In the EU, the European Medicine Agency is reviewing our Marketing Authorization Application for Natpar®, which is the European brand name for
Natpara.
We are also developing NPSP795 for ADH and we are completing a Phase 2a proof-of-concept study. ADH is caused by mutations of the calcium-sensing receptor (CaSR) gene that
increase the sensitivity of the receptor to serum calcium. NPSP795 is a selective calcium receptor antagonist (termed calcilytic), which binds to the CaSR and decreases its sensitivity to
serum calcium. NPSP795's mechanism of action is believed to restore the normal physiological action of the CaSR and address the underlying molecular defect in ADH to return normal
calcium homeostasis.
While SBS, Hypoparathyroidsim, and ADH are relatively rare disorders, we believe these indications represent a substantial commercial opportunity to us due to the significant
unmet need and lack of effective therapies, as well as the serious complications involved with the chronic nature of these diseases.
We have collaborations or royalty agreements with a number of pharmaceutical companies. In 2014, we recorded $122.9 million of royalty revenue that was driven by (i) Amgen's sales
of Sensipar® and Mimpara® (cinacalcet HCl), (ii) Kyowa Hakko Kirin's sales of REGPARA® (cinacalcet HCl) in Japan, and (iii)
Janssen's sales of Nucynta® (tapentadol) in the U.S. As described further herein, we have partially monetized our royalty rights related to Sensipar and Mimpara under
our agreement with Amgen through the issuance of non-recourse debt and we have sold certain of our rights to receive royalty payments arising from sales of REGPARA under our
agreement with Kyowa Hakko Kirin.
We consider our operations to be a single reportable segment. Financial results of this reportable segment are presented in our audited consolidated financial statements.
On January 11, 2015, we entered into the Merger Agreement with Parent, Purchaser and, solely for purposes of Section 12.14 of the Merger Agreement, Shire.
Pursuant to the Merger Agreement, Purchaser has commenced a cash tender offer for all of the outstanding shares of the Company's common stock, upon the terms and subject to the
conditions of the Merger Agreement. Consummation of the tender offer is subject to customary closing conditions, as set forth in the Merger Agreement. As soon as practicable following the
consummation of the tender offer, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company pursuant
to the provisions of section 251(h) of the Delaware General Corporation Law, with no stockholder vote required to consummate the merger, and the Company will survive as a wholly
owned subsidiary of Parent.
The Merger Agreement contains representations, warranties and covenants of the parties customary for transactions of this type. Until the earlier of the termination of the Merger
Agreement and the consummation of the merger, the Company has agreed to operate its business and the business of its subsidiaries in the ordinary course and has agreed to certain other
operating covenants, as set forth more fully in the Merger Agreement. The Company has agreed not to solicit alternative acquisition proposals. However, the Company may,
subject to the terms and conditions set forth in the Merger Agreement, furnish information to, and engage in discussions and negotiations with, a third party that makes an unsolicited
acquisition proposal that the Board reasonably believes is or could reasonably be expected to lead to a superior proposal. Under certain circumstances and upon compliance with
certain notice and other specified conditions set forth in the Merger Agreement, the Company may terminate the Merger Agreement to accept a superior proposal.
The Merger Agreement contains certain termination rights for both Parent and the Company and further provides that, upon termination of the Merger Agreement under certain
circumstances relating to competing acquisition proposals, including if the Company terminates the Merger Agreement to accept a superior proposal, or where our Board of Directors changes
its recommendation in favor of the transaction, the Company may be required to pay Parent a termination fee of $155,939,696.Shire has secured an $850 million fully underwritten short-term
bank facility, which in addition to Shire's cash and cash equivalents and its existing $2.1 billion five-year revolving credit facility, is available to finance the transaction and pay related fees and
expenses.
Additional information about the merger agreement is set forth in our filings with the U.S. Securities and Exchange Commission (SEC).
We have incurred cumulative losses from inception through December 31, 2014 of approximately $1.0 billion. We expect our operating expenses to continue to increase over the
next several years as we launch Revestive in certain ex-U.S. countries and incur pre-launch and launch costs for Natpara, invest in the development of our pipeline and pursue in-licensing
opportunities.
During the years ended December 31, 2014, 2013 and 2012, we incurred expenses of $16.2 million, $8.9 million and $48.3 million, respectively, in the research and development of
teduglutide, including costs associated with the manufacture of clinical and pre-launch commercial supplies of teduglutide. We have incurred expenses of approximately $283.6 million since
we assumed development obligations of this product candidate upon our acquisition of Allelix Biopharmaceuticals Inc. in December 1999. During the years ended December 31, 2014,
2013 and 2012, we incurred expenses of $29.1 million, $46.2 million and $32.0 million, respectively, in the research and development of PTH 1-84 (Natpara in the U.S.), including costs
associated with the manufacture of clinical and commercial supplies of PTH 1-84. We have incurred expenses of approximately $523.6 million since we assumed development obligations for
PTH 1-84, upon our acquisition of Allelix Biopharmaceuticals Inc. in December 1999. During the years ended December 31, 2014, 2013 and 2012, we incurred expenses of $2.6
million, $2.8 million and $323,000, respectively, in the research and development of NPSP795, including costs associated with the manufacture of clinical supplies of NPSP795. We have
incurred expenses of approximately $5.7 million since we assumed development obligations for NPSP795, under the agreement with GSK in August 2011. Our development administration
overhead costs are included in total research and development expense for each period, but are not allocated among our various projects. See "Item 1 - Business - Proprietary
Product Candidates." Our ability to complete our research and development efforts and commercialize our product candidates is subject to various risks and uncertainties. See
"Item 1A - Risk Factors."
As a result of the marketing approvals for our products, we will no longer expense manufacturing costs relating to these products as research and development expenses. Instead, we
will capitalize these costs as inventory as they are incurred. There will be no cost of sales associated with the sale of our approved products that were on hand at the time of our marketing
approval. We expect that this will result in higher gross margins during the period that we sell off this supply than we will achieve once we begin selling the approved products that are
manufactured after the date of approval. Based on our current plans and assumptions, we believe that by the end of 2015, we will have sold off this supply of product on hand at the time of
approval for Gattex and by the middle of 2018 for Natpara. We expect that the higher gross margins for Gattex will be partially off-set by the full cost of sales for Revestive, which did not have
any inventory expensed prior to approval. We also expect to record increased sales and incur additional marketing costs related to the commercialization of Gattex, Revestive and Natpara,
pre-launch costs for Natpara and higher operating costs to support our expansion into the international market.
The following table summarizes selected operating statement data for the years ended December 31, 2014, 2013 and 2012 (dollars in thousands):
Revenues. All our revenues relate to product sales of Gattex, which was launched in the U.S. in February 2013 and royalties and milestones from our licensees.
Our revenues were $224.1 million in 2014 compared to $155.6 million in 2013. We recognized revenue under our research and license agreements and product sales as follows (amounts in
thousands):
Product Sales, net. For the years ended December 31, 2014 and 2013, we recognized net product sales revenue of $101.2 million and $31.8 million, respectively, for the sales
of Gattex and Revestive. We received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. Also, pursuant to the Termination and Transition
Agreement with Takeda, we received back the rights to market Revestive in certain territories outside of the U.S. Revestive was approved in the EU in 2012 and we launched in certain
countries in the EU in the second half of 2014. Product sales for the years ended December 31, 2014 and 2013 are not necessarily indicative of the results that may be expected for any
future period. We expect that product sales of Gattex and Revestive will vary from period to period given the limited size of the patient population.
We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under governmental programs (including Medicaid), product returns, and
distribution-related fees. These allowances and accruals will continue to grow in relation to an increase in the sales of Gattex and Revestive. The following table summarizes the provisions,
and credits/payments, for government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions (in thousands):
Royalties. For the years ended December 31, 2014 and 2013, our revenues related to our agreement with Amgen for Sensipar and Mimpara were
comprised of $111.9 million and $112.9 million in royalty revenue, respectively. The decrease in royalty revenue earned from Amgen is due to a non-recurring favorable adjustment in 2013
which was partially offset by the sales growth of Sensipar and Mimpara (cinacalcet HC1). We amended our agreement with Amgen, effective September 30, 2011, and Amgen began
withholding the royalties on sales of Sensipar and Mimpara and credited them, net of the discount, to the Sensipar Notes issued pursuant to the amended agreement. In June 2012, we
amended our agreement with Amgen and received a one-time non-refundable $25.0 million payment in July 2012 in exchange for our rights to receive royalties under the license agreement
that are earned after December 31, 2018. The amendment also limits the royalty offset of the royalty advance that we received from Amgen up to $8.0 million per quarter with royalties in
excess of $8.0 million paid to us for the respective quarter, thereby extending the royalty advance repayment period. After the repayment of the royalty advance and a 9% per annum discount
factor on the outstanding balance, Amgen will resume paying us all royalties earned through December 31, 2018.
For the years ended December 31, 2014 and 2013, we recognized $8.5 million and $8.0 million, respectively, in royalty revenue under our agreement with Kyowa Hakko Kirin for sales of
REGPARA, which was launched in the first quarter of 2008. The increase is primarily due to higher sales demand of REGPARA which were partially offset by unfavorable fluctuations in
foreign exchange rates. In February 2010, we sold our rights to receive certain future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement
provides DRI with the right to receive payments related to sales of REGPARA occurring on or after July 1, 2009.
For the years ended December 31, 2014 and 2013, we recognized royalty revenue of $2.6 million and $2.9 million respectively, from Janssen for sales of Nucynta, which was launched in
the second quarter of 2009. The decrease in royalty revenue earned from Nucynta was primarily due to decreased net sales for Nucynta.
