UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-35518
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(301 ) 838-2500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Securities registered pursuant to Section 12(b) of the Exchange Act
| Title of each class | Outstanding at April 30, 2021 | Trading Symbol | Name of each exchange on which registered | |||||||||||||||||
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SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED March 31, 2021
| Page No. | |||||
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PART I — FINANCIAL INFORMATION
Supernus Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
| March 31, | December 31, | ||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Long term marketable securities | |||||||||||
| Property and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued liabilities | $ | $ | |||||||||
| Accrued product returns and rebates | |||||||||||
| Contingent consideration, current portion | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Convertible notes, net | |||||||||||
| Contingent consideration, long term | |||||||||||
| Operating lease liabilities, long term | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive earnings, net of tax | |||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Earnings
(in thousands, except share and per share data)
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Revenues | |||||||||||
| Net product sales | $ | $ | |||||||||
| Royalty revenues | |||||||||||
| Total revenues | |||||||||||
| Costs and expenses | |||||||||||
Cost of goods sold (a) | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Amortization of intangible assets | |||||||||||
| Contingent consideration expense | |||||||||||
| Total costs and expenses | |||||||||||
| Operating earnings | |||||||||||
| Other income (expense) | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest and other income, net | |||||||||||
| Total other income (expense) | ( | ||||||||||
| Earnings before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Net earnings | $ | $ | |||||||||
| Earnings per share | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted-average shares outstanding | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
______________________________
(a) Excludes amortization of acquired intangible assets
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Earnings
(in thousands)
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Net earnings | $ | $ | |||||||||
| Other comprehensive earnings | |||||||||||
| Unrealized loss on marketable securities, net of tax | ( | ( | |||||||||
| Other comprehensive loss | ( | ( | |||||||||
| Comprehensive earnings | $ | $ | |||||||||
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months ended March 31, 2021 and 2020
(unaudited, in thousands, except share data)
| j | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the Company’s equity award plans | — | — | — | ||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the Company’s equity award plans | — | — | — | ||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Cash flows from operating activities | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Navitor investment R&D expense | |||||||||||
| Amortization of deferred financing costs and debt discount | |||||||||||
| Realized gains from sales of marketable securities | ( | ( | |||||||||
| Amortization of premium/discount on marketable securities | ( | ( | |||||||||
| Change in fair value of contingent consideration | |||||||||||
| Other noncash adjustments, net | ( | ||||||||||
| Share-based compensation expense | |||||||||||
| Deferred income tax provision | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accrued product returns and rebates | |||||||||||
| Accounts payable and other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Sales and maturities of marketable securities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Deferred legal fees | ( | ||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow information | |||||||||||
| Cash paid for interest on convertible notes | $ | $ | |||||||||
| Cash paid for income taxes | |||||||||||
| Cash paid for operating leases | |||||||||||
| Noncash investing and financing activities | |||||||||||
| Lease assets and tenant receivable obtained for new leases | $ | $ | |||||||||
| Deferred legal fees and fixed assets included in accounts payable and accrued expenses | |||||||||||
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Business Organization
Supernus Pharmaceuticals, Inc. (the Company) is a biopharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The Company's diverse neuroscience portfolio includes approved treatments for epilepsy, migraine, attention-deficit hyperactivity disorder (ADHD), hypomobility in Parkinson’s Disease (PD), cervical dystonia, and chronic sialorrhea. The Company is developing a broad range of novel CNS product candidates including new potential treatments for ADHD, hypomobility in PD, epilepsy, depression, and rare CNS disorders.
The Company has a portfolio of commercial products and product candidates.
Commercial Products
•Trokendi XR® (topiramate) is the first once-daily extended release topiramate product indicated for the treatment of epilepsy in the United States (U.S.) market. It is also indicated for the prophylaxis of migraine headache.
•Oxtellar XR® (oxcarbazepine) is indicated as therapy for partial onset seizures in adults and children 6 years to 17 years of age and is the first once-daily extended-release oxcarbazepine product indicated for the treatment of epilepsy in the U.S.
•QelbreeTM (viloxazine extended-release capsules) is a novel non-stimulant product indicated for the treatment of ADHD in pediatric patients 6 to 17 years of age.
•APOKYN® (apomorphine hydrochloride injection) is a product indicated for the acute, intermittent treatment of hypomobility or "off" episodes ("end-of-dose wearing off" and unpredictable "on-off" episodes) in patients with advanced PD.
•MYOBLOC® (rimabotulinumtoxinB) is a product indicated for the treatment of cervical dystonia and sialorrhea in adults, and it is the only Type B toxin available on the market.
•XADAGO® (safinamide) is a once-daily product indicated as adjunctive treatment to levodopa/carbidopa in patients with PD experiencing "off" episodes.
Product Candidates
•SPN-812 (viloxazine hydrochloride) is a novel non-stimulant product candidate for the treatment of ADHD in adult patients.
