require collateral or any other security to support credit sales. Three customers individually accounted for 10% or more of the Company’s gross product sales. Customers A, B, and C accounted for 25%, 36%, and 29%, respectively, of gross product sales for the nine months ended September 30, 2019, and represented 42%, 23%, and 28%, respectively, of the gross accounts receivable balance as of September 30, 2019. Customers A, B, and C accounted for 26%, 31%, and 31%, respectively, of gross product sales for the nine months ended September 30, 2018 and represented 37%, 33%, and 17%, respectively, of the gross accounts receivable balance as of September 30, 2018. The Company has not experienced any significant write-offs of its accounts receivable. Concentration of Suppliers The Company has contractual freedom to source the API for Vascepa and to procure other services supporting its supply chain and has entered into supply agreements with multiple suppliers. The Company’s supply of product for commercial sale and clinical trials is dependent upon relationships with third-party manufacturers and suppliers. The Company cannot provide assurance that its efforts to procure uninterrupted supply of Vascepa to meet market demand will continue to be successful or that it will be able to renew current supply agreements on favorable terms or at all. Significant alteration to or termination of the Company’s current supply chain or its failure to enter into new and similar agreements in a timely fashion, if needed, could have a material adverse effect on its business, condition (financial and other), prospects or results of operations. The Company currently has manufacturing agreements with multiple independent FDA-approved API manufacturers and several independent FDA-approved API encapsulators and packagers for Vascepa manufacturing. Each of these companies has qualified and validated its manufacturing processes and is capable of manufacturing Vascepa. There can be no guarantee that these or other suppliers with which the Company may contract in the future to manufacture Vascepa or Vascepa API will remain qualified to do so to its specifications or that these and any future suppliers will have the manufacturing capacity to meet anticipated demand for Vascepa. Fair Value of Financial Instruments The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data. The following tables present information about the Company’s assets and liabilities as of September 30, 2019 and December 31, 2018 that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|  | September 30, 2019 |
In thousands |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Asset: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents—money markets |  | $ | 10,041 |  |  | $ | 10,041 |  |  | $ | — |  |  | $ | — |
|  | December 31, 2018 |
In thousands |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Asset: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents—money markets |  | $ | 9,880 |  |  | $ | 9,880 |  |  | $ | — |  |  | $ | — |
The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature. The carrying amounts and the estimated fair values of debt instruments as of September 30, 2019 and December 31, 2018 are as follows:
|  | September 30, 2019 |  |  | December 31, 2018 |
In thousands |  | Carrying Value |  |  | Estimated Fair Value |  |  | Carrying Value |  |  | Estimated Fair Value |
Current portion of long-term debt from royalty-bearing instrument, net of accrued interest |  | $ | 50,672 |  |  |  |  |  |  | $ | 33,602 |  |  |  |  |
Long-term debt from royalty-bearing instrument |  |  | 8,878 |  |  |  |  |  |  |  | 46,108 |  |  |  |  |
Total long-term debt from royalty-bearing instrument |  | $ | 59,550 |  |  | $ | 60,000 |  |  | $ | 79,710 |  |  | $ | 78,600 |
The estimated fair value of the long-term debt from royalty-bearing instrument is calculated utilizing the same Level 3 inputs utilized in valuing the related derivative liability (see Derivative Liabilities below). The carrying value of the long-term debt from royalty-bearing instrument as of both September 30, 2019 and December 31, 2018 did not include a debt discount as it had been fully amortized. Derivative Liabilities Derivative financial liabilities are recorded at fair value, with gains and losses arising for changes in fair value recognized in the condensed consolidated statement of operations at each period end while such instruments are outstanding. If the Company issues shares to discharge the liability, the derivative financial liability is derecognized and common stock and additional paid-in capital are recognized on the issuance of those shares. Long-Term Debt Redemption Feature The Company’s December 2012 royalty-bearing instrument financing arrangement (discussed in Note 5—Debt) contains a redemption feature whereby, upon a change of control, the Company would be required to repay $150.0 million, less any previously repaid amount. The Company determined this redemption feature to be an embedded derivative, which is carried at fair value and is classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs. The fair value of the embedded derivative was calculated using a probability-weighted model incorporating management estimates of future revenues and for a potential change in control, and by determining the fair value of the debt with and without the change in control provision included. The difference between the two was determined to be the fair value of the embedded derivative. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the condensed consolidated statement of operations. As of September 30, 2019, the fair value of the derivative was determined to be nil, and the debt was valued by comparing debt issues of similar companies with (i) remaining terms of between 0.8 and 7.6 years, (ii) coupon rates of between 6.4% and 11.5% and (iii) market yields of between 5.4% and 18.2%. As of December 31, 2018, the fair value of the derivative was determined to be nil based on underlying assumptions, and the debt was valued by comparing debt issues of similar companies with (i) remaining terms of between 1.3 and 4.0 years, (ii) coupon rates of between 5.4% and 10.8% and (iii) market yields of between 6.7% and 15.8%. As such, the Company recognized no gain or loss on change in fair value of derivative liability for the nine months ended September 30, 2019. The Company recognized no gain or loss on change in fair value of derivative liability for the nine months ended September 30, 2018. Certain changes in the assumptions used to value the derivative liability, including the probability of a change in control, could potentially result in a material change to the carrying value of such liability. Segment and Geographical Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company currently operates in one business segment, which is the development and commercialization of Vascepa. A single management team that reports to the Company’s chief decision-maker, who is the Chief Executive Officer, comprehensively manages the business. Accordingly, the Company does not have separately reportable segments. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, and are early adopted by the Company or adopted as of the specified effective date. In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for virtually all of their leases (other than leases that meet the definition of a short-term lease). Lessor accounting remains largely unchanged except for changes in the definition and classification of leases. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The FASB also proposed a transition method to allow entities to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all leases that existed at or commenced after January 1, 2019. The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated financial statements as of the effective date. See Note 11 – Leases for further details. The Company elected to apply the practical expedients in ASC 842-10-65-1 (f) and therefore:
| 1) | Did not reassess expired contracts for the presence of lease components therein and if it was already concluded that such contracts had lease components then the classification of the respective lease components therein was not re-assessed.
| 2) | Did not re-assess initial direct costs for any existing leases.
| 3) | Will not separate the lease and non-lease components.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which is intended to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this standard effective January 1, 2019, which did not have a material impact on the Company’s condensed consolidated financial statements. The Company also considered the following recent accounting pronouncements which were not yet adopted as of September 30, 2019: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s condensed consolidated financial statements. The Company believes that the impact of other recently issued but not yet adopted accounting pronouncements will not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows, or do not apply to the Company’s operations.

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