See "Liquidity and Capital Resources" below for further discussion of payments that we may earn in the future under these agreements.
Cost of Sales. Upon marketing approval from the FDA in December 2012, we began capitalizing inventory costs associated with commercial supplies of Gattex. Costs for
manufacturing supplies of Gattex prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these costs
are not being included in cost of sales when revenue is recognized from the sale of those supplies of Gattex. Based on our current projections, we anticipate that by the end of 2015 we will
have sold off the supply of Gattex on-hand at the time of the FDA's approval of the NDA for Gattex. Cost of sales for the years ended December 31, 2014 and 2013 was $14.6 million and $3.6
million, respectively, and consisted primarily of royalty costs related to sales of Gattex and costs incurred for certain batches of Revestive that did not pass our quality control specifications.
We purchased Revestive inventory from Takeda when we completed the Takeda Transition Agreement and therefore, the cost of sales for Revestive is expected to be higher in relation to the
cost of sales for Gattex until the end of 2015 (when we anticipate to have sold off the supply of Gattex on hand at the time of the FDA's approval of the NDA for Gattex). Accordingly, we
expect our current product gross margins to decrease from approximately 90% to the 80% to 85% range as we begin sales of product that has been capitalized to inventory.
Research and Development. Our research and development expenses are categorized into three areas: clinical development costs, product development costs and other
research and development costs.
Clinical development costs were $22.8 million and $16.9 million for the years ended December 31, 2014 and 2013, respectively. Clinical development costs are primarily comprised of
costs paid to outside parties to conduct and manage clinical trials related to Gattex, Natpara and NPSP795 as well as costs associated with regulatory functions.
Product development costs were $25.1 million and $41.1 million for the years ended December 31, 2014 and 2013, respectively. Product development costs are costs related to the drug
needed for our clinical studies and pre-approval inventory.
Other research and development costs were $42.2 million and $27.5 million for the years ended December 31, 2014 and 2013, respectively. Other research and development costs
consist primarily of personnel, personnel-related costs and overhead costs that relate to clinical and product development activities.
For the year ended December 31, 2014, our research and development expenses increased to $90.1 million from $85.4 million for the year ended December 31, 2013. The increase in
research and development expenses is primarily related to a $14.7 million increase in other research and development costs which mainly consists of regulatory costs as well as personnel
and personnel-related costs and a $9.6 million increase in costs associated with clinical development activities related to the completion of certain clinical trials for Gattex. These
increases were partially offset by a $16.9 million decrease for the cost of preapproval PTH 1-84, which included certain lots of inventory that were purchased from Takeda in 2013 and
designated for use in research and development during 2013. .
Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for employees in executive, finance, legal,
medical science liaisons and sales and marketing functions as well as facility costs and professional fees for accounting and legal services. Our selling, general and administrative expenses
increased to $114.3 million for the year ended December 31, 2014 from $68.1 million for the year ended December 31, 2013. The increase in our selling, general and administrative
expenses were primarily due to a $23.4 million increase in personnel and personnel related costs and a $9.6 million increase in external costs and a $3.5 million increase in marketing costs
related to launch and pre-launch activities for Gattex and Natpara, respectively. As we continue our international expansion and begin our launch of Natpara, we expect that these costs
would continue to increase.
Interest Income. Interest income increased to $406,000 for the year ended December 31, 2014 from $340,000 from the comparative period in 2013.
Interest Expense. Our interest expense increased to $13.7 million for the year ended December 31, 2014 from $11.9 million for the comparable period in 2013. Our long-term
sales forecasts for Natpara and royalty forecast for REGPARA are used to calculate the implicit interest rate and the related interest expense for our non-recourse debt. Interest
expense increased due primarily to a higher effective interest rate related to the non-recourse debt due to an increase in the forecast of Natpara sales ($6.2 million). This increase was
partially offset by decreases in interest expense for (i) the lower principal balance on our Sensipar Notes ($2.4 million), (ii) a lower effective interest rate due to a decrease in the forecast of
REGPARA royalties related to the non-recourse debt associated with the sale of certain of our REGPARA royalty rights ($1.3 million) and (iii) lower interest expense due to the conversion of
our remaining outstanding convertible notes during the year ended December 31, 2014 ($718,000).
Income Taxes. We reported an income tax expense of $766,000 and $182,000 in 2014 and 2013, respectively. The increase in income tax expense was primarily related
to state and non-U.S. income tax expense.
Our deferred tax assets are comprised primarily of net operating loss and tax credit carryforwards. We maintain a full valuation allowance on our deferred tax assets because we have a
history of cumulative losses in these jurisdictions. We will continue to evaluate the need for a valuation allowance in the future. If we determine that the reversal of all or a portion of the
valuation allowance is appropriate, a one-time non-cash benefit will be recognized in the period of the reversal. At such time, we will also commence recognizing an income tax provision at
our blended effective tax rate. However, these net operating loss and tax credit carryforwards may be used to offset taxable income in future periods, reducing the amount of taxes we might
otherwise be required to pay.
Revenues. Substantially all our revenues relate to royalty payments, license fees, milestone payments and product sales from our licensees and collaborators.
Our revenues were $155.6 million in 2013 compared to $130.6 million in 2012. We recognized revenue under our research and license agreements as follows (amounts in thousands):
Product Sales, net. For the year ended December 31, 2013, we recognized net product sales revenue of $31.8 million for the sales of Gattex. We
received approval from the FDA in December 2012 and subsequently launched Gattex in February 2013. We expect that product sales of Gattex and Revestive will vary from period to period
given the limited size of the patient population.
We record product sales net of allowances and accruals for prompt pay discounts, rebates and chargebacks under U.S. federal and state governmental programs (including Medicaid),
product returns, and distribution-related fees. These allowances and accruals will continue to grow in relation to an increase in the sales of Gattex. The following table summarizes the
provisions, and credits/payments, for government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions (in thousands):
Royalties. For the years ended December 31, 2013 and 2012, our revenues related to our agreement with Amgen for Sensipar and Mimpara were comprised of $112.9 million
and $89.3 million in royalty revenue, respectively. The increase in royalty revenue earned from Amgen is due to the sales growth of Sensipar and Mimpara (cinacalcet HC1) and a non-recurring
favorable adjustment. We amended our agreement with Amgen, effective September 30, 2011, and Amgen began withholding the royalties on sales of Sensipar and Mimpara and
credited them, net of the discount, to the Sensipar Notes issued pursuant to the amended agreement. In June 2012, we amended our agreement with Amgen and received a one-time non-refundable
$25.0 million payment in July 2012 in exchange for our rights to receive royalties under the license agreement that are earned after December 31, 2018. The amendment also
limits the royalty offset of the royalty advance that we received from Amgen up to $8.0 million per quarter with royalties in excess of $8.0 million paid to us for the respective quarter, thereby
extending the royalty advance repayment period. After the repayment of the royalty advance and a 9% per annum discount factor on the outstanding balance, Amgen will resume paying us all
royalties earned through December 31, 2018.
For the years ended December 31, 2013 and 2012, we recognized $8.0 million and $8.7 million, respectively, in royalty revenue under our agreement with Kyowa Hakko Kirin for sales of
REGPARA, which was launched in the first quarter of 2008. The decrease is primarily due to unfavorable fluctuations in foreign exchange rates which were partially offset by increased
demand of REGPARA. In February 2010, we sold our rights to receive certain future royalty payments from Kyowa Hakko Kirin's sale of REGPARA to an affiliate of DRI. The agreement
provides DRI with the right to receive payments related to sales of REGPARA occurring on or after July 1, 2009.
For the years ended December 31, 2013 and 2012, we recognized royalty revenue of $2.9 million and $2.8 million respectively, from Janssen for sales of Nucynta, which was launched in
the second quarter of 2009. The increase in royalty revenue earned from Nucynta was primarily due to increased demand for Nucynta.
For the years ended December 31, 2013 and 2012, our revenues related to our agreement with Takeda for Preotact (parathyroid hormone (PTH 1-84)) were $0 and $4.8 million in royalty
revenue, respectively. The decrease in royalty revenue was primarily due to the Termination and Transition agreement with Takeda. On March 18, 2013, Takeda terminated this license
agreement and returned the rights to NPS. In July 2007, we sold our rights to receive certain future royalty payments from Takeda's sale of PTH 1-84 in Europe, CIS and Turkey to DRI
Capital (DRI) and we therefore we were not entitled to receive any such royalty payments until the PTH 1-84-secured debt was repaid. Because we previously monetized our PTH 1-84
royalty rights as non-recourse debt, declines in PTH 1-84 sales would impact our royalty revenues but would have no material impact on our short-term liquidity.
See "Liquidity and Capital Resources" below for further discussion of payments that we may earn in the future under these agreements.
Cost of Sales. For the year ended December 31, 2013, we began recognizing revenue and cost of sales from product sales of Gattex. Upon marketing approval
from the FDA in December 2012, we began capitalizing inventory costs associated with commercial supplies of Gattex subsequent to receipt of marketing approval from the FDA. Costs for
manufacturing supplies of Gattex prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these costs
are not being included in cost of sales when revenue is recognized from the sale of those supplies of Gattex. Cost of sales for the year ended December 31, 2013 was $3.6 million and
consisted primarily of royalty costs related to sales of Gattex. Accordingly, we expect our current product gross margins to decrease from approximately 90% to the 80% to 85% range as we
begin sales of product that has been capitalized to inventory. Based on our current plans and assumptions, we believe that by the end of 2015, we will have sold off this supply of product on
hand at the time of the FDA's approval of the NDA for Gattex.