•SPN-830 (Apomorphine Infusion Pump) is a late-stage drug/device combination product candidate for the continuous prevention of "off" episodes in PD.
•SPN-817 is a novel product candidate for the treatment of severe epilepsy.
•SPN-820 is a first-in-class product candidate for treatment resistant depression (TRD). It is an orally active small molecule that directly activates brain mechanistic target of rapamycin complex 1 (mTORC1).
In April 2021, the U.S. Food and Drug Administration (FDA) approved Qelbree for the treatment of ADHD in pediatric patients 6 to 17 years of age. The Company plans to make Qelbree available in the U.S. during the second quarter of 2021.
On April 28, 2020, the Company entered into a Sale and Purchase Agreement with US WorldMeds Partners, LLC to acquire the CNS portfolio of USWM Enterprises, LLC (USWM Enterprises) (USWM Acquisition). With the acquisition, completed on June 9, 2020, the Company added three established commercial products, APOKYN, XADAGO, and MYOBLOC, and a product candidate in late-stage development, SPN-830, to its portfolio. Refer to Note 3, USWM Acquisition, for further discussion on the USWM Acquisition.
On April 21, 2020, the Company entered into a Development and Option Agreement (Development Agreement) with Navitor Pharmaceuticals, Inc. (Navitor Inc.). Under the terms of the Development Agreement, the Company and Navitor Inc. will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) in TRD. In addition to entering into the Development
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Agreement in April 2020, the Company acquired an ownership position in Navitor Inc. In March 2021, Navitor Inc. underwent a legal restructuring whereby Navitor Inc. became a wholly owned subsidiary of a newly formed limited liability company, Navitor Pharmaceuticals, LLC (Navitor LLC). Refer to Note 5, Investments, for further discussion on the Navitor Development Agreement and equity investment.
COVID-19 Impact
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business operations, and has assessed the impact of the COVID-19 pandemic on its condensed consolidated financial statements as of March 31, 2021.
Since the situation surrounding the COVID-19 pandemic remains fluid and the duration uncertain, the long-term nature and extent of the impacts of the pandemic on the Company's business operations and financial position cannot be reasonably estimated at this time.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim financial information. As permitted under Generally Accepted Accounting Principles in the United States (U.S. GAAP), certain notes and other information have been omitted from the interim unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC.
In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows. The results of operations for any interim period are not necessarily indicative of the Company’s future quarterly or annual results.
The Company, which is primarily located in the U.S., operates in one operating segment.
Reclassifications
Certain prior year amounts in the condensed consolidated statements of earnings have been reclassified to conform to the current year presentation, including a reclassification made to separately present amortization of intangible assets. This was previously included in Selling, general and administrative expenses, and is now recorded as a component of Amortization of intangible assets on the condensed consolidated statements of earnings. These reclassifications had no effect on operating earnings or on our other condensed consolidated financial statements for the three months ended March 31, 2021 and 2020.
Consolidation
The Company’s condensed consolidated financial statements include those of the Company's wholly-owned subsidiaries and variable interest entities (VIE) where the Company is the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated in consolidation.
The Company continuously assesses whether it is the primary beneficiary of a VIE, as changes to existing relationships or future transactions may affect its conclusions.
Use of Estimates
The Company bases its estimates on: historical experience; forecasts; information received from its service providers; information from other sources, including public and proprietary sources; and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from the Company’s estimates. The Company periodically evaluates the methodologies employed in making its estimates.
The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition and results of operations is highly uncertain and subject to change. As a result, certain of our estimates and assumptions, including the provision for sales deductions, the creditworthiness of customers entering into revenue arrangements, the valuation of the assets and liabilities acquired in the USWM Acquisition, and the fair values of our financial instruments, require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods.
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Advertising Expense
Advertising expense includes the cost of promotional materials and activities, such as printed materials and digital marketing, marketing programs and speaker programs. The cost of the Company's advertising efforts are expensed as incurred.
The Company incurred approximately $15.3 million and $11.6 million in advertising expense for the three months ended March 31, 2021 and 2020, respectively. These expenses are recorded as a component of Selling, general and administrative expenses in the condensed consolidated statements of earnings.
Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes - The new standard, issued in December 2019, simplifies the accounting for income taxes. The Company adopted the guidance on January 1, 2021, on a prospective basis. The adoption of the new standard did not have a material impact to the financial statements.
ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 - The new standard, issued in January 2020, clarifies the interaction of the equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain contracts and purchased options accounted for under Topic 815. The amendment clarifies that an entity can elect to adopt the measurement alternative, which is if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it should measure the equity security at fair value as of the date that the observable transaction occurred before applying or upon discontinuing the equity method. The adoption of the new standard as of January 1, 2021 did not have a material impact to the financial statements.
