UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 9, 2017
BioDelivery Sciences International, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-31361 | 35-2089858 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
|
4131 ParkLake Ave., Suite #225 Raleigh, NC |
27612 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 919-582-9050
Not Applicable
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
This Amendment No. 2 to Form 8-K (this “Form 8-K/A2”) amends the Current Report on Form 8-K/A (the “Form 8-K/A1”) originally filed by BioDelivery Sciences International, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”) on March 24, 2017.
In the Form 8-K/A1, the Company reported that was required to file certain abbreviated audited financial statement and pro forma financial information (collectively, the “BELBUCA ® Financial Statements”) related to the transactions contemplated by that certain Termination Agreement, dated December 7, 2016 (the “Termination Agreement”), by and between the Company and its wholly-owned subsidiaries, Arius Pharmaceuticals Inc. and Arius Two Inc., and Endo Pharmaceuticals, Inc., now known as Endo International plc, (“Endo”). Pursuant to the Termination Agreement, Endo’s licensing rights for the Company’s product BELBUCA ® (buprenorphine) buccal film (CIII) (“BELBUCA ® ”) were terminated, and the Company acquired from Endo certain net assets in connection therewith. As reported in the Form 8-K/A1, the Company has determined that the acquisition of such net assets should be treated as the acquisition of a business for financial accounting purposes, thus necessitating the preparing and filing of the BELBUCA ® Financial Statements
The purpose of this Form 8-K/A2 is to file the BELBUCA ® Financial Statements under Items 9.01(a) and 9.01(b) of Form 8-K and to amend Items 9.01(a) and 9.01(b) the Form 8-K/A1 accordingly.
The remainder of the Form 8-K/A1 remains unchanged.
Item 9.01 Financial Statements and Exhibits.
| (a) | Financial Statement of Businesses Acquired. |
The Company has been advised by Endo that it was impracticable to prepare complete financial statements related to the BELBUCA ® product line as required by Rule 3-05 of Regulation S-X. In this regard, the Company has been advised by Endo that the BELBUCA ® product line was not a separate legal entity of Endo and was never operated as a stand-alone business, division or subsidiary. Endo has also advised the Company that it has never prepared full stand-alone or full carve-out financial statements for the BELBUCA ® product line, and that Endo has never maintained the distinct and separate accounts necessary to prepare such financial statements. As a result, the Company is filing the following BELBUCA ® Financial Statements related to the product line for the purpose of complying with the requirements of Rule 3-05 of Regulation S-X:
| • | The audited statement of net assets acquired of the BELBUCA ® product line as of January 6, 2017 and the notes related thereto, which is filed as Exhibit 99.1 to this Current Report on Form 8-K/A2 and is hereby incorporated herein by reference. |
| • | The audited statement of revenues and direct expenses of the BELBUCA ® product line for the year ended December 31, 2016 and the notes related thereto, which is filed as Exhibit 99.2 to this Current Report on Form 8-K/A2 and is incorporated herein by reference. |
Pursuant to a letter, dated March 15, 2017, from the staff of the Division of Corporation Finance (the “Division”) of the SEC to the Company, the Division stated that it will not object to the Company’s conclusion that the filing of the above identified financial statements represents substantial compliance with the requirements of Rule 3-05 of Regulation S-X.
| (b) | Pro Forma Financial Information. |
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, and the notes related thereto, reflecting the Company’s acquisition of the BELBUCA ® product line, are filed as Exhibit 99.3 to this Current Report on Form 8-K/A2 and are incorporated herein by reference.
| (d) | Exhibits |
|
Exhibit No. |
Description |
|
| 23.1 | Consent of Cherry Bekaert LLP, Independent Registered Public Accounting Firm. | |
| 23.2 | Consent of PricewaterhouseCoopers LLP, Independent Auditor. | |
| 99.1 | Statement of Net Assets Acquired (audited) of the BELBUCA ® product line as of January 6, 2017 and the notes related thereto. | |
| 99.2 | Statement of Revenues and Direct Expenses (audited) of the BELBUCA ® product line for the year ended December 31, 2016 and the notes related thereto. | |
| 99.3 | Unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, and the notes related thereto. | |
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K/A and any statements of representatives and partners of BioDelivery Sciences International, Inc. (the “Company”) related thereto, contain, or may contain, among other things, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to the Company’s plans, objectives, projections, expectations and intentions and other statements identified by words such as “projects,” “may,” “will,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “potential” or similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission. Actual results (including, without limitation, the results of the Company’s reacquisition of, and commercialization efforts for BELBUCA ® as described therein) may differ significantly from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control). The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIODELIVERY SCIENCES INTERNATIONAL, INC. | ||||||
| Dated: June 1, 2017 | By: | /s/ Ernest R. De Paolantonio | ||||
| Name: | Ernest R. De Paolantonio | |||||
| Title: | Chief Financial Officer, Treasurer and Secretary | |||||
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in each of the Registration Statements on Form S-3 (Nos. 333-133629, 333-133630, 333-135746, 333-143247, 333-149671, 333-157173, 333-156839, 333-173261, 333-192618, 333-179257, 333-205483, and 333-160121) and Form S-8 (Nos. 333-143590, 333-176476, 333-190796, and 333-206326) of BioDelivery Sciences International, Inc. of our report dated June 1, 2017, relating to the Statement of Net Assets Acquired of the BELBUCA ® Product Line of Endo Pharmaceuticals, Inc., which is included in the Current Report on Form-8K/A of BioDelivery Sciences International, Inc. dated June 1, 2017.