Research and Development. Our research and development are categorized into three areas: clinical development costs, product development costs and other research and
development costs.
Clinical development costs were $16.9 million and $26.9 million for the years ended December 31, 2013 and 2012, respectively. Clinical development costs are primarily comprised of
costs paid to outside parties to conduct and manage clinical trials related to Gattex and Natpara as well as costs associated with regulatory functions.
Product development costs were $41.1 million and $43.7 million for the years ended December 31, 2013 and 2012, respectively. Product development costs are costs related to the drug
needed for our clinical studies and pre-approval inventory.
Other research and development costs were $27.5 million and $24.2 million for the years ended December 31, 2013 and 2012, respectively. Other research and development costs
consist primarily of personnel, personnel related costs and overhead costs that relate to clinical and product development activities which have not been allocated directly to each
program.
For the year ended December 31, 2013, our research and development expenses decreased to $85.4 million from $94.8 million for the year ended December 31, 2012. The decrease in
research and development expenses is primarily related to a $10.0 million reduction in costs associated with clinical development activities and adjustments related to the completion of
certain clinical trials for both Gattex and Natpara. Additionally, we no longer expense, as research and development, inventory production for Gattex given its approval in the fourth quarter of
2012, the impact of which was $25.2 million, in 2012. These decreases were partially offset by a $21.2 million increase for the cost of preapproval PTH 1-84, which includes certain lots
of inventory that were purchased from Takeda and designated for use in research and development during the year and a $3.3 million increase in otherresearch and development which
mainly consists of regulatory costs as well as personnel and personnel-related costs.
Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of compensation for employees in executive, finance, legal,
medical science liaisons and sales and marketing functions as well as facility costs and professional fees for accounting and legal services. Our selling, general and administrative expenses
increased to $68.1 million for the year ended December 31, 2013 from $36.9 million for the year ended December 31, 2012. The increase in our selling, general and administrative expenses
were primarily due to a $16.4 million increase in personnel and personnel related costs and a $7.0 million increase in external costs and a $3.3 million increase in marketing costs related to
launch and pre-launch activities for Gattex and Natpara, respectively. As we continue our international expansion and begin our pre-launch Natpara plan, we expect that these costs would
continue to increase.
Interest Income. Interest income increased to $340,000 for the year ended December 31, 2013 from $292,000 from the comparative period in 2012.
Interest Expense. Our interest expense decreased to $11.9 million for the year ended December 31, 2013 from $18.2 million for the comparable period in 2012. Our long-
term royalty forecasts for PTH 1-84 and REGPARA are used to calculate the implicit interest rate and the related interest expense for our non-recourse debt. Interest expense decreased due
primarily to (i) the lower principal balance on our Sensipar Notes ($2.7 million), (ii) a lower effective interest rate due to a decrease in the forecast of REGPARA royalties related to the non-
recourse debt associated with the sale of certain of our REGPARA royalty rights ($2.5 million) and (iii) a lower effective interest rate due to a decrease in the forecast of PTH 1-84 royalties
related to the non-recourse debt associated with the sale of certain of our PTH 1-84 royalty rights ($1.1 million).
Income Taxes. We reported an income tax expense of $182,000 and $0 in 2013 and 2012, respectively. The increase in income tax expense was primarily related to a
non-cash charge for state income taxes.
The following table summarizes selected financial data (amounts in the thousands):
Historically, we have not been a self-sustaining business and certain economic, operational and strategic factors may require us to secure additional funds. If we are unable to generate
sufficient cash flows from operations or obtain sufficient funding at any time in the future, we may not be able to develop or commercialize our products, take advantage of business
opportunities or respond to competitive pressures. Our current and anticipated operations require substantial capital. Our actual needs will depend on numerous factors, including, without
limitation, the progress and scope of our internally funded commercialization and development activities related to the launch of Gattex and Revestive and the commercial readiness activities
for Natpara; the success of our collaborators in developing and
marketing products under their respective collaborations with us; our success in producing commercial and clinical supplies of
our products and product candidates generally, and on a timely basis sufficient to meet the needs of our commercial activities and clinical trials; our ability to successfully execute our strategic
plans, including international expansion; the costs we incur in obtaining and enforcing patent and other proprietary rights or gaining the freedom to operate under the patents of others; and
our success in acquiring and integrating complementary products, technologies or businesses. Our commercial activities may not be successful for many reasons, including, without
limitation, our inability to effectively market and distribute our products in the United States and other territories; our patients' ability to obtain sufficient coverage or reimbursement by
third-party payers for our products at the prices we set, if at all; the risk that safety concerns may develop with respect to our products; the risk that our manufacturers may not be able to supply
sufficient quantities of our products to support our commercialization activities or that other manufacturing problems may occur; and the risk that our products may face competition from new
products or technologies that may be developed. Our clinical trials may be modified, disrupted or terminated and our commercial activities and clinical filings could be delayed for several
reasons including the risk that our product candidates will demonstrate safety concerns; the risk that regulatory authorities may not approve our product candidates for further development or
may require additional or expanded clinical trials to be performed; and the risk that our manufacturers may not be able to supply sufficient quantities of our drug candidates to support our
clinical trials, our regulatory filing or commercial launches, or that other manufacturing problems may occur. We may also be required to conduct unanticipated preclinical or clinical trials to
obtain regulatory approval of our product candidates, Natpar and NPSP795. If any of the events that pose these risks comes to fruition, our actual capital needs may substantially exceed our
anticipated capital needs and we may have to substantially modify or terminate current and planned clinical trials or postpone conducting future clinical trials. As a result, our business may be
materially harmed, our stock price may be adversely affected, and our ability to raise additional capital may be impaired.
We may need to raise additional funds to support our long-term research, product development, business development activities, and commercialization programs. We regularly consider
various fund raising alternatives, including, for example, debt or equity financing and monetizing of potential revenue streams, and merger and acquisition alternatives. We may also seek
additional funding through strategic alliances, collaborations, or license agreements and other financing mechanisms. There can be no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of our efforts to commercialize Gattex/Revestive or Natpara and Natpar, if it
receives regulatory approval, delay, reduce the scope of, or eliminate one or more of our research and development programs, including NPSP795, or to obtain funds through arrangements
with licensees or others that may require us to relinquish rights to certain of our technologies or product candidates that we may otherwise seek to develop or commercialize on our own.
We require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments. We have financed operations since inception primarily through payments
received under collaborative research and license agreements; the private and public issuance and sale of equity securities; the issuance and sale of non-recourse debt, convertible debt and
lease financing; and sales of Gattex/Revestive. Through December 31, 2014, we have recognized $1.0 billion of cumulative revenues from payments for research support, license
fees, product sales, milestone and royalty payments; $893.2 million from the sale of equity securities for cash; $738.6 million from the sale of non-recourse debt and convertible debt for cash;
and $133.0 million from sales of Gattex and Revestive, since its launch in February 2013 and September 2014, respectively.
Our principal sources of liquidity are cash, cash equivalents, and marketable investment securities, which totaled $164.2 million at December 31, 2014. The primary objectives for our
marketable investment security portfolio are liquidity and safety of principal. Investments are intended to achieve the highest rate of return to us, consistent with these two objectives. Our
investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type
and issuer.
In August 2011, we amended our agreement with Amgen that became effective after the retirement of our Class B Notes. Under the Amgen agreement, Amgen advanced $145.0
million of Sensipar and Mimpara royalties to us. In June 2012, we amended our agreement with Amgen and received a one-time non-refundable $25.0 million payment in July 2012 in
exchange for our rights to receive royalties under the license agreement that are earned after December 31, 2018. The amendment also limits the royalty offset of the royalty advance that we
received from Amgen up to $8.0 million per quarter with royalties in excess of $8.0 million paid to us for the respective quarter, thereby extending the royalty advance repayment period. After
the payment of the royalty advance and a 9% per annum discount on the balance of the advance, Amgen will resume paying royalties to us.
The following table summarizes our cash flow activity for the years ended December 31, 2014, 2013 and 2012 (amounts in thousands):
Net cash used in operating activities was $16.7 million, $24.3 million and $61.0 million in 2014, 2013 and 2012, respectively. The decrease in net cash used in 2014 was primarily due to
the decrease in interest expense and non-cash royalty receivable related to the issuance of non-recourse Sensipar Notes to Amgen in the second quarter of 2012. The REGPARA royalty
revenue is pledged to service the principal and interest on our non-recourse notes and is not available to fund operations. The decrease in net cash used in 2014, was also related to the
increased cash received from revenues earned from the sales of Gattex during the year ended December 31, 2014. The above decreases in net cash used in 2014 were partially offset by
increased spending related to the launch of Gattex in the year ended December 31, 2014. The decrease in net cash used in 2013 was primarily due to the decrease in interest expense and
non-cash royalty receivable related to the issuance of non-recourse Sensipar Notes to Amgen in the second quarter of 2012. The REGPARA royalty revenue is pledged to service the
principal and interest on our non-recourse notes and is not available to fund operations. The decrease in net cash used in 2013, was also related to the increased cash received from
revenues earned from the sales of Gattex during the year ended December 31, 2013 and also due to the reduction in research and development costs associated with clinical development
activities. The above decreases in net cash used in 2013 were partially offset by increased spending related to the launch of Gattex in the year ended December 31, 2013. The net cash
used in the year ended December 31, 2012 was primarily related to the increased spending in research and development due to the advancement of our registration programs for Gattex and
Natpara and due to the non-cash components of accounts receivable and interest expense related to the issuance of non-recourse Sensipar Notes to Amgen. The PTH 1-84 royalty revenues
earned during the year ended December 31, 2012 were pledged to service the principal and interest on our non-recourse notes and were not available to fund operations.