New Accounting Pronouncements Not Yet Adopted
The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
3. USWM Acquisition
On June 9, 2020 (the Closing Date), the Company completed its acquisition of all of the outstanding equity of USWM Enterprises, a privately-held biopharmaceutical company, pursuant to a Sale and Purchase Agreement with US WorldMeds Partners, LLC (Seller), dated April 28, 2020 (the Agreement). Under the terms of the Agreement, the Company acquired the right to further develop and commercialize APOKYN, XADAGO, and the Apomorphine Infusion Pump (SPN-830) in the U.S. and MYOBLOC worldwide (the Products) for an upfront cash payment of $297.2 million, subject to working capital adjustments, and the potential for additional contingent consideration payments of up to $230 million.
The potential $230 million in contingent consideration payments includes up to $130 million for the achievement of certain SPN-830 regulatory and commercial activities (regulatory and developmental contingent consideration payments) and up to $100 million related to future sales performance of the Products (sales-based contingent consideration payments). The regulatory and developmental contingent consideration payments include a $25 million milestone due upon the FDA's acceptance of the SPN-830 New Drug Application (NDA) for review. The remaining $105 million of the $130 million contingent consideration payments include payments upon the FDA's regulatory approval and subsequent commercial launch of SPN-830, if approved. One of the regulatory milestones has a time-based mechanism for full or partial achievement. The $100 million sales-based contingent consideration payments include a $35 million milestone due upon achievement of certain U.S. net product sales of APOKYN during 2021. The remaining $65 million of the $100 million sales-based contingent consideration payments relate to the achievement of certain net product sales of the Products in 2022 and 2023.
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The Company's accounting for this acquisition is preliminary and fair value estimates for the assets acquired and liabilities assumed and the Company's estimates and assumptions are subject to change as the Company obtains additional information for its estimates during the measurement period.
The Company expects to finalize its purchase price allocation within one year of the Closing Date. The Company continues to analyze and assess relevant information necessary to determine, recognize and record at fair value the assets acquired and liabilities assumed. Examples of areas that rely on preliminary estimates subject to measurement period adjustments include intangibles, lease asset and liability and deferred income tax assets and liabilities. The Company is in the process of obtaining additional market research that may inform the fair value of the acquired intangible assets and additional analysis that may be informative in the determination of the fair value of lease asset and other information. Accordingly, the preliminary recognition and measurement of assets acquired and liabilities assumed as of Closing Date are subject to change.
Purchase Price Consideration
| As Initially Reported | Measurement Period Adjustments | As Adjusted | ||||||||||||||||||
| Cash consideration | $ | $ | $ | |||||||||||||||||
| Estimated fair value of contingent consideration | ( | |||||||||||||||||||
| Estimated total purchase consideration | $ | $ | ( | $ | ||||||||||||||||
Cash consideration to Seller - net of cash acquired (1) | $ | $ | $ | |||||||||||||||||
(1) Represents total purchase price, less cash and cash equivalents acquired, and contingent consideration liabilities. Measurement period
adjustment reflects additional payments made to Seller following the Closing date for working capital adjustments on the purchase price
The Company paid the Seller $297.2 million in cash at the Closing Date. In the fourth quarter of 2020, the Company paid the Seller an additional $1.3 million for working capital adjustments on the purchase price consistent with the Agreement resulting in an increase to the original cash consideration paid to the Seller.
Contingent Consideration
In addition to the cash paid to the Seller, contingent payments of up to $230 million are also due to the Seller upon the achievement of certain milestones related to the development of SPN-830, the In Process Research and Development (IPR&D) asset, and sale of the Products. The possible outcomes for the contingent consideration range from $0 , if no milestone is achieved, to $230 million on an undiscounted basis if all milestones are achieved.
The Company initially recorded a contingent consideration liability of $115.7 million as of the Closing Date to reflect the estimated fair value of the contingent consideration based on information available at that time. Subsequent to the Closing Date, the Company adjusted the contingent consideration fair value based on new information related to the facts and circumstances that existed as of the acquisition date related to the timing of meeting the conditions of the milestone payments that are contingent upon regulatory approval and commercial launch of the acquired IPR&D asset as well as the estimated timing of projected revenues from the Products. As a result, the Company recorded in the fourth quarter of 2020, a measurement period adjustment of $40.9 million, which decreased the estimated fair value of the contingent consideration liability as of Closing Date to $74.8 million.
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Fair Value of Net Assets Acquired
The following table presents the Company’s preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the Closing Date, and subsequent measurement period adjustments recorded (dollars in thousands):
| As Initially Reported | Measurement Period Adjustments | As Adjusted | ||||||||||||||||||
| Cash and cash equivalents | $ | $ | — | $ | ||||||||||||||||
| Accounts receivable | — | |||||||||||||||||||
Inventories (1) | ( | |||||||||||||||||||
| Prepaid expenses and other current assets | — | |||||||||||||||||||
| Property and equipment | — | |||||||||||||||||||
Finance lease asset (2) | — | |||||||||||||||||||
Intangible assets (1) | ( | |||||||||||||||||||
| Other assets | — | |||||||||||||||||||
| Total fair value of assets acquired | ( | |||||||||||||||||||
| Accounts payable | ( | — | ( | |||||||||||||||||
| Accrued expenses and other current liabilities | ( | — | ( | |||||||||||||||||
Finance lease liability (2) | ( | — | ( | |||||||||||||||||
Deferred income tax liabilities, net (3) | ( | ( | ||||||||||||||||||
| Total fair value of liabilities assumed | ( | ( | ||||||||||||||||||
| Total identifiable net assets | $ | $ | ( | $ | ||||||||||||||||
| Goodwill | ( | |||||||||||||||||||
Total purchase price (4) | $ | $ | ( | $ | ||||||||||||||||
______________________________
(1) Measurement period adjustments to intangible assets and inventory are primarily due to updates to inputs and assumptions based on
information related to the facts and circumstances that existed as of the acquisition date.