/s/ Cherry Bekaert LLP
Raleigh, North Carolina
June 1, 2017
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-133629, 333-133630, 333-135746, 333-143247, 333-149671, 333-157173, 333-156839, 333-173261, 333-192618, 333-179257, 333-205483, and 333-160121) and on Form S-8 (Nos. 333-143590, 333-176476, 333-190796, and 333-206326) of BioDelivery Sciences International, Inc. of our report dated June 1, 2017 relating to the statement of revenues and direct expenses of the BELBUCA ® Product Line of Endo Pharmaceuticals, Inc., which appears in this Current Report on Form 8-K/A of BioDelivery Sciences International, Inc.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 1, 2017
EXHIBIT 99.1
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
STATEMENT OF NET ASSETS ACQUIRED
INDEX
|
ITEM |
PAGE | |||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
BioDelivery Sciences International, Inc.
We have audited the accompanying Statement of Net Assets Acquired (the “Financial Statement”) of the BELBUCA ® product line (“BELBUCA ® ”) of Endo Pharmaceuticals, Inc. acquired by BioDelivery Sciences International, Inc. (the “Company”) as of January 6, 2017. The Financial Statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this Financial Statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Financial Statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the amendment to the current report on Form 8-K of the Company. As described in Note 2, the accompanying Financial Statement attributable to BELBUCA ® is not intended to be a complete presentation of BELBUCA ® ’s financial position.
In our opinion, the Financial Statement referred to above presents fairly, in all material respects, the net assets acquired of BELBUCA ® as of January 6, 2017, in conformity with U.S. generally accepted accounting principles.
/s/ CHERRY BEKAERT LLP
Raleigh, North Carolina
June 1, 2017
F-2
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
STATEMENT OF NET ASSETS ACQUIRED
(in thousands)
|
January 6,
2017 |
||||
|
NET ASSETS ACQUIRED |
||||
|
Inventory |
$ | 5,412 | ||
|
Equipment |
432 | |||
|
Intangible net assets |
45,000 | |||
|
Deferred tax liability |
(15,972 | ) | ||
|
|
|
|||
|
Total net assets acquired |
$ | 34,872 | ||
|
|
|
|||
The accompanying notes are integral part of the statement of net assets acquired.
F-3
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
1. Description of Business and Acquisition of BELBUCA ®
On December 7, 2016, BioDelivery Sciences International, Inc., (“BDSI”) entered into an agreement (the “Termination Agreement”) between it and its wholly-owned subsidiaries, Arius Pharmaceuticals Inc. and Arius Pharmaceuticals Two Inc., and Endo Pharmaceuticals, Inc. (“Endo”) terminating Endo’s licensing rights for the Company’s product BELBUCA ® (buprenorphine) buccal Film (CIII) (“BELBUCA ® ”). The transaction contemplated by the Termination Agreement closed on January 6, 2017 and BDSI acquired from Endo the rights, title and interest to the BELBUCA ® net assets in accordance with the termination agreement.
BELBUCA ® is a partial mu-opioid agonist and a treatment indicated for the management of pain severe enough to require daily, around the clock, long-term opioid treatment for which alternative treatment options are inadequate.
2. Basis of presentation
The accompanying statement of net assets acquired was prepared for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities and Exchange Commission and for inclusion in the Company’s filings with the Securities and Exchange Commission, and is not intended to be a complete presentation of the financial position of the BELBUCA ® business. The Company has been advised by Endo that it is impracticable to prepare complete financial statements related to the BELBUCA ® business as the business was not a separate legal entity of Endo and was never operated as a stand-alone business, division or subsidiary. Endo has also advised the Company that it has never prepared full stand-alone or full carve-out financial statements for the BELBUCA ® business, and that Endo has never maintained the distinct and separate accounts necessary to prepare such financial statements. Accordingly, the accompanying statement of net assets acquired does not purport to present the financial position of the BELBUCA ® product line that would have resulted if BELBUCA ® had operated as a standalone, separate business. The Company has determined that the acquisition of net assets of BELBUCA ® as of January 6, 2017 constitutes a business acquisition (“BELBUCA ® business”) as defined by Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805, Business Combinations. Accordingly, the net assets acquired are presented at their acquisition date fair values as required by that statement. Fair values are determined based on the requirements of FASB ASC 820, Fair Value Measurements and Disclosures.
Use of estimates
Accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the amounts reported in the financial statements. Such estimates include, but are not limited to, valuation of intangibles and deferred tax liabilities. Actual results could differ from those estimates.
Inventory
Inventory is measured at fair value. For finished goods, the fair value was estimated by adjusting the anticipated selling price for costs to sell and an appropriate profit on selling activities. For work-in-process, in addition to those inputs used to estimate the fair value of finished goods, the cost and estimated profit on completing the manufacturing are also included. Raw materials include amounts of active pharmaceutical ingredient for a product to be manufactured. Following is a breakdown of the inventory value based on stage of completion (in thousands):
|
Raw materials & supplies |
$ | 597 | ||
|
Work-in-process |
3,253 | |||
|
Finished goods |
1,562 | |||
|
|
|
|||
|
Total inventory |
$ | 5,412 | ||
|
|
|
The accompanying notes are integral part of the statement of net assets acquired.