Net cash provided by investing activities was $24.3 million in 2014 compared to cash used in investing activities of $50.1 million, and $6.5 million in 2013 and 2012,
respectively. Net cash provided by investing activities during 2014 was primarily the result of selling marketable investment securities to fund current operations. Net cash used in investing
activities during 2013 and 2012 was primarily the result of investing excess cash not currently required to fund operations. Additionally, capital expenditures for 2014, 2013 and 2012 were
$3.1 million, $1.1 million and $1.2 million, respectively.
Net cash provided by financing activities was $8.4 million, $108.1 million and $2.6 million during 2014, 2013 and 2012, respectively. Cash provided by financing activities during 2014
primarily consisted of approximately $10.3 million received from the exercise of employee stock options and the sale of shares under the employee stock purchase plan. This provision of net
cash from financing activities was partially offset by using $2.2 million to pay taxes that were due from the withholding of shares upon the vesting of certain restricted stock units. Cash
provided by financing activities during 2013 primarily consisted of the $93.5 million received from the public sale of 6.9 million common shares in May 2013 and approximately $14.5 million
received from the exercise of employee stock options and the sale of shares for the employee stock purchase plan. Cash provided by financing activities during 2012 consisted of $2.6 million
received from the exercise of employee stock options and the sale of shares for the employee stock purchase plan. Employee stock option exercises and proceeds from the sale of stock by
us pursuant to the employee stock purchase plan provided approximately $10.3 million, $14.5 million, and $2.6 million of cash during 2014, 2013 and 2012, respectively. Proceeds from the
exercise of employee stock options vary from period to period based upon, among other factors, fluctuations in the market price of our common stock relative to the exercise price of such
options and the availability of stock under the employee stock purchase plan.
We could receive future milestone payments from all our agreements of up to $16.8 million in the aggregate if each of our current licensees accomplishes the specified research and/or
development milestones provided in the respective agreements. In addition, all of the agreements require the licensees to make royalty payments to us if they sell products covered by the
terms of our license agreements. However, we do not control the subject matter, timing or resources applied by our licensees to their development programs. Thus, potential receipt of
milestone and royalty payments from these licensees is largely beyond our control. Further, each of these agreements may be terminated before its scheduled expiration date by the
respective licensee either for any reason or under certain conditions.
We have entered into long-term agreements with certain manufacturers and suppliers that require us to make contractual payment to these organizations. We expect to enter into
additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require up-front payments and long-term commitments of cash.
The following represents our contractual obligations as of December 31, 2014 (in millions):
Critical Accounting Policies and Estimates
Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue
and research and development costs. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements:
- accrual of research and development expenses;
- valuation of marketable investment securities;
- effective interest computation and;
- valuation of long-lived and intangible assets and goodwill.
59
Revenue Recognition. We earn our revenue from product sales, license fees, milestone payments, research and development support payments and royalty payments. As
described below, significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may
result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.
Product Sales. We recognize revenue from product sales when persuasive evidence of an arrangement exists, title to product and associated risk of loss has passed to
the customer, the price is fixed or determinable, collection from the customer is reasonably assured, we have no further performance obligations, and returns can be reasonably estimated.
Currently, product sales represent U.S. sales of Gattex and international sales of Revestive.
Our customers are primarily comprised of specialty pharmacies, distributors and other health care providers. In some cases, we may also sell Gattex or Revestive to governments and
government agencies.
Because of factors such as the pricing of Gattex and Revestive, the limited number of patients and the lack of contractual return rights, Gattex and Revestive customers often carry limited
inventory. We also monitor inventory within our sales channels to determine whether deferrals are appropriate based on factors such as inventory levels compared to demand, contractual
terms and financial strength of distributors.
In addition to sales in countries where Gattex and Revestive are commercially available, we have also recorded revenue on sales for patients receiving Gattex or Revestive through
named-patient programs. The relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where Gattex or Revestive have not
received final approval for commercial sale.
We record estimated rebates payable under governmental programs, including Medicaid in the U.S. and other programs outside the U.S., as a reduction of revenue at the time of product
sale. Our calculations related to these rebate accruals require analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the
amount of such rebates. We update our estimates and assumptions each period and record any necessary adjustments, which may have an impact on revenue in the period in which the
adjustment is made. Generally, the length of time between product sale and the processing and reporting of the rebates is three to six months.
All U.S. prescriptions for Gattex, received directly by us from the patient's physician, are handled through NPS Advantage, our data management and patient support program, which
investigates and determines the patient's insurance coverage for Gattex. Once coverage is confirmed, we forward the prescription to the specialty pharmacy (SP) who then re-confirms the
coverage and dispenses Gattex to the patient. We sell Gattex directly to a limited number of SPs and a specialty distributor (SD) who dispense product to patients, hospitals or U.S.
government entities. We invoice and record revenue upon the SPs' or SD's receipt of Gattex from our third-party logistics warehouse. Our SPs order product to fill prescriptions that have
been approved for reimbursement by payers.
Specific considerations for Gattex sold in the U.S. are as follows:
- Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebates are amounts owed after the final dispensing of the product to a
benefit plan participant and are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on statutory
discount rates and expected utilization. Our estimate for expected utilization for rebates is based in part on actual and pending prescriptions for which we have validated the insurance
benefits.
- Chargebacks: Chargebacks are discounts that occur when contracted customers purchase from our SPs or SD. Contracted customers, which currently consist primarily of Public
Health Service institutions and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. Our SPs or SD, in turn, charge
back the difference between the price initially paid by the SP or SD and the discounted price paid to the SP or SD by the customer. The allowance for chargebacks is based on actual and
expected sales to the SPs and SD.
- SP and SD Fees and Deductions: Our SPs and our SD are offered prompt payment discounts and are paid fees for their services and data.
60
- Product returns: We will accept product that is damaged or defective when shipped directly to the SP or SD from our third-party logistics provider or for product that is returned
with more than two (2) months remaining until the expiration date from our SP or SD only. We will not provide any credit for product that has been labeled for or sent to a patient. Product
returned is generally not resalable as the product must be temperature-controlled throughout the supply chain and such control is difficult to confirm. We make a reasonable estimate of future
potential product returns based on the number of prescriptions that have been approved for reimbursement and sent to an SP with each corresponding shipment of Gattex that has been sent
to each respective SP. We also have the visibility to see current inventory levels and the current shelf life at the SPs and SD and have the ability to control the amount of product that is sold
to the SPs and SD. At the end of each reporting period, we determine a product returns reserve by evaluating the units held in our distribution channel, the underlying demand for such units
and the risk of potential product returns. At December 31, 2014 and 2013 we have a product returns reserve of $0 and approximately $119,000, respectively.
Product sales are recorded net of accruals for estimated rebates, chargebacks, discounts, and other deductions (collectively, sales deductions) and returns. With the exception of
allowances for prompt payment, allowances for sales deductions and returns are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Milestone Revenue. We recognize revenue from milestone payments as agreed upon events representing the achievement of substantive steps in the development
process are achieved and where the amount of the milestone payment approximates the fair value of achieving the milestone. We defer and recognize revenue from up-front nonrefundable
license fees on a straight-line basis, unless another pattern is apparent, over the period we have continuing involvement in the research and development project.
Royalty Revenue. Royalties from licensees are based on third-party sales of licensed products and are recorded in accordance with the contract terms when third-party
results are reliably measurable and collectability is reasonably assured.
We analyze our arrangements entered into to determine whether the elements can be separated and accounted for individually or as a single unit of accounting. Allocation of
revenue to individual elements that qualify for separate accounting is based on the estimated fair value of the respective elements.
Inventory valuation. Inventories are stated at the lower of cost or estimated realizable value. We determine the cost of inventory using the first-in, first-out, or FIFO,
method. We capitalize inventory costs associated with our products after regulatory approval when, based on management's judgment, future commercialization is considered probable and
the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. We periodically analyze our inventory levels to identify inventory
that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such inventories as appropriate. In addition, our products are subject to
strict quality control and monitoring which we perform throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete
due to expiration, we record a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.
Accrual of Research and Development Expenses. Research and development costs are expensed as incurred and include salaries and benefits; costs paid to third-party
contractors to perform research, conduct clinical trials, develop and manufacture pre-approval drug materials and delivery devices; and associated overhead expenses and facilities costs.
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for
services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site
management and monitoring costs and data management costs. Differences between actual clinical trial costs from estimated clinical trial costs have not been material and are adjusted for
in the period in which they become known.
Share-Based Payments. We grant options to purchase our common stock to our employees and directors under our stock option plans. For options awards with market
conditions we use the Monte Carlo simulation to value the awards. For other option awards which vest based on passage of time, we estimate the fair value on the date of grant using a
Black-Scholes pricing model (Black-Scholes model). The determination of the fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by our
stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the
61
expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. If factors change and we employ different
assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the
payment of cash by us.
There are significant differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency in
future periods and materially affect the fair value estimate of share-based payments. It may also result in a lack of comparability with other companies that use different models, methods and
assumptions.