(2) Refer to Note 12 for further discussion of the acquired finance lease asset and assumed lease liability.
(3) Includes tax attributes that are subject to tax limitations. Measurement period adjustment is primarily due to the tax impact of the changes
in the initial estimate of the fair value of intangible assets and inventories.
(4) Measurement period adjustments include an adjustment to the fair value of the contingent consideration net of the additional cash payment
Acquired Intangible Assets
The acquired intangible assets include the acquired IPR&D asset related to the Apomorphine Infusion Pump product candidate and the acquired developed technology and product rights. The Company determined the estimated fair value of the acquired intangible assets as of the Closing Date using the income approach. The fair value measurements of the acquired intangible assets were determined based on significant unobservable inputs and thus represent a Level 3 fair value measurement. Some of the more significant inputs and assumptions used in the intangible assets valuation includes: the timing and probability of success of clinical and regulatory approvals for the IPR&D asset, the estimated future cash flows from Product sales, the timing and projection of costs and expenses, discount rates and tax rates.
The Company initially recorded a fair value of intangible assets of $387 million, which consisted of $150 million related to the acquired IPR&D and $237 million related to acquired developed technology and Product rights. The initial estimate of the fair value of intangible assets recorded as of the Closing Date is based on information available at that time. During the year ended December 31, 2020, the Company recorded measurement period adjustments of $32 million, which adjusted the initial estimated fair value of the intangible assets to $355 million as of the Closing Date. The Company updated assumptions with respect to the timing of regulatory approval and the commercialization of the acquired IPR&D asset. In addition, the Company also made refinements of the estimates of projected cash flows based on review of terms of the contractual arrangements
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associated with the acquired Products. The revisions were based on updated assumptions and information related to the facts and circumstances that existed as of the acquisition date.
The following table summarizes the preliminary purchase price allocation, and the preliminary average remaining useful lives for identifiable intangible assets (dollars in thousands):
| Estimated Fair Value | Estimated Useful Lives as of Closing Date (in years) | ||||||||||
| Acquired In-process Research & Development | $ | n/a | |||||||||
| Acquired Developed Technology and Product Rights | |||||||||||
| Total intangible assets | $ | ||||||||||
Acquired intangible assets, excluding the acquired IPR&D assets, are amortized over their estimated useful lives on a straight-line basis. IPR&D assets are considered indefinite-lived, until the successful completion or abandonment of the associated research and development efforts.
Goodwill
Goodwill was calculated as the excess of the consideration paid consequent to completing the acquisition, compared to the net assets recognized. Goodwill represents the future economic benefits from the other acquired assets, and which could not be individually identified and separately valued. Goodwill is primarily attributable to the additional acquired growth platforms and an expanded revenue base. Goodwill is not expected to be deductible for tax purposes.
Pro forma Information
The following table presents the unaudited pro forma combined financial information as if the USWM Acquisition had occurred on January 1, 2019 (dollars in thousands):
| Three Months ended March 31, 2020 | |||||
| Pro forma total revenues | $ | ||||
| Pro forma net earnings | |||||
The unaudited pro forma combined financial information is based on historical financial information as well as the Company's preliminary allocation of the purchase price; therefore, it is subject to subsequent adjustment upon finalization of the purchase price allocation. In order to reflect the occurrence of the acquisition as if it occurred on January 1, 2019, the unaudited pro forma combined financial information reflects the adoption of ASC 842, Leases; the recognition of additional amortization expense on intangible assets, the removal of historical amortization charges and the elimination of non-recurring acquisition-related transaction costs.
The unaudited pro forma combined financial information should not be considered indicative of the results that would have occurred if the acquisition had been consummated on the assumed completion date, nor are they indicative of future results.
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4. Disaggregated Revenues
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Net product sales | |||||||||||
| Trokendi XR | $ | $ | |||||||||
| Oxtellar XR | |||||||||||
| APOKYN | |||||||||||
| MYOBLOC | |||||||||||
| XADAGO | |||||||||||
| Total net product sales | $ | $ | |||||||||
| Royalty revenues | |||||||||||
| Total revenues | $ | $ | |||||||||
Trokendi XR accounted for 56 % and 74 % of the Company’s total net product sales for the three months ended March 31, 2021 and 2020, respectively.