F-4
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
Equipment
Equipment is measured at fair value and as estimated by the Company, which considered replacement cost and equipment condition. The asset will be depreciated on a straight-line basis over a seven-year period based on the estimated remaining useful life of the equipment at the time of acquisition.
Intangible assets
The intangible assets are comprised of license and distribution rights, which were estimated to have a fair value of $45.0 million. The fair value of the assets was determined primarily using the “income method,” which starts with a forecast of all expected future cash flows. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including net revenue, cost of sales, commercial expenses, research and development costs and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors.
The license and distribution rights intangible asset will be amortized on a straight-line basis over ten years, which approximates the current, remaining patent life of the BELBUCA ® intellectual property.
Deferred tax liability
The deferred tax liability represents the taxable impact on the date of acquisition of the difference between the net assets acquired and the consideration paid at the Company’s blended federal and state statutory income tax rates.
F-5
EXHIBIT 99.2
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
STATEMENT OF REVENUES AND DIRECT EXPENSES
INDEX
|
ITEM |
PAGE | |||
|
Report of Independent Auditors |
FA-2 | |||
| FA-3 | ||||
| FA-4 | ||||
FA-1
Report of Independent Auditors
To the Board of Directors and Management of Endo Pharmaceuticals, Inc.
We have audited the accompanying statement of revenues and direct expenses of the BELBUCA ® Product Line of Endo Pharmaceuticals, Inc. for the year ended December 31, 2016.
Management’s Responsibility for the Statement of Revenues and Direct Expenses
Management is responsible for the preparation and fair presentation of the statement of revenues and direct expenses in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of a statement of revenues and direct expenses that is free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the statement of revenues and direct expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and direct expenses is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues and direct expenses. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the statement of revenues and direct expenses, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the statement of revenues and direct expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statements of revenues and direct expenses. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the statement of revenues and direct expenses referred to above presents fairly, in all material respects, the revenues and direct expenses of the BELBUCA ® Product Line of Endo Pharmaceuticals, Inc. for the year ended December 31, 2016 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying special purpose statement of revenues and direct expenses was prepared in connection with Endo Pharmaceuticals Inc.’s divesture of the BELBUCA ® Product Line and, as described in Note 1, was prepared in accordance with an SEC waiver received by the buyer, for the purposes of the buyer complying with Rule 3-05 of the Securities and Exchange Commission’s Regulation S-X. This special purpose statement of revenues and direct expenses is not intended to be a complete presentation of the revenues and direct expenses of the BELBUCA ® Product Line of Endo Pharmaceuticals, Inc. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 1, 2017
FA-2
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
STATEMENT OF REVENUES AND DIRECT EXPENSES
(in thousands)
|
Twelve Months
Ended December 31, 2016 |
||||
|
Total Revenues |
$ | 11,074 | ||
|
Costs and Expenses: |
||||
|
Cost of revenues |
17,237 | |||
|
Selling general and administrative |
106,523 | |||
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Research and development |
2,184 | |||
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Asset impairment charges |
34,887 | |||
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Severance and contract termination costs |
15,485 | |||
|
|
|
|||
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Product Contribution |
$ | (165,242 | ) | |
|
|
|
|||
The accompanying notes are integral part of the statement of net assets acquired.
FA-3
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
1. Description of business and basis of presentation
On January 5, 2012, Endo Pharmaceuticals, Inc. (Endo) and BioDelivery Services, Inc. (BDSI) entered into a License and Development Agreement, pursuant to which BDSI granted Endo an exclusive license under BDSI’s intellectual property to develop, make or have made, use, offer for sale, sell, import, market and promote BELBUCA ® (buprenorphine) buccal film (BELBUCA ® ). On December 7, 2016, Endo and BDSI entered into an agreement (the “termination agreement”) to terminate Endo’s licensing rights for BELBUCA ® . The transaction closed on January 6, 2017. At the closing date, BDSI purchased from Endo the following net assets (the “net assets”): (i) current BELBUCA ® product inventory and work-in-progress, (ii) material manufacturing contracts related to BELBUCA ® , (iii) BELBUCA ® -related domain names and trademarks (including the BELBUCA ® trademark), (iv) BELBUCA ® -related manufacturing equipment, and (v) all pre-approval regulatory submissions, including any Investigational New Drug Applications and New Drug Applications, regulatory approvals and post-approval regulatory submissions concerning BELBUCA ® . The purchase price for the net assets (the “Asset Purchase Price”) was equal to the sum of: (i) the aggregate book value of the portion of the transferred product inventory forecasted to be used or sold by BDSI, (ii) the aggregate book value of work-in-progress inventory, and (iii) the assumption of any assumed liabilities. Together with the Asset Purchase Price, pursuant to the terms of the termination agreement, BDSI will also pay to Endo a fee in the amount of $5 million in consideration for (i) Endo’s agreement not to compete for a period of two years from the closing date of the termination agreement and (ii) Endo’s waiver of its right to sell product for twelve months following the closing of the termination agreement.