For purposes of estimating the fair value of stock options granted using the Black-Scholes model, we have made an estimate regarding our stock price volatility. We consider the
historical volatility and the implied volatility of market-traded options in our stock for the expected volatility assumption input to the Black-Scholes model. The risk-free interest rate is based on
the yield curve of U.S. Treasury strip securities for a period consistent with the expected term of the option in effect at the time of grant. The dividend yield assumption is based on our history
and expectation of dividend payouts. The expected term is estimated considering historical option information.
Valuation of Marketable Investment Securities. We classify our marketable investment securities as available for sale. Available for sale securities are recorded at fair
value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of stockholders' deficit until realized. A
decline in the market value below cost that is deemed other than temporary is charged to results of operations, resulting in the establishment of a new cost basis for the security. Our
marketable securities consist primarily of U.S. dollar denominated corporate or government debt securities. Debt securities generally are long-term securities with coupons that may or may
not reset periodically against a benchmark interest rate.
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss. An unrealized loss exists when the current fair value of an individual security is less
than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated
other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether it would more likely than not be required to
sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or where it may be more likely than not be required to sell the security before the
expected recovery of the amortized cost basis, the security's decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded in results of
operations as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security.
Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
Effective Interest Computation. In July 2007, we entered into an agreement with DRI Capital, or DRI, in which we sold to DRI our right to receive future royalty payments
arising from sales of Preotact (PTH1-84) under our licensing agreement with Takeda. We received an up-front purchase price of $50.0 million in 2007. If and when DRI receives two and a
half times the payment we received, the agreement will terminate and the remainder of the royalties, if any, will revert back to us.
In December 2013, we entered into an amendment and restatement (the "Amendment and Restatement") to our agreement with DRI for PTH 1-84. Pursuant to the previously
disclosed Termination and Transition Agreement between NPS and Takeda (See note 10 to the consolidated financial statements), our license agreement with Takeda was terminated and
NPS re-acquired exclusive rights worldwide to develop and commercialize PTH. Preotact is the brand name that Takeda had used to market PTH for the treatment of osteoporosis in certain
of its licensed territories. NPS is developing PTH in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism. In January 2015, the FDA approved Natpara. Pursuant to
the Amendment and Restatement, (i) DRI has consented to the commercialization of PTH by the Company, (ii) the terms of the 2007 Agreement are tolled, and (iii) the
parties' rights and obligations regarding PTH and related technology are governed by the Amendment and Restatement. We will be required to repay the outstanding non-recourse debt
based upon a mid-single digit percentage of worldwide Natpara sales, excluding Israel.
62
Our obligation to pay royalties to DRI under the Amendment and Restatement shall expire on a country-by-country basis upon the later of (i) the last to expire patent controlled by
us with claims covering PTH in such country or (ii) the expiration of any period of regulatory exclusivity applicable to PTH in such country. Our obligation to pay royalties to DRI under
the Amendment and Restatement shall terminate in its entirety once cumulative royalty payments made to DRI by Takeda and us total $125 million. As of December 31, 2014,
$45.5 million in royalties had been paid to DRI. We determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest method over
the estimated life.
We estimate future net sales of PTH and then calculate the effective interest rate on the DRI debt. Changes to the future PTH net sales forecast may have a material impact on interest
expense. Management evaluates its future PTH net sales estimates on a quarterly basis and adjusts the effective interest rate when information indicates that the estimate is materially above
or below the prior estimate.
In February 2010, we entered into an agreement with DRI in which we sold to DRI our right to receive future royalty payments arising from sales of REGPARA under our licensing
agreement with Kyowa Hakko Kirin. We received an up-front purchase price of $38.4 million in 2010. If and when DRI receives two and a half times the payment we received, the agreement
will terminate and the remainder of the royalties, if any, will revert back to us. We have determined that we should classify the up-front purchase price as debt and amortize this using the
effective interest rate method over the estimated period to recover two and a half times the principal advanced. We estimate future net sales of REGPARA by Kyowa Hakko Kirin and then
calculate the effective interest rate on the DRI debt. Changes to the future REGPARA net sales forecast may have a material impact on interest expense. Management evaluates its future
REGPARA net sales estimates on a quarterly basis and adjusts the effective interest rate when information indicates that the estimate is materially above or below the prior estimate.
Valuation of Long-lived Assets, Intangibles and Goodwill. We assess the impairment of long-lived assets, intangibles and goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:
- significant underperformance relative to expected historical or projected future operating results;
- significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
- significant negative industry or economic trends;
- significant decline in our stock price for a sustained period; and
- our market capitalization relative to net book value.
When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any
impairment based on a probability weighted projected discounted cash flow method using a discount rate determined to be commensurate with the risk inherent in our current business model.
Intangibles represent the fair value of product rights purchased.
Intangible assets with definite useful lives are amortized to
their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur.
Goodwill represents the excess of costs over fair value of net assets of businesses acquired. Goodwill acquired in a purchase business combination is not amortized, but instead tested
for impairment at least annually, or sooner if circumstances indicate that an impairment might have occurred.
Recent Accounting Pronouncements
See note 15 to the consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects
on results of operations and financial condition.
63
ITEM 7A. |
Quantitative and Qualitative Disclosures About Market Risk. |
Interest Rate Risk. Our interest rate risk exposure results from our investment portfolio, our convertible notes, and our non-recourse notes. Our primary objectives in
managing our investment portfolio are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The securities we hold in our investment portfolio are
subject to interest rate risk. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings. After a review of our marketable
investment securities, we believe that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair value of our marketable investment securities would be
insignificant to the consolidated financial statements. Currently, we do not hedge these interest rate exposures. We have established policies and procedures to manage exposure to
fluctuations in interest rates. We place our investments with high quality issuers and limit the amount of credit exposure to any one issuer and do not use derivative financial instruments in
our investment portfolio. We invest in highly liquid, investment-grade securities and money market funds of various issues, types and maturities. These securities are classified as available
for sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as accumulated other comprehensive income as a separate component in
stockholders' deficit unless a loss is deemed other than temporary, in which case the loss is recognized in earnings.
Our 9% non-recourse Sensipar Notes have a fixed interest rate. As of December 31, 2014, our Sensipar Notes had $26.2 million in aggregate principal amount outstanding. The fair
value of the Sensipar Notes is affected by changes in interest rates and by historical and projected rates of royalty revenues from cinacalcet HCl sales.
Foreign Currency Risk. We have significant clinical and commercial-scale manufacturing agreements as well as foreign subsidiaries which are denominated in
other foreign currencies. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and other foreign
currencies, or by weak economic conditions in other countries. When the U.S. dollar strengthens against the foreign currencies, the cost of expenses outside the U.S. decrease. When the
U.S. dollar weakens against other foreign currencies, the cost of expenses in other countries increase. The monetary assets and liabilities in our foreign subsidiaries which are impacted by
the foreign currency fluctuations are cash, inventory, accounts payable, and certain accrued liabilities. A hypothetical ten percent increase or decrease in the exchange rate between the U.S.
dollar and other foreign currencies from the December 31, 2014 rate would cause the fair value of such monetary assets and liabilities in our foreign subsidiaries to change by an
insignificant amount. We are not currently engaged in any foreign currency hedging activities.
64
ITEM 8. |
Financial Statements and Supplementary Data. |
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Table of Contents
All other schedules are omitted, as the required information is presented in the consolidated financial statements or related notes.
65
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
NPS Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of NPS Pharmaceuticals, Inc. and subsidiaries as of
December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits 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 statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NPS Pharmaceuticals, Inc. and
subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014,
in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NPS Pharmaceuticals, Inc.'s internal
control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 18, 2015 expressed an unqualified opinion on the effectiveness of the Company's internal control over
financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
February 18, 2015
66
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
NPS Pharmaceuticals, Inc.:
We have audited NPS Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NPS Pharmaceuticals,
Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A(b). Our responsibility is to express an opinion on the Company's
internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, NPS Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NPS
Pharmaceuticals, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 18, 2015 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Short Hills, New Jersey
February 18, 2015
67
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2014 and 2013
(In thousands, except share data)
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65,565 |
|
$ |
51,204 |
Marketable investment securities |
|
|
98,626 |
|
|
129,270 |
Accounts receivable |
|
|
48,854 |
|
|
41,242 |
Inventory |
|
|
36,815 |
|
|
30,035 |
Prepaid expenses |
|
|
5,225 |
|
|
5,621 |
Other current assets |
|
|
1,360 |
|
|
1,380 |
Total current assets |
|
|
256,445 |
|
|
258,752 |
|
|
|
|
|
|
|
Property and equipment, net |
|
|
5,786 |
|
|
4,402 |
Goodwill |
|
|
9,429 |
|
|
9,429 |
Intangibles, net |
|
|
17,505 |
|
|
19,301 |
Debt issuance costs, net of accumulated amortization |
|
|
|
|
|
|
of $601 and $716, respectively |
|
|
251 |
|
|
338 |
Other long-term assets |
|
|
201 |
|
|
- |
Total assets |
|
$ |
289,617 |
|
$ |
292,222 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
21,810 |
|
$ |
10,919 |
Accrued expenses and other current liabilities |
|
|
19,301 |
|
|
17,037 |
Accrued research and development expenses |
|
|
3,408 |
|
|
3,541 |
Accrued interest expense |
|
|
862 |
|
|
1,620 |
Convertible notes payable |
|
|
- |
|
|
16,545 |
Current portion of non-recourse debt |
|
|
10,252 |
|
|
8,752 |
Total current liabilities |
|
|
55,633 |
|
|
58,414 |
Non-recourse debt, less current portion |
|
|
89,754 |
|
|
123,635 |
Other liabilities |
|
|
10,405 |
|
|
5,283 |
Total liabilities |
|
|
155,792 |
|
|
187,332 |
|
|
|
|
|
|
|
Commitments and contingencies (notes 8, 9 and 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit): |
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; |
|
|
|
|
|
|
issued and outstanding no shares |
|
|
- |
|
|
- |
Common stock, $0.001 par value. Authorized 175,000,000 shares; |
|
|
|
|
|
|
issued and outstanding 107,103,262 shares and 102,613,780 shares, respectively |
|
|
107 |
|
|
103 |
Additional paid-in capital |
|
|
1,167,385 |
|
|
1,127,420 |
Accumulated other comprehensive (loss) income |
|
|
(2,273) |
|
|
56 |
Accumulated deficit |
|
|
(1,031,394) |
|
|
(1,022,689) |
Total stockholders' equity |
|
|
133,825 |
|
|
104,890 |
Total liabilities and stockholders' equity |
|
$ |
289,617 |
|
$ |
292,222 |
See accompanying notes to consolidated financial statements.
