Discontinued Operations, Assets Held for Sale

As part of the company's strategic objective to focus its resources on its development pipeline, our management and board of directors have decided and committed to pursue a plan to sell or otherwise divest the company’s commercial business. A brief summary of each product in our commercial business is provided below.

Abstral^® (fentanyl) Sublingual Tablets, is a treatment option for inadequately controlled breakthrough cancer pain (BTcP), which is estimated to affect more than 50% of all cancer patients. Abstral is approved by the FDA, and is a sublingual (under the tongue) tablet for the management of breakthrough pain in patients with cancer, 18 years of age and older, who are already receiving, and who are tolerant to, opioid therapy for their persistent baseline cancer pain. The Abstral formulation delivers the analgesic power and increased bioavailability of micronized fentanyl in a sublingual tablet that is designed to dissolve under the tongue in seconds and provide relief of breakthrough pain within minutes. Abstral is a transmucosal immediate release fentanyl (TIRF) product with product class oversight by the TIRF Risk Evaluation and Mitigation Strategy (REMS) access program.

Zuplenz^® (ondansetron) Oral Soluble Film, is approved by the FDA in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting (CINV), radiotherapy-induced nausea and vomiting (RINV), and post-operative nausea and vomiting (PONV). Zuplenz is also approved in pediatric patients treated with moderately emetogenic CINV. Nausea and vomiting are two of the most common side-effects experienced by post-surgery patients and patients receiving chemotherapy or radiation. Zuplenz utilizes MonoSol’s proprietary PharmFilm^®technology, an oral soluble film that dissolves on the tongue in less than 30 seconds, therefore eliminating the burden of swallowing pills during periods of emesis. The active pharmaceutical ingredient in Zuplenz, ondansetron, belongs to a class of medications called serotonin 5-HT3 receptor antagonists and works by blocking the action of serotonin, a natural substance that may cause nausea and vomiting.

The company met the relevant criteria for reporting the commercial business as held for sale and in discontinued operations in the accompanying unaudited interim financial statements as of and for the three and nine month periods ended September 30, 2015, and 2014, pursuant to FASB Topic 205-20, Presentation of Financial Statements--Discontinued Operations, and FASB Topic 360, Property, Plant, and Equipment. The company has assessed the commercial business net asset group for impairment pursuant to FASB Topic 360, as discussed in Note 2, determining that the carrying value exceed the fair value of the assets, therefore has recorded a $8.1 million impairment charge as of September 30, 2015.

The company entered into an agreement with a third party firm to assist the company with the divestiture of its commercial operations including identifying potential acquirers. Pursuant to the terms of the agreement, in the event the company successfully completes a divestiture through the sale of its commercial operations to a third-party, the company is obligated to pay a success fee to the third party firm in an amount up to $900,000 of cash consideration received, 5% of realized future revenue and payment streams, as well as reimbursement for reasonable out-of-pocket expenses.

The company has also entered into compensatory arrangements related to the divestiture of our commercial business with certain members of commercial management. Under the terms of these arrangements, if the company meets certain sales and margin numbers in the fourth quarter of 2015 and successfully completes a divestiture through sale of its commercial operations to a third-party, the company may pay a retention fee to the three employees in a combined total amount equal to the lesser of $400,000 or 3% of cash consideration received as upfront payment in the transaction, with payment to each employee portion conditioned on his or her continued employment through the closing date of such a divestiture of one or both products and satisfaction of other terms. These employees may also receive severance payments equal to one month’s salary for between four and seven months in event the divestiture does not result in continued employment with the acquirer.

The following table presents a reconciliation of the carrying amounts of assets and liabilities of the commercial operations to assets held for sale, net in the balance sheets (in thousands):



	September 30, 2015			December 31, 2014
Carrying amounts of assets included as part of discontinued operations:
Accounts receivable	$	1,238		$	1,535
Inventories	1,318			655
Prepaid expenses and other current assets	1,064			1,747
Equipment and furnishings, net	241			270
Abstral rights, net	13,738			14,533
Zuplenz rights	8,101			8,101
Goodwill	172			172
Impairment charge from classification as assets held for sale	(8,071		)	—
Total current assets held for sale	17,801			27,013

Carrying amounts of liabilities included as part of discontinued operations:
Accounts payable	$	1,359		$	385
Accrued expenses and other current liabilities	6,338			6,784
Total current liabilities held for sale	$	7,697		$	7,169

The following table represents the components attributable to the commercial operations that are presented in the consolidated statement of comprehensive loss as discontinued operations (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net revenue	$	2,166		$	1,620		$	8,298		$	6,124
Cost of revenue	(712		)	(247		)	(1,573		)	(925		)
Amortization of certain acquired intangible assets	(208		)	(70		)	(795		)	(259		)
Research and development	(160		)	(219		)	(339		)	(619		)
Selling, general, and administrative	(4,672		)	(3,725		)	(13,577		)	(10,954		)
Non-operating income (expense)	(17		)	—			(17		)	—
Impairment charge from classification as assets held for sale	(8,071		)	—			(8,071		)	—
Loss from discontinued operations	$	(11,674	)	$	(2,641	)	$	(16,074	)	$	(6,633	)

The following table presents significant operating non-cash items and capital expenditures related to discontinued operations (in thousands):



	September 30, 2015			September 30, 2014
Impairment of assets held for sale	$	8,071		$	—
Depreciation and amortization	$	858		$	319
Stock-based compensation	$	788		$	557
Purchases of property and equipment	$	(34	)	$	—
Cash paid for acquisition of Zuplenz rights	$	(500	)	$	(3,056	)