Each of our three major customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, individually accounted for more than 25 % of our total net product sales and collectively accounted for more than 85 % of our total net product sales in both 2021 and 2020.
5. Investments
Marketable Securities
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Corporate and U.S. government agency and municipal debt securities | |||||||||||
| Amortized cost | $ | $ | |||||||||
| Gross unrealized gains | |||||||||||
| Gross unrealized losses | ( | ( | |||||||||
| Total fair value | $ | $ | |||||||||
| March 31, 2021 | |||||
| (unaudited) | |||||
| Less than 1 year | $ | ||||
| 1 year to 2 years | |||||
| 2 years to 3 years | |||||
| 3 years to 4 years | |||||
| Greater than 4 years | |||||
| Total | $ | ||||
As of March 31, 2021, there was no impairment due to credit loss on any available-for-sale marketable securities.
14
Investment in Navitor
Development and Option agreement
In April 2020, the Company entered into the Development Agreement with Navitor Inc. The Company can terminate the Development Agreement upon 30 days’ notice. Under the terms of the Development Agreement, the Company and Navitor Inc. will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) for TRD. The Company will bear all of the Phase I and Phase II development costs incurred by either party, up to a maximum of $50 million. In addition, the Company will incur certain other research and development support costs. There are certain additional payment amounts which could be incurred by the Company. These costs are contingent upon Navitor Inc. achieving defined development milestones. The Company has an option to acquire or license NV-5138 (SPN-820), for which additional payments would be required. In the second quarter of 2020, the Company paid Navitor Inc. a one time, nonrefundable, and non-creditable fee of $10 million for this option to acquire or license NV-5138 (SPN-820).
Equity investment
In addition to entering into the Development Agreement in April 2020, the Company acquired Series D Preferred Shares of Navitor Inc. for $15 million, representing an approximately 13 % ownership position in Navitor Inc.
In March 2021, Navitor Inc. underwent a legal restructuring. In the restructuring, Navitor Inc. became a wholly owned subsidiary of a newly formed limited liability company, Navitor LLC, and the outstanding shares of stock in Navitor Inc. were exchanged for units of membership interest in Navitor LLC having equivalent rights and preferences (Navitor Restructuring). As part of the Navitor Restructuring, the Series D Preferred Shares previously held by the Company were exchanged for Series D Preferred Units in Navitor LLC. In addition, certain assets that did not relate to NV-5138 (SPN-820) were transferred from Navitor Inc. to a newly formed entity that became a separate, wholly owned subsidiary of Navitor LLC.
The Company had determined that Navitor LLC is a VIE. The Company does not consolidate this VIE because the Company lacks the power to direct the activities that most significantly impact the investee’s economic performance.
Prior to the Navitor Restructuring, the investment was accounted for under the practical expedient allowed for equity securities without readily determinable fair value, which is cost minus impairment plus any changes in observable price changes from an orderly transaction of similar investments in Navitor Inc. Following the legal restructuring and exchange of the preferred shares to member equity units of Navitor LLC, the investment was accounted for under the equity method of accounting due to the Company’s ability to exert significant influence, but not control the financial and operating decisions. The majority of the assets and liabilities recorded in Navitor LLC’s financial statements represent working capital items and cash that are being used for research and development purposes and are significantly lower than the Company’s investment in Navitor LLC. This created a significant basis difference for the Company’s investment in the underlying net assets, requiring the Company to account for the investee as if it were a consolidated subsidiary in a manner consistent with the provisions of ASC 805, Business Consolidation, to apply the acquisition method of accounting. The Company has determined that substantially all of the fair value of the investment is attributable to a single IPR&D asset. As a result, the investee is not considered a business as defined in ASC 805. In the first quarter of 2021, the $15 million investment, which was previously recorded in Other assets in the condensed consolidated balance sheets, was expensed and recorded in Research and development expense in the condensed consolidated statements of earnings.
The maximum exposure to losses related to the investee is a maximum of approximately $50 million in expense for Phase I and Phase II development of NV-5138 (SPN-820), and the cost of other development and formulation activities provided by the Company.
We have provided no financing to the investee other than amounts required under the Development Agreement.
6. Fair Value of Financial Measurements
The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between unrelated market participants.
The Company reports the fair value of assets and liabilities using a three level measurement hierarchy that prioritizes the inputs used to measure fair value. Fair value hierarchy consists of the following three levels:
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•Level 1—Valuations based on unadjusted quoted prices in active markets that are accessible at measurement date for identical assets.
•Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model-based valuations in which all significant inputs are observable in the market, either directly or indirectly (e.g., interest rates; yield curves).
•Level 3—Valuations using significant inputs that are unobservable in the market and inputs that reflect the Company’s own assumptions. These are based on the best information available, including the Company’s own data.