68
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2014, 2013, and 2012
(In thousands, except per share data)
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
Product sales, net |
|
$ |
101,195 |
|
$ |
31,752 |
|
$ |
- |
Royalties |
|
|
122,867 |
|
|
123,804 |
|
|
105,587 |
Sale of royalty rights |
|
|
- |
|
|
- |
|
|
25,000 |
Milestones and license fees |
|
|
- |
|
|
36 |
|
|
57 |
Total revenues |
|
|
224,062 |
|
|
155,592 |
|
|
130,644 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
14,648 |
|
|
3,587 |
|
|
- |
Cost of license fees |
|
|
- |
|
|
9 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
90,109 |
|
|
85,421 |
|
|
94,839 |
Selling, general and administrative |
|
|
114,255 |
|
|
68,070 |
|
|
36,929 |
Total operating expenses |
|
|
204,364 |
|
|
153,491 |
|
|
131,768 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
5,050 |
|
|
(1,495) |
|
|
(1,124) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
406 |
|
|
340 |
|
|
292 |
Interest expense |
|
|
(13,728) |
|
|
(11,938) |
|
|
(18,198) |
Gain on sale of marketable investment securities, net |
|
|
12 |
|
|
4 |
|
|
4 |
Foreign currency transaction (loss) gain |
|
|
22 |
|
|
(233) |
|
|
54 |
Other |
|
|
299 |
|
|
- |
|
|
237 |
Total other expense, net |
|
|
(12,989) |
|
|
(11,827) |
|
|
(17,611) |
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense |
|
|
(7,939) |
|
|
(13,322) |
|
|
(18,735) |
Income tax expense |
|
|
766 |
|
|
182 |
|
|
- |
Net loss |
|
$ |
(8,705) |
|
$ |
(13,504) |
|
$ |
(18,735) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common and potential |
|
|
|
|
|
|
|
|
|
common share |
|
$ |
(0.08) |
|
$ |
(0.14) |
|
$ |
(0.22) |
|
|
|
|
|
|
|
|
|
|
Weighted average common and potential common |
|
|
|
|
|
|
|
|
|
shares outstanding - basic and diluted |
|
|
106,341 |
|
|
97,750 |
|
|
86,999 |
See accompanying notes to consolidated financial statements.
69
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2014, 2013, and 2012
(In thousands)
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,705) |
|
$ |
(13,504) |
|
$ |
(18,735) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period |
|
|
(71) |
|
|
3 |
|
|
107 |
Reclassification for recognized gain on marketable |
|
|
|
|
|
|
|
|
|
securities during the period |
|
|
12 |
|
|
4 |
|
|
4 |
Net unrealized gain (loss) on marketable investment securities |
|
|
(59) |
|
|
7 |
|
|
111 |
Foreign currency translation gain (loss) |
|
|
(2,270) |
|
|
44 |
|
|
(10) |
Other comprehensive income (loss) |
|
|
(2,329) |
|
|
51 |
|
|
101 |
Comprehensive loss |
|
$ |
(11,034) |
|
$ |
(13,453) |
|
$ |
(18,634) |
See accompanying notes to consolidated financial statements.
70
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2014, 2013, and 2012
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Stockholders' |
|
|
|
Shares |
|
Amount |
|
|
Shares |
|
|
Amount |
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Equity (Deficit) |
Balances, December 31, 2011 |
|
|
- |
|
$ |
- |
|
|
86,081,167 |
|
$ |
86 |
|
$ |
944,344 |
|
$ |
(96) |
|
$ |
(990,450) |
|
$ |
(46,116) |
Stock options exercised |
|
|
- |
|
|
- |
|
|
481,058 |
|
|
1 |
|
|
2,407 |
|
|
- |
|
|
- |
|
|
2,408 |
Restricted stock vesting |
|
|
- |
|
|
- |
|
|
171,271 |
|
|
- |
|
|
149 |
|
|
- |
|
|
- |
|
|
149 |
Compensation expense on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based awards |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
7,298 |
|
|
- |
|
|
- |
|
|
7,298 |
Net proceeds from sale of shares |
|
|
- |
|
|
- |
|
|
45,553 |
|
|
- |
|
|
254 |
|
|
- |
|
|
- |
|
|
254 |
Other comprehensive income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
101 |
|
|
- |
|
|
101 |
Net loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(18,735) |
|
|
(18,735) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2012 |
|
|
- |
|
|
- |
|
|
86,779,049 |
|
|
87 |
|
|
954,452 |
|
|
5 |
|
|
(1,009,185) |
|
|
(54,641) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
- |
|
|
- |
|
|
2,521,764 |
|
|
3 |
|
|
14,528 |
|
|
- |
|
|
- |
|
|
14,531 |
Restricted stock vesting |
|
|
- |
|
|
- |
|
|
211,389 |
|
|
- |
|
|
339 |
|
|
- |
|
|
- |
|
|
339 |
Compensation expense on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based awards |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
8,480 |
|
|
- |
|
|
- |
|
|
8,480 |
Excess tax benefit from stock options |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
178 |
|
|
- |
|
|
- |
|
|
178 |
Stock issued in connection with the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Takeda Termination and Transition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreement |
|
|
- |
|
|
- |
|
|
6,128,641 |
|
|
6 |
|
|
55,397 |
|
|
- |
|
|
- |
|
|
55,403 |
Net proceeds from sale of shares |
|
|
- |
|
|
- |
|
|
6,972,937 |
|
|
7 |
|
|
94,046 |
|
|
- |
|
|
- |
|
|
94,053 |
Other comprehensive income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
51 |
|
|
- |
|
|
51 |
Net loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(13,504) |
|
|
(13,504) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2013 |
|
|
- |
|
|
- |
|
|
102,613,780 |
|
|
103 |
|
|
1,127,420 |
|
|
56 |
|
|
(1,022,689) |
|
|
104,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
- |
|
|
- |
|
|
1,245,034 |
|
|
1 |
|
|
9,317 |
|
|
- |
|
|
- |
|
|
9,318 |
Restricted stock vesting |
|
|
- |
|
|
- |
|
|
162,877 |
|
|
- |
|
|
3,109 |
|
|
- |
|
|
- |
|
|
3,109 |
Compensation expense on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based awards |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
9,740 |
|
|
- |
|
|
- |
|
|
9,740 |
Excess tax benefit from stock options |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
312 |
|
|
- |
|
|
- |
|
|
312 |
Conversion of 5.75% convertible notes |
|
|
- |
|
|
- |
|
|
3,041,451 |
|
|
3 |
|
|
16,532 |
|
|
- |
|
|
- |
|
|
16,535 |
Net proceeds from sale of shares |
|
|
- |
|
|
- |
|
|
40,120 |
|
|
- |
|
|
955 |
|
|
- |
|
|
- |
|
|
955 |
Other comprehensive income |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
(2,329) |
|
|
- |
|
|
(2,329) |
Net loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(8,705) |
|
|
(8,705) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2014 |
|
|
- |
|
$ |
- |
|
|
107,103,262 |
|
$ |
107 |
|
$ |
1,167,385 |
|
$ |
(2,273) |
|
$ |
(1,031,394) |
|
$ |
133,825 |
See accompanying notes to consolidated financial statements.