The accompanying statements present the revenues and direct expenses of the BELBUCA ® product line and have been prepared for inclusion in BDSI’s filings with the Securities and Exchange Commission under Rule 3-05 of Regulation S-X. It is impracticable to prepare complete financial statements related to the BELBUCA ® product line as the product line was not a separate legal entity of Endo and was never operated as a stand-alone business, division or subsidiary. Endo has never prepared full stand-alone or full carve-out financial statements for the BELBUCA ® product line, and has never maintained the distinct and separate accounts necessary to prepare such financial statements. Because Endo did not account for the BELBUCA ® product line as a separate entity, these statements were derived from the operating activities directly attributed to the BELBUCA ® product line from Endo’s books and records. These resulting statements of revenues and certain direct expenses are measured in accordance with United States generally accepted accounting principles (US GAAP). In addition, the information included in the accompanying statements contains allocations of certain field selling expense, selling and marketing costs, internal general and administrative costs and internal research and development expense associated with the BELBUCA ® product line, generally on the basis of estimated selling effort or other reasonable and consistently applied allocation methodologies. Although management is unable to determine all of the actual costs, expenses and resultant operating results associated with the BELBUCA ® product line as a stand-alone, separate entity, the allocation described elsewhere in these statements is considered reasonable by management. However, the direct expenses and revenues of the BELBUCA ® product line may differ from the results that would have been achieved had the BELBUCA ® product line operated as a separate entity. As described in more detail in Note 2, the accompanying statements exclude certain of the costs borne by Endo to support the BELBUCA ® product line. As such, the accompanying statements are not indicative of the results of the BELBUCA ® product line going forward due to the omission of various operating expenses that will be incurred to operate the BELBUCA ® product line in the future and to the different expense structures and commercialization infrastructure related to the BELBUCA ® product line maintained by Endo.
The BELBUCA ® product line’s financing needs were supported by Endo and cash generated by the BELBUCA ® product line was transferred to Endo. As the BELBUCA ® product line has historically been managed as part of the operations of Endo and has not operated as a stand-alone entity, it is impractical to prepare historical cash flow information regarding the BELBUCA ® product line’s operating, investing, and financing cash flows. As such, information on Cash Flows is not presented herein.
2. Corporate Overhead and Accounting
Endo performs certain functions for the BELBUCA ® product line including, but not limited to, corporate management, certain legal services, administration of insurance, regulatory and compliance, treasury, information systems, finance, corporate income tax administration, employee compensation and benefit management, facilities and other corporate expenses. The costs of these functions historically have not been allocated to its products, are not directly attributable or specifically identifiable to the BELBUCA ® product line, and therefore, are not included in the
FA-4
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
accompanying statements. Income taxes and interest expense have not been included in the accompanying statements as these expenses are not specifically identifiable to the BELBUCA ® product line.
3. Summary of significant accounting policies
Revenue recognition
BELBUCA ® is the first and only Schedule III long-acting opioid that uses novel buccal film technology to deliver buprenorphine for appropriate patients living with chronic pain. Endo launched BELBUCA ® in February 2016. Through December 31, 2016, due to uncertainties around market acceptance, Endo determined that it did not have the ability to estimate sales returns at the time that title and risk of loss transfers to the customer. Therefore, Endo recognized revenue for sales of the BELBUCA ® product line based on the “sell-through” model. Under the “sell-through” model, Endo recognizes revenue, net of estimated rebates, discounts and allowances, when the product is dispensed to a patient through the fulfilment of a prescription.
Sales deductions
The US market has complex arrangements for rebates, discounts and allowances. Endo establishes contracts with wholesalers, chain stores and indirect customers that provide for rebates, sales incentives, certain fees, and other allowances. Endo estimates rebates, sales incentives and other allowances based upon the terms of the contracts with its customers, estimated inventory levels at its customers and estimated future trends. The following briefly describes the nature of the arrangements included in the financial statements.
Coupons
Coupon programs are offered to patients to help lower out-of-pocket costs for certain prescription medicines. Endo records an adjustment to gross sales based on an estimate of the units to be redeemed at the coupon value.
Rebates
Endo’s rebate programs can generally be categorized into the following four types (i) direct rebates, (ii) indirect rebates, (iii) managed care rebates, and (iv) Medicaid and Medicare Part D rebates.
Direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer’s purchases from us, including fees paid to wholesalers under Endo’s distribution service agreements (DSA). Indirect rebates are rebates paid to indirect customers which have purchased Endo’s products from a wholesaler under a contract with Endo.
Endo is subject to rebates on sales made under governmental and managed-care pricing programs. In estimating Endo’s provisions for these types of rebates, Endo considers relevant statutes with respect to governmental pricing programs and contractual sales terms with managed-care providers and group purchasing organizations. Starting in 2011, as a result of the implementation of certain provisions of the Patient Protection and Affordable Care Act (PPACA), Endo is required to provide a 50% discount on its brand-name drugs to patients who fall within the Medicare Part D coverage gap, also referred to as the donut hole. Endo estimates an accrual for Managed Care, Medicaid, Medicare Part D and Coverage Gap rebates as a reduction of revenue at the time product sales are recorded. These rebate reserves are estimated based upon the historical utilization levels, historical payment experience, historical relationship to revenues, estimated future trends, and include an estimate of outstanding claims for end-customer sales that occurred but for which the related claim has not been billed and an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants. Changes in the level of utilization of Endo’s products through private or public benefit plans and group purchasing organizations will affect the amount of rebates that Endo owes.
