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Discontinued Operations

12 Months Ended

Dec. 31, 2022

Discontinued Operations

Discontinued Operations

Note 3—Discontinued Operations

On December 23, 2021, we closed an Asset and Purchase Agreement for the sale of OMIDRIA and certain related assets including inventory and prepaid expenses. We retained the outstanding accounts receivable and all outstanding liabilities related to OMIDRIA as of the closing date.

Upon closing, we received an up-front cash payment of $126.0 million. We received a 50% royalty on OMIDRIA net sales in the U.S. following the sale of OMIDRIA. The occurrence of the milestone event in December 2022 resulted in recognition of the $200.0 million Milestone Payment and reduced our royalty rate on U.S. OMIDRIA net sales (the “U.S. base royalty rate”) to 30% until the expiration or termination of the last issued and unexpired U.S. patent, which we expect to occur no earlier than 2033. The U.S. base royalty rate would be reduced to 10% upon the occurrence of certain events described in the Asset Purchase Agreement, including during any specific period in which OMIDRIA is no longer eligible for separate payment.

The sale of OMIDRIA was recorded as an asset sale. Additionally, the results of operations for OMIDRIA are recorded as income from discontinued operations for all periods presented in the consolidated statements of operations and comprehensive income (loss).

The following schedule is a rollforward of the OMIDRIA contract royalty asset (in thousands):


OMIDRIA contract royalty asset at December 31, 2021		$	184,570
Royalties earned			(65,439)
Interest on OMIDRIA contract royalty asset			18,634
Remeasurement adjustments			14,457
OMIDRIA contract royalty asset at December 31, 2022		$	152,222

During the year ended December 31, 2022, we earned royalties of $65.4 million on U.S. net sales of OMIDRIA, which we recorded as a reduction from the OMIDRIA contract royalty asset. Additionally, we recorded $33.1 million of income in discontinued operations comprising effective interest on the OMIDRIA contract royalty asset and remeasurement adjustments.

Net income from discontinued operations, net of tax is as follows:


		Year Ended December 31,
		2022			2021			2020

		(In thousands)
Product sales, net		$	—		$	110,735		$	73,813
Costs and expenses			—			30,631			27,496
Gross margin			—			80,104			46,317
Gain on sale of OMIDRIA			—			305,648			—
Milestone income			200,000			—			—
Interest on OMIDRIA contract royalty asset			18,634			—			—
Remeasurement adjustments			14,457			—			—
Other income			307			1,035			—
Income before income tax			233,398			386,787			46,317
Income tax expense (1)			(3,952)			(1,006)			(11,245)
Net income from discontinued operations, net of tax		$	229,446		$	385,781		$	35,072

(1)

For further discussion of income tax expense refer to “Note 14 – Income Taxes”.

The year ended December 31, 2021 included a gain on the sale of OMIDRIA comprised as follows (in thousands):


Cash proceeds		$	125,993
OMIDRIA contract royalty asset			184,570
Gain on sale of OMIDRIA, gross			310,563
Transaction and closing costs			(1,972)
RSUs granted to transferred employees			(1,419)
Prepaid assets and inventory at cost			(1,524)
Gain on sale of OMIDRIA		$	305,648

Cash flow from discontinued operations is as follows:


		Year Ended December 31, 2022
		2022			2021			2020

		(In thousands)
Net cash provided by discontinued operations from operating activities		$	44,929		$	56,344		$	25,888
Net cash provided by discontinued operations from investing activities		$	—		$	125,993		$	—

We historically recorded revenue from product sales when the product was delivered to our wholesalers and title for the product was transferred. Product sales were recorded net of wholesaler distribution fees and estimated chargebacks, rebates, returns and purchase-volume discounts. Accruals or allowances were established for these deductions in the same period when revenue was recognized, and actual amounts incurred were offset against the applicable accruals or allowances. We reflected each of these accruals or allowances as either a reduction in the related accounts receivable or as an accrued liability depending on how the amount was expected to be settled.

Prior to the sale of OMIDRIA to Rayner, we sold OMIDRIA through four wholesalers. These wholesalers, including entities under their common control, each accounted for greater than 15% of our total revenues for the years ended December 31, 2021 and 2020. Collectively, they accounted for 100% of our total sales. These wholesalers, and entities under their common control, each represented greater than 10% of our accounts receivable as of December 31, 2021 and 2020.