71
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013, and 2012
(In thousands)
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,705) |
|
$ |
(13,504) |
|
$ |
(18,735) |
Adjustments to reconcile net loss to net cash |
|
|
|
|
|
|
|
|
|
used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,335 |
|
|
2,630 |
|
|
1,083 |
Accretion of premium on marketable investment securities |
|
|
3,206 |
|
|
2,956 |
|
|
2,005 |
Shares issued for payment of services |
|
|
- |
|
|
549 |
|
|
- |
Non-cash interest expense |
|
|
7,278 |
|
|
10,982 |
|
|
17,239 |
Non-cash royalties |
|
|
(40,304) |
|
|
(39,804) |
|
|
(55,993) |
Realized gain on marketable investment securities |
|
|
(12) |
|
|
(4) |
|
|
(4) |
Loss on disposal of equipment |
|
|
- |
|
|
41 |
|
|
- |
Compensation expense on share-based awards |
|
|
15,003 |
|
|
9,437 |
|
|
7,548 |
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,713) |
|
|
(11,324) |
|
|
(16,010) |
Inventory |
|
|
(898) |
|
|
4,265 |
|
|
- |
Prepaid expenses, other current assets and other assets |
|
|
138 |
|
|
(466) |
|
|
1,803 |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
6,839 |
|
|
11,257 |
|
|
1,321 |
Other liabilities |
|
|
5,123 |
|
|
(1,331) |
|
|
(1,249) |
Net cash used in operating activities |
|
|
(16,710) |
|
|
(24,316) |
|
|
(60,992) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Sales of marketable investment securities |
|
|
11,209 |
|
|
11,850 |
|
|
7,628 |
Maturities of marketable investment securities |
|
|
123,458 |
|
|
96,021 |
|
|
111,879 |
Purchases of marketable investment securities |
|
|
(107,276) |
|
|
(156,842) |
|
|
(124,809) |
Acquisitions of property and equipment |
|
|
(3,093) |
|
|
(1,142) |
|
|
(1,187) |
Net cash provided by (used in) investing activities |
|
|
24,298 |
|
|
(50,113) |
|
|
(6,489) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock options |
|
|
312 |
|
|
178 |
|
|
- |
Net proceeds from the sale of common stock and exercise |
|
|
|
|
|
|
|
|
|
of stock options |
|
|
8,118 |
|
|
107,940 |
|
|
2,561 |
Net cash provided by financing activities |
|
|
8,430 |
|
|
108,118 |
|
|
2,561 |
Effect of exchange rate changes on cash |
|
|
(1,657) |
|
|
44 |
|
|
(10) |
Net increase (decrease) in cash and cash equivalents |
|
|
14,361 |
|
|
33,733 |
|
|
(64,930) |
Cash and cash equivalents at beginning of year |
|
|
51,204 |
|
|
17,471 |
|
|
82,401 |
Cash and cash equivalents at end of year |
|
$ |
65,565 |
|
$ |
51,204 |
|
$ |
17,471 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
256 |
|
$ |
952 |
|
$ |
954 |
Cash paid for income taxes |
|
|
270 |
|
|
4 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
6.1 million shares of NPS common stock issued in connection with |
|
|
|
|
|
|
|
|
|
the Takeda Termination and Transition agreement, see note 10 |
|
$ |
- |
|
$ |
55,403 |
|
$ |
- |
Unrealized gains (losses) on marketable investment securities |
|
|
(59) |
|
|
7 |
|
|
111 |
Accrued acquisition of equipment |
|
|
293 |
|
|
428 |
|
|
96 |
Accrued acquisition of inventory |
|
|
7,279 |
|
|
602 |
|
|
- |
Noncash principal payments |
|
|
32,381 |
|
|
26,915 |
|
|
52,050 |
Conversion of 5.75% convertible notes |
|
|
16,535 |
|
|
- |
|
|
- |
See accompanying notes to consolidated financial statements.
72
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013, and 2012
(1) Organization and Summary of Significant Accounting Policies
The consolidated financial statements are comprised of the financial statements of NPS Pharmaceuticals, Inc. and its subsidiaries, collectively referred to as the Company or NPS
Pharma. NPS Pharma is a global biopharmaceutical company pioneering and delivering first-in or best-in disease therapies that transform the lives of patients with rare diseases. The
Company's marketed product, Gattex® 0.05 mg/kg/d (teduglutide [rDNA origin]) for injection, for subcutaneous use was approved by the U.S. Food and Drug Administration
("FDA") in December 2012 for the treatment of adult patients with Short Bowel Syndrome ("SBS") who are dependent on parenteral support and was approved by the
European Union ("EU"), in August 2012, for the treatment of adult patients with SBS; patients should be stable following a period of intestinal adaptation after surgery. The
Company launched Revestive in Germany and Sweden in 2014 and plans to launch in other EU countries in early 2015. In January 2015, the FDA approved the Company's second product,
Natpara® (parathyroid hormone) for Injection as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism, a rare endocrine disorder characterized
by insufficient levels of parathyroid hormone or PTH. Natpara, a bioengineered replica of human PTH, is expected to be available in the U.S. in the second quarter of 2015.
In addition to the Company's proprietary clinical portfolio, it has a number of royalty-based clinical and commercial stage programs.
Since inception, the Company's principal activities have been performing research and development, raising capital, establishing research and license agreements and effecting the
commercial launch of Gattex in the U.S. All monetary amounts are reported in U.S. dollars unless specified otherwise.
Subsequent Events
The Company has evaluated all events and transactions since December 31, 2014. The Company did not have any material recognized subsequent events but did have the
following non-recognized subsequent event:
Merger Agreement
On January 11, 2015, the Company entered into an Agreement and Plan of Merger (Merger Agreement) with Shire Pharmaceutical Holdings Ireland Limited (Parent), a
company incorporated in Ireland and a wholly owned subsidiary of Shire plc (Shire), a company incorporated in Jersey; Knight Newco 2, Inc. (Purchaser), a Delaware corporation and
wholly owned subsidiary of Parent; and, solely for purposes of Section 12.14 of the Merger Agreement, Shire. Pursuant to the Merger Agreement, Purchaser has commenced a cash
tender offer for all of the outstanding shares of the Company's common stock, upon the terms and subject to the conditions of the Merger Agreement. Consummation of the tender offer is
subject to customary closing conditions, as set forth in the Merger Agreement. As soon as practicable following the consummation of the tender offer, and subject to the satisfaction or waiver
of certain conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company pursuant to the provisions of section 251(h) of the Delaware General
Corporation Law, with no stockholder vote required to consummate the merger, and the Company will survive as a wholly owned subsidiary of Parent.
73
The Merger Agreement contains representations, warranties and covenants of the parties customary for transactions of this type. Until the earlier of the termination of the Merger
Agreement and the consummation of the merger, the Company has agreed to operate its business and the business of its subsidiaries in the ordinary course and has agreed to certain other
operating covenants, as set forth more fully in the Merger Agreement. The Company has agreed not to solicit alternative acquisition proposals. However, the Company may,
subject to the terms and conditions set forth in the Merger Agreement, furnish information to, and engage in discussions and negotiations with, a third party that makes an unsolicited
acquisition proposal that the Board reasonably believes is or could reasonably be expected to lead to a superior proposal. Under certain circumstances and upon compliance with
certain notice and other specified conditions set forth in the Merger Agreement, the Company may terminate the Merger Agreement to accept a superior proposal.
The Merger Agreement contains certain termination rights for both Parent and the Company and further provides that, upon termination of the Merger Agreement under certain
circumstances relating to competing acquisition proposals, including if the Company terminates the Merger Agreement to accept a superior proposal, or where our Board of Directors changes
its recommendation in favor of the transaction, the Company may be required to pay Parent a termination fee of $155,939,696.
Additional information about the merger is set forth in the Company's filings with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
The following significant accounting policies are followed by the Company in preparing its consolidated financial statements:
(a) Cash Equivalents
The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Cash equivalents at December 31,
2014 and 2013 are carried at cost and consist of commercial paper, money market funds, debt securities and other highly liquid instruments of approximately $42.3 million and $40.6 million,
respectively. At December 31, 2014 and 2013, the book value of cash equivalents approximates fair value.
(b) Marketable Investment Securities
The Company classifies its marketable investment securities as available-for-sale and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities, net
of the related tax effect, are excluded from earnings and are reported as a separate component of stockholders' deficit until realized. A decline in the fair value below cost of available-for-sale
securities that is deemed other than temporary is charged to results of operations, resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized
or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest income is recognized when earned. Realized gains
and losses from the sale of marketable investment securities are based on the specific identification method and are included in results of operations and are determined on the specific-
identification basis.
The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss. An unrealized loss exists when the current fair value of an individual
security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in
accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether the Company intends to sell or whether it would more likely than not be
required to sell the security before the expected recovery of the amortized cost basis. Where the Company intends to sell a security, or where it may be more likely than not be required to
sell the security before the expected recovery of the amortized cost basis, the security's decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is
recorded within earnings as an impairment loss.
Regardless of the Company's intent to sell a security, the Company performs additional analysis on all securities with unrealized losses to evaluate losses associated with the
creditworthiness of the security. Credit losses are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
(c) Trade Accounts Receivable
Trade accounts receivable are recorded for research and development support performed, for license fees, milestone payments and royalty income earned, and for product sales, and do
not bear interest. The Company determines an allowance for doubtful accounts based on assessed customers' ability to pay, historical write-off experience, and economic trends. Such
allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance
for doubtful accounts monthly. The Company did not record any bad debt expense for the years ended December 31, 2014 2013 and 2012. At December 31, 2014 and 2013 the
allowance for bad debts was zero.
74
(d) Inventory
Inventories are stated at the lower of cost or estimated realizable value. The Company determines the cost of inventory using the first-in, first-out, or FIFO, method. The Company
capitalizes inventory costs associated with the Company's products after regulatory approval when, based on management's judgment, future commercialization is considered probable and
the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. The Company periodically analyzes its inventory levels to identify
inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such inventories as appropriate. In addition, the Company's
products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality
specifications or become obsolete due to expiration, the Company records a charge to cost of sales sold to write down such unmarketable inventory to zero.
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of property and equipment is calculated on the straight-line method over estimated useful lives of 3 to 5 years.
Leasehold improvements are amortized using the straight-line method over the shorter of the life of the asset or remainder of the lease term.
(f) Goodwill and Intangibles
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Intangibles represents acquired assets and are measured at fair value as of the date of
acquisition. Goodwill and indefinite lived intangible assets acquired in a purchase or business combination and determined to have an indefinite useful life are not amortized, but instead
tested for impairment at least annually or sooner if circumstances indicate that impairment might have occurred.
Intangible
assets with finite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur. As a result of the annual impairment test performed by management at year-end, it was noted that fair value significantly exceeded the carrying value of the reporting unit. The
company considers itself a single reportable segment and reporting unit.