The fair value of the restricted marketable securities which are classified as level 2 financial assets is recorded in Other assets on the condensed consolidated balance sheets. There were no
Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis
| Fair Value Measurements at March 31, 2021 (unaudited) | |||||||||||||||||||||||
| Total Fair Value at March 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Cash | $ | $ | $ | $ | |||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
| Marketable securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Long term marketable securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other noncurrent assets | |||||||||||||||||||||||
| Marketable securities - restricted (SERP) | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
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| Fair Value Measurements at December 31, 2020 | |||||||||||||||||||||||
| Total Fair Value at December 31, 2020 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Cash | $ | $ | $ | $ | |||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
| Marketable securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Long term marketable securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other noncurrent assets | |||||||||||||||||||||||
| Marketable securities - restricted (SERP) | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | ||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
Other Financial Instruments
The carrying amounts of other financial instruments, including accounts receivable, accounts payable, and accrued expenses, approximate fair value due to their short-term maturities.
The Company records its convertible debt at carrying value. The fair value of the outstanding convertible debt is based on actual trading information as well as quoted prices, both provided by bond traders. Refer to Note 8, Convertible Senior Notes Due 2023.
The Company also had an investment in Navitor LLC, a privately held company, which it classifies as Level 3 as it does not have a readily determinable fair value. In the first quarter of 2021, the $15 million investment in Navitor LLC was expensed. Refer to Note 5, Investments.
Contingent Consideration
The contingent consideration liabilities are measured at fair value on a recurring basis, using the same methodology as of the acquisition date; i.e., the Monte Carlo simulation for the sales-based milestones, and the income approach for the other milestones.
The following table provides a reconciliation of the beginning and ending balances related to the contingent consideration for the USWM Acquisition (dollars in thousands):
| March 31, 2021 | |||||
| (unaudited) | |||||
| Balance at December 31, 2020 | $ | ||||
| Change in fair value recognized in earnings | |||||
| Balance at March 31, 2021 | $ | ||||
17
7. Goodwill and Intangible Assets, Net
| Remaining Weighted- Average Life (Years) | March 31, 2021 | December 31, 2020 | |||||||||||||||
| (unaudited) | |||||||||||||||||
| Goodwill | $ | $ | |||||||||||||||
| Intangible assets: | |||||||||||||||||
| Acquired IPR&D | $ | $ | |||||||||||||||
| Definite-lived intangible assets | |||||||||||||||||
| Acquired developed technology and product rights | |||||||||||||||||
| Capitalized patent defense costs | |||||||||||||||||
| Less accumulated amortization | ( | ( | |||||||||||||||
| Total intangible assets, net | $ | $ | |||||||||||||||
Patent defense costs, which are deferred legal fees incurred in conjunction with defending patents for Oxtellar XR and Trokendi XR. U.S. patents covering Oxtellar XR and Trokendi XR will expire no earlier than 2027. As regards Trokendi XR, the Company entered into settlement agreements that allow third parties to enter the market by January 1, 2023, or earlier under certain circumstances.
Amortization expense for intangible assets was approximately $6.0 million and $1.3 million, for the three month periods ended March 31, 2021 and 2020, respectively. The increase in expense is due to amortization of the acquired developed technology and product rights from the USWM Acquisition.
As of March 31, 2021, there were no identified indicators of impairment.
8. Convertible Senior Notes Due 2023
The 0.625 % Convertible Senior Notes Due 2023 (2023 Notes), which were issued in March 2018, bear interest at an annual rate of 0.625 %, payable semi-annually in arrears on April 1 and October 1 of each year. The 2023 Notes will mature on April 1, 2023, unless earlier converted or repurchased by the Company. The Company may not redeem the 2023 Notes at its option before maturity. The total principal amount of 2023 Notes is $402.5 million.
The 2023 Notes were issued pursuant to an Indenture between the Company and Wilmington Trust, National Association, as trustee. The Indenture includes customary terms and covenants, including certain events of default upon which the 2023 Notes may be due and payable immediately. The Indenture does not contain any financial or operating covenants, or any restrictions on the payment of dividends, the issuance of other indebtedness, or the issuance or repurchase of securities by the Company.
Noteholders may convert their 2023 Notes at their option only in the following circumstances: (1) during any calendar quarter, if the last reported sale price per share of the Company's common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including the last trading day of the immediately preceding calendar quarter, exceeds 130 % of the conversion price, or a price of approximately $77.13 per share on such trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company's common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as specified in the Indenture; and (4) at any time from and including October 1, 2022, until the close of business on the second scheduled trading day immediately before the maturity date.
At its election, the Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, based on the applicable conversion rate. The initial conversion rate is 16.8545 shares per $1,000 principal amount of the 2023 Notes, which represents an initial conversion price of approximately $59.33 per share, and is subject to adjustment as specified in the Indenture. In the event
18
of conversion, if converted in cash, the holders would forgo all future interest payments, any unpaid accrued interest, and the possibility of further stock price appreciation.
If a “make-whole fundamental change,” as defined in the Indenture occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. If a “fundamental change,” as defined in the Indenture occurs, then noteholders may require the Company to repurchase their 2023 Notes at a cash repurchase price equal to the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest, if any.