FA-5
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Other sales deductions
Endo offers certain of its customers prompt pay cash discounts. Provisions for prompt pay discounts are estimated and recorded at the time of sale. Endo estimates provisions for cash discounts based on contractual sales terms with customers, an analysis of unpaid invoices and historical payment experience. Estimated cash discounts have historically been predictable and less subjective due to the limited number of assumptions involved, the consistency of historical experience and the fact that Endo generally settles these amounts within 30 to 60 days.
Cost of revenues
Endo contracted with third party manufacturers for the manufacturing of BELBUCA ® . Accordingly, the cost of revenues includes cost of materials and costs associated with the services provided by the third party manufacturers, as well as other ancillary costs such as freight, distribution, certain overhead costs, intangible asset amortization, and inventory write-offs of approximately $9.3 million, including product that is obsolete or otherwise disposed. Cost of revenues for the period ending December 31, 2016 specifically includes approximately $3.4 million of amortization expense related to the BELBUCA ® intangible asset and inventory write-offs of approximately $3.0 million related to product that was not expected to be transferred to BDSI and was not expected to be sold by Endo prior to the transaction. Cost of revenues also includes royalty expense of 14% of net sales, or $1.6 million, payable to BDSI, which was paid in the first quarter of 2017.
During the twelve months ended December 31, 2016, Endo sold certain BELBUCA ® product that was purchased in 2015, prior to FDA-approval. Due to uncertainties associated with regulatory approval, Endo determined that this pre-launch inventory did not meet the definition of an asset and therefore expensed the cost of these units, which approximated $2.0 million as research and development costs in 2015. As a result, cost of revenues for the twelve months ended December 31, 2016 does not include all the costs associated with the product sold during this period.
Operating expenses
Operating expenses primarily consist of selling, general and administrative expenses, research and development expenses, asset impairment charges, and severance and contract termination costs, which are more fully described below.
Selling, general, and administrative expenditures are recognized in respect of goods and services received when supplied in accordance with contractual terms. Provision is made when an obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated. Advertising and promotion expenditure is charged to the income statement as incurred over the period of the corresponding activity. Field selling expenses has been allocated based on the estimated level of selling effort associated with the BELBUCA ® product line relative to the total estimated selling effort for Endo’s U.S. Branded Pain business, or approximately 65% for which Endo maintained a separate and distinct sales force. Endo eliminated all promotional efforts and field selling effort related to the BELBUCA ® product line in December 2016. See further discussion below.
Research and development expenditure is charged to the Statement of Revenues and Certain Direct Expenses in the period in which it is incurred.
Amortization expense
An in-process research and development intangible asset was recorded when Endo licensed the rights to BELBUCA ® from BDSI in January 2012. In October 2015, Endo launched BELBUCA ® in the US and concurrently placed the asset into service and began amortizing the asset over its estimated useful life of 11.5 years. Endo ceased amortization on December 7, 2016, the date on which Endo and BDSI agreed to terminate the license agreement and return the product rights to BDSI as the BELBUCA ® intangible asset was considered held for sale as of that date under the applicable accounting guidance. As noted above, for the period ending December 31, 2016, approximately $3.4 million of amortization expense is included within cost of revenues in the Statement of Revenues and Certain Direct Expenses.
FA-6
BELBUCA ® PRODUCT LINE OF ENDO PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Asset impairment charges
Endo’s strategic decision to terminate the license agreement with BDSI was considered a triggering event requiring an assessment of the BELBUCA ® intangible asset for impairment. Endo determined that the fair value of the intangible asset, using a discounted cash flow analysis, was below its carrying value, resulting in an impairment charge of approximately $35 million.
Severance and contract termination costs
Concurrent with Endo’s decision to terminate the BELBUCA ® license agreement with BDSI, Endo also announced the decision to eliminate its approximately 375-member Pain sales force. Endo recorded certain employee severance and contract termination costs associated with this action. The full amount of the contract termination costs related to the contract sales organization, approximately $4.5 million, has been attributed to the BELBUCA ® product line because the contract sales organization was exclusively dedicated to the BELBUCA ® product line. Approximately $10.7 million of employee severance costs and approximately $0.4 million of other contract termination costs incurred during the period ending December 31, 2016, have been allocated to the BELBUCA ® product line based on the estimated level of selling effort associated with the BELBUCA ® product line relative to the total estimated selling effort for Endo U.S. branded pain business. These actions were completed by December 31, 2016 and substantially all of the cash payments are anticipated to be made by the end of 2017. The liability for these severance and contract termination costs was retained by Endo as part of the transaction with BDSI.
Use of estimates
In normal practice, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the statement of revenues and certain direct expenses and accompanying disclosures. Some of the more significant estimates include those related to rebates, discounts, and allowances, and actual results could differ from those estimates. Where possible, estimates have been updated to reflect actual results.