Contemporaneous with the issuance of the 2023 Notes, the Company also entered into separate privately negotiated convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions) with each of the call spread counterparties. The Company issued 402,500 convertible note hedge options. In the event that shares or cash are deliverable to holders of the 2023 Notes upon conversion at limits defined in the Indenture, counterparties to the convertible note hedges will be required to deliver up to approximately 6.8 million shares of the Company’s common stock, or to pay cash to the Company in a similar amount as the value that the Company delivers to the holders of the 2023 Notes, based on a conversion price of $59.33 per share.
Concurrently with entering into the Convertible Note Hedge Transactions, the Company also entered into separate privately negotiated warrant transactions (collectively, the Warrant Transactions) with each of the call spread counterparties. The Company issued a total of 6,783,939 warrants. The warrants entitle the holder to one share per warrant. The strike price of the Warrant Transactions will initially be $80.9063 per share of the Company’s common stock, and is subject to adjustment.
The Convertible Note Hedge Transactions are expected to reduce the potential dilution of the Company’s common stock upon conversion of the 2023 Notes, and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2023 Notes, as the case may be.
The Warrant Transactions were intended to partially offset the cost to the Company of the purchased Convertible Note Hedge Transactions; however, the Warrant Transactions could have a dilutive effect with respect to the Company’s common stock, to the extent that the market price per share of the Company’s common stock, as measured under the terms of the Warrant Transactions, exceeds the strike price of the warrants.
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| 2023 Notes | $ | $ | |||||||||
| Unamortized debt discount and deferred financing costs | ( | ( | |||||||||
| Total carrying value | $ | $ | |||||||||
| Fair value (Level 2) | $ | $ | |||||||||
9. Share-Based Payments
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Research and development | $ | $ | |||||||||
| Selling, general and administrative | |||||||||||
| Total | $ | $ | |||||||||
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Stock Option and Stock Appreciation Rights
| Number of Options | Weighted- Average Exercise Price (per share) | Weighted- Average Remaining Contractual Term (in years) | |||||||||||||||
| Outstanding, December 31, 2020 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Exercised | ( | $ | |||||||||||||||
| Forfeited | ( | $ | |||||||||||||||
| Outstanding, March 31, 2021 (unaudited) | $ | ||||||||||||||||
| As of December 31, 2020: | |||||||||||||||||
| Vested and expected to vest | $ | ||||||||||||||||
| Exercisable | $ | ||||||||||||||||
| As of March 31, 2021: | |||||||||||||||||
| Vested and expected to vest | $ | ||||||||||||||||
| Exercisable | $ | ||||||||||||||||
Restricted Stock Units
The following table summarizes restricted stock unit (RSU) activities:
| Number of RSUs | Weighted-Average Grant Date Fair Value per Share | ||||||||||
| Nonvested, December 31, 2020 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | $ | ||||||||||
| Nonvested, March 31, 2021 | $ | ||||||||||
Performance Share Units
The following table summarizes performance share unit (PSU) activities:
| Performance-Based Units | Market-Based Units | Total PSUs | |||||||||||||||||||||||||||||||||
| Number of PSUs | Weighted- Average Grant Date Fair Value per Share | Number of PSUs | Weighted- Average Grant Date Fair Value per Share | Number of PSUs | Weighted- Average Grant Date Fair Value per Share | ||||||||||||||||||||||||||||||
| Nonvested, December 31, 2020 | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Granted | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Nonvested, March 31, 2021 | $ | $ | $ | ||||||||||||||||||||||||||||||||
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10. Earnings per Share
Basic earnings per share (EPS) is calculated using the weighted-average number of common shares outstanding. Diluted EPS is calculated using the weighted-average number of common shares outstanding, including the dilutive effect of the Company’s stock option grants, SARs, RSUs, employee stock purchase plan (ESPP) awards, and the 2023 Notes, as determined per the treasury stock method.
Effect of Convertible Notes and Related Convertible Note Hedges and Warrants
In connection with the issuance of the 2023 Notes, the Company entered into Convertible Note Hedge and Warrant Transactions as described further in Note 8, Convertible Senior Notes Due 2023. The expected collective impact of the Convertible Note Hedge and Warrant Transactions is to reduce the potential dilution that would occur if the price of the Company's common stock was between the conversion price of $59.33 per share and the strike price of the warrants of $80.9063 per share.
The 2023 Notes and related Convertible Note Hedge and Warrant Transactions are excluded in the calculation of diluted EPS because inclusion would be anti-dilutive.