As discussed in Note 1, these statements are not necessarily indicative of the costs and expenses that would have resulted if the BELBUCA ® product line had been operated as a separate entity.
Concentration of credit risk
Sales of BELBUCA ® during the relevant period were made primarily to three U.S. pharmaceutical wholesalers. These three wholesalers accounted for approximately 94% of the BELBUCA ® product line’s total shipments in 2016. Because sales are recognized on a “sell-through” model, it is not possible determine the exact amount of revenue recognized during the period related to any particular direct customer.
4. Subsequent events
Endo has evaluated its activity after December 31, 2016 and through the date of issuance of the financial statements, June 1, 2017, and is not aware of any events that have occurred subsequent to December 31, 2016 that would require adjustments to or disclosure in these financial statements and related notes thereto.
FA-7
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The accompanying unaudited pro forma condensed combined statement of operations of BioDelivery Sciences International, Inc. (the “Company”) is presented to illustrate the estimated effects on the historical results of operations of the Company of the transactions (the “BELBUCA ® Transaction”) contemplated by that certain Termination Agreement, dated December 7, 2016 (the “Termination Agreement”), by and between the Company and its wholly-owned subsidiaries, Arius Pharmaceuticals Inc. and Arius Two Inc., and Endo Pharmaceuticals, Inc. (“Endo”). Such transactions pertain to the termination of Endo license to the Company’s BELBUCA ® product and related acquisition by the Company of certain net assets in connection therewith. Such transaction closed on January 6, 2017.
The unaudited pro forma combined financial statement is based upon and derived from and should be read in conjunction with the Company’s historical audited financial statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K for such period, and the historical audited Statement of Revenues and Direct Expenses for the year ended December 31, 2016 of the BELBUCA ® product line included elsewhere in this Form 8-K/A. The unaudited pro forma combined statement of operations for the year ended December 31, 2016 assumes that the BELBUCA ® Transaction was completed on January 1, 2016.
The Company has determined that the BELBUCA ® Transaction constitutes a business combination as defined by Accounting Standards Codification 805, Business Combinations (“ASC 805”). Under ASC 805, the net assets acquired are recorded at their acquisition date fair values as described in the accompanying notes included elsewhere in this Form 8-K/A. Any excess of the purchase price over the fair value of net assets acquired is recognized as goodwill and any deficit is recorded as a bargain purchase gain and included in income. Fair values of net assets acquired are determined based on the requirements of ASC 820 Fair Value Measurements and Disclosures . The fair values of net assets acquired are based on the preliminary estimates of fair values as of the closing date of the BELBUCA ® Transaction.
The pro forma adjustments are preliminary and are based upon available information and certain assumptions, described in the accompanying notes to the unaudited pro forma condensed combined statement of operations that Company management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined statement of operations. Management believes the fair values recognized for the net assets acquired are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available, primarily as pertaining to the fair value of inventory acquired, taxes and accruals. There can be no assurance that the final determination will not result in material changes from these preliminary amounts.
The unaudited pro forma condensed combined statement of operations has been prepared by Company management in accordance with the Article 11 of Regulation S-X, and is not necessarily indicative of the combined results of operations that would have been realized had the acquisition occurred as of the date indicated, nor is it meant to be indicative of future results of operations that the Company will experience as a result of the BELBUCA ® Transaction. In addition, the accompanying unaudited pro forma combined statement of operations does not include any pro forma adjustments to reflect operational efficiencies, expected cost savings or economies of scale which may be achievable or the impact of any non-recurring charges and one-time transaction related costs that result directly from the BELBUCA ® Transaction. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the BELBUCA ® Transaction, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statement of operations, expected to have continuing impact on the combined results of operations.
This unaudited pro forma condensed combined statement of operations should be read in conjunction with:
| • | the Company’s historical audited financial statements and accompanying notes as of and for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K, filed with the Securities Exchange Commission (“SEC”) on March 16, 2017; |
| • | the Company’s historical unaudited financial statements and accompanying notes as of the three months ended March 31, 2017, filed with the SEC on May 15, 2017; |
| • | the audited Statement Net Assets Acquired of the BELBUCA ® product line as of January 6, 2017 and the accompanying notes included as Exhibit 99.1 to this Form 8-K/A; and |
| • | the audited Statement of Revenues and Direct Expenses of the BELBUCA ® product line and the accompanying notes for the year ended December 31, 2016 included as Exhibit 99.2 to this Form 8-K/A. |
FB-1
Description of the BELBUCA ® Transaction
On January 6, 2017, the Company consummated the BELBUCA ® Transaction whereby Endo’s licensing rights for the Company’s product BELBUCA ® (buprenorphine) buccal film (CIII) was terminated.
At the closing of the BELBUCA ® Transaction, the Company acquired from Endo the following net assets (the “net assets”): (i) current BELBUCA ® product inventory, work-in-progress and raw materials, (ii) material manufacturing contracts related to BELBUCA ® , (iii) BELBUCA ® -related domain names and trademarks (including the BELBUCA ® trademark), (iv) BELBUCA ® -related manufacturing equipment, and (v) all pre-approval regulatory submissions, including any Investigational New Drug Applications and New Drug Applications, regulatory approvals and post-approval regulatory submissions concerning BELBUCA ® .