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Stock options, RSUs | |||||||||||
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Numerator: | |||||||||||
| Net earnings | $ | $ | |||||||||
| Denominator: | |||||||||||
| Weighted average shares outstanding, basic | |||||||||||
| Effect of dilutive securities: | |||||||||||
| Stock options, RSUs and SARs | |||||||||||
| Weighted average shares outstanding, diluted | |||||||||||
| Earnings per share, basic | $ | $ | |||||||||
| Earnings per share, diluted | $ | $ | |||||||||
21
11. Income Tax Expense
| Three Months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Income tax expense | $ | $ | |||||||||
| Effective tax rate | % | % | |||||||||
Income tax expense for the three months ended March 31, 2021, as compared to the same period in the prior year, decreased mainly due to lower earnings before taxes. The effective income tax rate increase was due to changes in the effective state tax rates as a result of the transfer of workforce between legal entities and lower earnings before taxes due to the expensing of the Navitor investment in the first quarter of 2021.
12. Leases
Operating Leases
The Company has operating leases for its headquarters lease and its fleet vehicles. With respect to the fleet vehicle leases, given the volume of individual leases involved in the overall arrangement, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities. The Company also elected to combine the lease and non-lease components for the fleet vehicle and headquarters leases.
The Company's headquarters lease commenced on February 1, 2019 (the Commencement Date) and will continue until April 30, 2034, unless earlier terminated in accordance with the terms of the lease. The lease includes options to extend the lease for up to 10 years.
Finance Lease
Contemporaneous with the USWM Acquisition, USWM Enterprises adopted ASC 842, Leases. USWM Enterprises had an existing contract manufacturing agreement with Merz Pharma GmbH & Co. KGaA (Merz), for the manufacture and supply of MYOBLOC (rimabotulinumtoxinB) and NerBloc® (finished products) (Merz Agreement). Pursuant to the Merz Agreement, Merz agreed to provide a dedicated manufacturing facility that included a stand-alone building, dedicated clean room suites, dedicated manufacturing and purification equipment, and filling and packaging production lines (collectively, the manufacturing facility) to manufacture finished products. The Merz Agreement will expire in July 2027, unless the Company and Merz mutually agree to extend the terms. The Merz Agreement may not be terminated for convenience. In addition, the Company's collaboration partner markets the drug in MYOBLOC, rimabotulinumtoxinB, in Japan under the trade name NerBloc.
Under the terms of the agreement, the Company is required to purchase a minimum quantity of finished products on an annual basis. This minimum purchase requirement represents the in-substance fixed contract consideration associated with the dedicated manufacturing facility which the Company accounts for as an embedded lease.
The embedded lease is preliminarily classified as a finance lease. The in-substance fixed contract consideration was allocated to the lease component, since the Company has preliminarily elected not to separate lease and non-lease components. Refer to Note 3, USWM Acquisition, for further discussion.
22
Operating and finance lease assets and lease liabilities as reported on the condensed consolidated balance sheets are as follows (dollars in thousands):
| Balance Sheet Classification | March 31, 2021 | December 31, 2020 | |||||||||||||||
| (unaudited) | |||||||||||||||||
| Assets | |||||||||||||||||
| Operating lease assets | $ | $ | |||||||||||||||
| Finance lease asset | |||||||||||||||||
| Total lease assets | $ | $ | |||||||||||||||
| Liabilities | |||||||||||||||||
| Lease liabilities, current | |||||||||||||||||
| Operating lease liabilities, current portion | $ | $ | |||||||||||||||
| Finance lease liability, current portion | |||||||||||||||||
| Lease liabilities, long term | |||||||||||||||||
| Operating lease liabilities, long term | |||||||||||||||||
| Finance lease liability, long term | |||||||||||||||||
| Total lease liabilities | $ | $ | |||||||||||||||
13. Composition of Other Balance Sheet Items
Accounts Receivables
As of March 31, 2021 and December 31, 2020, the Company has reduced accounts receivable by approximately $10.9 million and $11.4 million, respectively. Prompt pay discount and contractual service fees, which were originally recorded as reduction to revenues, represents estimated amounts not expected to be paid by our customers. The Company's customers are primarily pharmaceutical wholesalers and distributors and specialty pharmacies. Receivables from our three major customers account for more than 90 % of our total receivables.
Inventories
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
In April 2021, the Company received regulatory approval for SPN-812 (Qelbree) for the treatment of ADHD in pediatric patients 6 to 17 years of age. Pre-launch inventory costs for Qelbree was $24.0 million and $19.1 million as of March 31, 2021 and December 31, 2020, respectively.
Inventories include acquired inventory from the USWM Acquisition. Refer to Note 3, USWM Acquisition, for further discussion of the USWM Acquisition.
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Property and Equipment
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Lab equipment and furniture | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Software | |||||||||||
| Finance lease assets | |||||||||||
| Computer equipment | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Depreciation and amortization expense on property and equipment was approximately $0.6 million and $0.5 million for the three months ended March 31, 2021, and 2020, respectively. The Company retired certain fully depreciated property and equipment for the three months ended March 31, 2021.
As of March 31, 2021, there were no identified indicators of impairment.
Accrued Payable and Accrued Liabilities
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Accrued compensation | $ | $ | |||||||||
Accrued royalties (1) | |||||||||||
Accrued clinical trial costs (2) | |||||||||||