The purchase price was equal to the sum of: (i) the aggregate book value of the portion of the transferred product inventory forecasted to be used or sold by the Company, (ii) the aggregate book value of work-in-progress and raw materials inventory, (iii) the cash consideration for non-compete and (iv) the book value of certain manufacturing equipment. At closing, the Company accepted transfer of the net assets and assumed and agreed to discharge when due all applicable liabilities assumed by the Company, which consisted of post-closing obligations for liabilities and payments associated with the net assets, the assumed contracts related to the net assets and applicable taxes (with the obligation for pre-closing and other certain liabilities resulting from the acts or omissions of Endo being retained by Endo).
BELBUCA ® is a partial mu-opioid agonist and a treatment indicated for the management of pain severe enough to require daily, around the clock, long-term opioid treatment for which alternative treatment options are inadequate.
The estimated effects of the BELBUCA ® Transaction are presented under pro forma adjustments column in the unaudited pro forma condensed combined statement of operations.
FB-2
BIODELIVERY SCIENCES INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands, except per share amounts)
|
BDSI
Historical |
BELBUCA
®
Historical (1) |
Reclassification
Adjustments (1) |
Pro forma
Adjustments |
BDSI Pro
forma, as adjusted |
||||||||||||||||
|
Total revenues |
$ | 15,546 | $ | 11,074 | $ | — | $ | (1,600 | ) (3) | $ | 25,010 | |||||||||
| (10 | ) (6) | |||||||||||||||||||
|
Cost of sales |
11,258 | 17,237 | (3,400 | ) | (1,600 | ) (3) | 26,651 | |||||||||||||
| 3,151 | (4) | |||||||||||||||||||
| 5 | (5) | |||||||||||||||||||
|
Expenses |
||||||||||||||||||||
|
Research and development |
18,878 | 2,184 | — | 10 | (6) | 21,072 | ||||||||||||||
|
Selling, general and administrative |
49,345 | 106,523 | 3,400 | 1,100 | (7) | 160,368 | ||||||||||||||
|
Asset impairment charges |
— | 34,887 | — | (34,887 | ) (8) | — | ||||||||||||||
|
Severance and contract termination costs |
— | 15,485 | — | — | 15,485 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total expenses |
68,223 | 159,079 | 3,400 | (33,777 | ) | 196,925 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Loss from operations |
$ | (63,935 | ) | $ | (165,242 | ) | $ | — | $ | 30,611 | $ | (198,566 | ) | |||||||
|
Interest expense, net |
(3,267 | ) | (3,267 | ) | ||||||||||||||||
|
Other income, net |
64 | 64 | ||||||||||||||||||
|
Bargain purchase gain |
— | — | (2) | — | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Loss before income taxes |
(67,138 | ) | (201,769 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Income tax benefit |
— | — | (2) | — | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Net loss |
(67,138 | ) | (201,769 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Net loss per share, basic |
$ | (1.25 | ) | $ | (3.76 | ) | ||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Weighted-average common shares, basic |
53,679 | 53,679 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Net loss per share, diluted |
$ | (1.25 | ) | $ | (3.76 | ) | ||||||||||||||
|
|
|
|
|
|||||||||||||||||
|
Weighted-average common shares, diluted |
53,679 | 53,679 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined statement of operations
FB-3
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
| 1. | Basis of presentation |
The historical financial information presented herein has been adjusted to give pro forma effect to events that are (i) directly attributable to the BELBUCA ® Transaction, (ii) factually supportable and (iii) expected to have a continuing impact on the Company’s results. The adjustments for the BELBUCA ® Transaction are preliminary and based on estimates of the fair value and useful lives of the net assets acquired and have been prepared to illustrate the estimated effect of the BELBUCA ® Transaction and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of net assets acquired and liabilities assumed as of the closing date and could result in a significant change to the unaudited pro forma condensed combined statement of operations, including the bargain purchase gain.
The unaudited pro forma condensed combined statement of operations was prepared using the acquisition method of accounting in accordance with ASC 805 and uses the fair value concepts defined in ASC Topic 820 (“ASC 820”), Fair Value Measurement. The unaudited pro forma condensed combined statement of operations is based on the audited historical consolidated financial statements of the Company and the BELBUCA ® product line. Under ASC 805, all of the net assets acquired and liabilities assumed in a business combination are recognized at their assumed acquisition date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the purchase consideration over the fair value of net assets acquired and liabilities assumed, if any, is allocated to goodwill. If the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase gain is immediately recognized in results from operations.
The allocation of purchase consideration for the BELBUCA ® Transaction depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined statement of operations. A final determination of fair values of net assets acquired and liabilities assumed relating to the BELBUCA ® Transaction could differ materially from the preliminary allocation of purchase consideration. This final valuation will be based on the actual net tangible and intangible net assets for the BELBUCA ® product line existing at the acquisition date. The final valuation may materially change the allocation of purchase consideration, which could materially affect the fair values assigned to the net assets and liabilities and could result in a material change to the unaudited pro forma condensed combined statement of operations.
The unaudited pro forma condensed combined statement of operations is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined statement of operations does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the BELBUCA ® Transaction, the costs to integrate the BELBUCA ® product line operations into the Company, or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.
Historical BELBUCA ® Product Line Financial Information
The BELBUCA ® product line was not a separate legal entity of Endo and was never operated as a stand-alone business, division or subsidiary. Endo has never prepared full stand-alone financial statements for the BELBUCA ® product line, and has never maintained the distinct and separate accounts necessary to prepare such financial statements. Accordingly, Endo advised the Company that it was impractical to prepare the complete financial statements related to the BELBUCA ® product line. The audited Statement of Revenues and Direct Expenses included as Exhibit 99.2 in this Form 8-K/A, was derived from the operating activities directly attributed to the BELBUCA ® product line from Endo’s books and records.
FB-4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
| 2. | The following table reflects the preliminary allocation of the total purchase price of BELBUCA ® to the net assets acquired and the resulting bargain purchase gain based on the preliminary estimates of fair value (in thousands): |
|
As of December 31,
2016 |
||||
| Purchase price: | ||||
|
Deferred cash consideration (i) |
$ | 7,536 | ||
|
|
|
|||
|
Total purchase price |
$ | 7,536 | ||
|
|
|
|||
| Estimated fair value of net assets acquired: | ||||
|
Inventory (ii) |
$ | 5,412 | ||
|
Equipment (iii) |
432 | |||
|
Intangible net assets – License and Distribution Rights for BELBUCA ® (iv) |
45,000 | |||
|
Deferred tax liability (v) |
(15,972 | ) | ||
|
|
|
|||
|
Amount attributable to net assets acquired |
$ | 34,872 | ||
|
|
|
|||
|
Bargain purchase gain (vi) |
$ | 27,336 | ||
|
|
|
|||
| (i) | In accordance with the agreement, beginning in April 2017 the Company will pay Endo an aggregate of $7.5 million of purchase consideration in equal quarterly installments. The purchase consideration includes the aggregate value of the inventory and used equipment it acquired in the transaction, which was valued at Endo’s cost basis, and an amount ascribed to the termination of the existing License and Development Agreement with Endo, dated January 5, 2012. |
| (ii) | The fair value of the acquired finished goods inventory was estimated by adjusting the anticipated selling price for costs to sell and an appropriate profit on selling activities. For work-in-process, in addition to those inputs used to estimate the fair value of finished goods, the cost and estimated profit on completing the manufacturing are also included. Raw materials and supplies include amounts of active pharmaceutical ingredient for a product to be manufactured. |
| (iii) | Equipment is measured at fair value, which considered replacement cost and equipment condition. The equipment will be depreciated on a straight-line basis over seven years based on its estimated remaining useful life. |
| (iv) | The fair value of the license and distribution intangible net assets were estimated primarily using the “income method,” which starts with a forecast of all expected future cash flows. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including net revenue, cost of sales, commercial expenses, research and development costs and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors. The license and distribution rights intangible net assets will be amortized on a straight-line basis over ten years, which approximates the current, remaining patent life of the BELBUCA ® intellectual property. |
| (v) | As a result of the acquisition, the Company recognized a deferred tax liability representing the tax effect of the difference between the consideration paid and the fair value of the net assets received. This deferred tax liability was netted against its deferred tax net assets subsequent to the acquisition. A full valuation allowance was previously provided against these deferred tax net assets as it is considered more likely than not that they will not be utilized. As a result, after the Company recognized a deferred tax liability with this acquisition, it released a corresponding amount of its valuation allowance and recognized a $16.0 million tax benefit in its condensed statement of operations. This gain is not reflected in the above pro forma condensed combined statement of operations as it was directly the result of the acquisition and was recognized in the Company’s earnings within twelve months of the acquisition. |
FB-5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
| (vi) | A bargain purchase gain arises when the fair value of the net assets acquired in a business combination exceeds the consideration transferred. The gain is recognized immediately in earnings in accordance with U.S. Generally Accepted Accounting Principles. This gain is not reflected in the above pro forma condensed combined statement of operations as it was directly the result of the acquisition and was recognized in the Company’s earnings on the date of the acquisition. |
| 3. | To reverse royalty revenue paid by Endo to the Company for the sale of BELBUCA ® during 2016. |
| 4. | Adjustment represents the release of the inventory fair value step up on the date of acquisition upon its subsequent sale. |
| 5. | Represents an adjustment to eliminate historical depreciation expense and recognize new depreciation expense based on the fair value of equipment. |
|
To eliminate historical depreciation expense related to equipment |
$ | (54 | ) | |
|
To record new depreciation expense related to the fair value of equipment |
59 | |||
|
|
|
|||
|
Total adjustment to depreciation of equipment |
$ | 5 | ||
|
|
|
| 6. | To eliminate the reimbursement received by the Company from Endo for a shared research and development study performed in 2016. |
| 7. | Represents an adjustment to eliminate historical amortization expense and recognize new amortization expense based on the fair value of the intangible asset. |
|
To eliminate historical amortization expense |
$ | (3,400 | ) | |
|
To record new amortization expense |
4,500 | |||
|
|
|
|||
|
Total adjustment to amortization expense |
$ | 1,100 | ||
|
|
|
| 8. | To reverse impairment charge taken on the license and development agreement prior to the Company’s reacquisition of such rights. |
| 9. | Transaction costs incurred in 2016 related to the BELBUCA ® product line acquisition were not material. |
FB-6