(g) Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse.
The Company establishes a valuation allowance when it believes it is more likely than not that deferred tax assets will not be realized.
The Company determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into consideration all available positive and negative
evidence, including historical operating results, expectations of future taxable income, carryforward periods available to the Company for tax reporting purposes, various income tax strategies
and other relevant factors. Significant judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the recoverability of
its deferred tax assets at that time. At December 31, 2014 and 2013, the Company maintained a full valuation allowance on its deferred tax assets.
At any one time the Company's tax returns for numerous tax years are subject to examination by U.S. federal, state and foreign taxing jurisdictions. The impact of an uncertain tax
position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained. An uncertain
income tax position will not be recognized in the financial statements unless it is more likely than not to be sustained. The Company adjusts these tax liabilities, as well as the related interest
and penalties, based on the latest facts and circumstances, including recently enacted tax law changes, published rulings, court cases, and outcomes of tax audits. While the Company does
not expect material changes, it is possible that its actual tax liability will differ from its established tax liabilities for unrecognized tax benefits, and the Company's effective tax rate may be
materially impacted. The Company accounts for interest and penalties related to uncertain tax positions as a component of Income tax expense.
For further information, refer to Note 13, Income Taxes.
75
(h) Revenue Recognition
The Company analyzes its revenue arrangements to determine whether the elements should be separated and accounted for individually or as a single unit of accounting. Allocation of
revenue to individual elements which qualify for separate accounting is based on the estimated fair value of the respective elements. The Company earns revenue from license fees,
milestone payments, royalty payments and product sales.
License fees. The Company defers and recognizes revenue from up-front nonrefundable license fees on a straight-line basis, unless another pattern is apparent, over the
period wherein the Company has continuing involvement in the research and development project. The Company recognizes revenue from up-front nonrefundable license fees upon receipt
when there is no continuing involvement in the research and development project.
Milestone payments. The Company recognizes revenue from its milestone payments as agreed-upon events representing the achievement of substantive steps in the
development process are achieved and where the amount of the milestone payment approximates the fair value of achieving the milestone.
Royalties. Royalties from licensees are based on third-party sales of licensed products and are recorded in accordance with contract terms when sales results are reliably
measurable and collectability is reasonably assured.
Product sales. The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, title to product and associated risk of loss has
passed to the customer, the price is fixed or determinable, collection from the customer is reasonably assured, the Company has no further performance obligations, and returns can be
reasonably estimated. Currently, product sales represent U.S. sales of Gattex, which was approved by the FDA in December 2012 and European sales of Revestive, which was approved in
the EU in August 2012.
The Company's customers are primarily comprised of specialty pharmacies, distributors and other health care providers. In some cases, the Company may also sell Gattex or Revestive
to governments and government agencies.
Because of factors such as the pricing of Gattex and Revestive, the limited number of patients and the lack of contractual return rights, Gattex and Revestive customers often carry limited
inventory. The Company also monitors inventory within its sales channels to determine whether deferrals are appropriate based on factors such as inventory levels compared to demand,
contractual terms and financial strength of distributors.
In addition to sales in countries where Gattex and Revestive are commercially available, the Company has also recorded revenue on sales for patients receiving Gattex or Revestive
through named-patient programs. The relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where Gattex or Revestive
have not received final approval for commercial sale.
The Company records estimated rebates payable under governmental programs, including Medicaid in the U.S. and other programs outside the U.S., as a reduction of revenue at the
time of product sale. The Company's calculations related to these rebate accruals require analysis of historical claim patterns and estimates of customer mix to determine which sales will be
subject to rebates and the amount of such rebates. The Company updates its estimates and assumptions each period and record any necessary adjustments, which may have an impact on
revenue in the period in which the adjustment is made. Generally, the length of time between product sale and the processing and reporting of the rebates is three to six months.
All U.S. prescriptions for Gattex, received directly by NPS from the patient's physician, are handled through NPS Advantage, the Company's data management and patient support
program, which investigates and determines the patient's insurance coverage for Gattex. Once coverage is confirmed, NPS forwards the prescription to the specialty pharmacy (SP) who
then re-confirms the coverage and dispenses Gattex to the patient. The Company sells Gattex directly to a limited number of SPs and a specialty distributor (SD) who dispense product to
patients, hospitals or U.S. government entities. The Company invoices and records revenue when the SPs or SD receives Gattex from the Company's third-party logistics warehouse. The
Company's SPs order product to fill prescriptions that have been approved for reimbursement by payers.
76
Specific considerations for Gattex sold in the U.S. are as follows:
- Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebates are amounts owed after the final dispensing of the product to a
benefit plan participant and are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on statutory
discount rates and expected utilization. The Company's estimate for expected utilization for rebates is based in part on actual and pending prescriptions for which it has validated the
insurance benefits.
- Chargebacks: Chargebacks are discounts that occur when contracted customers purchase from the Company's SPs or SD. Contracted customers, which currently consist
primarily of Public Health Service institutions and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The
Company's SPs or SD, in turn, charge back the difference between the price initially paid by the SP or SD and the discounted price paid to the SP or SD by the customer. The allowance for
chargebacks is based on actual and expected sales to the SPs and SD.
- SP and SD Fees and Deductions: The Company's SPs and its SD are offered prompt payment discounts and are paid fees for their services and data.
- Product returns: The Company will accept product that is damaged or defective when shipped directly to the SP or SD from the Company's third-party logistics provider or for
product that is returned with more than two (2) months remaining until the expiration date from its SP or SD only. The Company will not provide any credit for product that has been labeled
for or sent to a patient. Product returned is generally not resalable as the product must be temperature-controlled throughout the supply chain and such control is difficult to confirm. The
Company makes a reasonable estimate of future potential product returns based on the number of prescriptions that have been approved for reimbursement and sent to an SP with each
corresponding shipment of Gattex that has been sent to each respective SP. The Company also has the visibility to see current inventory levels and the current shelf life at the SPs and SD
and has the ability to control the amount of product that is sold to the SPs and SD. At the end of each reporting period, the Company determines a product returns reserve by evaluating the
units held in its distribution channel, the underlying demand for such units and the risk of potential product returns.
The following table summarizes the provisions, and credits/payments, for government rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions
(in thousands):
|
|
|
|
|
|
|
|
Returns and |
|
|
|
|
|
Rebates and |
|
Distribution- |
|
Other Sales- |
|
|
|
|
|
Chargebacks |
|
Related Fees |
|
Related Deductions |
|
Total |
Balance as of December 31, 2012 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Provision related to current period sales |
|
|
1,375 |
|
|
332 |
|
|
1,098 |
|
|
2,805 |
Credits/payments |
|
|
(262) |
|
|
(185) |
|
|
(857) |
|
|
(1,304) |
Balance as of December 31, 2013 |
|
|
1,113 |
|
|
147 |
|
|
241 |
|
|
1,501 |
Provision related to current period sales |
|
|
3,929 |
|
|
461 |
|
|
2,217 |
|
|
6,607 |
Credits/payments |
|
|
(3,398) |
|
|
(514) |
|
|
(2,208) |
|
|
(6,120) |
Balance as of December 31, 2014 |
|
$ |
1,644 |
|
$ |
94 |
|
$ |
250 |
|
$ |
1,988 |
Product sales are recorded net of accruals for estimated rebates, chargebacks, discounts, and other deductions (collectively, sales deductions) and
returns. With the exception of allowances for prompt payment, allowances for sales deductions and returns are included in accounts payable and accrued expenses in the accompanying
consolidated balance sheets.
(i) Research and Development Expenses
Research and development expenses, are expensed as incurred and are primarily comprised of the following types of costs incurred in performing research and development activities:
clinical trial and related clinical manufacturing costs, contract services, outside costs, salaries and benefits, overhead and occupancy costs.
The Company analyzes how to characterize payments under collaborative agreements based on the relevant facts and circumstances related to each agreement.
77
(j) Income (Loss) per Common Share
Basic income (loss) per common share is the amount of income (loss) for the period divided by the sum of the weighted average shares of common stock outstanding during the reporting
period. Diluted income (loss) per common share is the amount of income (loss) for the period plus interest expense on convertible debt divided by the sum of weighted average shares of
common stock outstanding during the reporting period and weighted average share that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares.
(k) Share-Based Compensation
The Company accounts for share-based compensation in accordance with Financial Accounting Standards Board's Accounting Standards Codification ("ASC") 718,
"Compensation - Stock Compensation" (ASC 718). Compensation cost is recorded based on the grant date fair value estimated using the Black-Scholes option-pricing for
awards which vest based on a service or performance condition or the Monte Carlo simulation model for awards with market conditions. The Company recognizes compensation cost for
awards on a straight-line basis over the requisite service period for the entire award, except for performance condition options where vesting is subject to the Company achieving certain
performance criteria. Compensation costs for performance condition options will be recognized when the achievement of the performance criteria is probable.
(l) Use of Estimates
Management of the Company has made estimates and assumptions relating to reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP). Actual results could differ from those estimates.
(m) Principles of Consolidation
The consolidated financial statements include the accounts of the Company, all subsidiaries in which it owns a majority voting interest including a variable interest entity in which the
Company is the primary beneficiary. The Company eliminates all intercompany accounts and transactions in consolidation.
(n) Accounting for Impairment of Long-Lived Assets
As described in (f), goodwill and indefinite lived intangible assets are tested for impairment at least annually. The Company reviews all other long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows (undiscounted) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount, or fair value,
less costs to sell.
(o) Foreign Currency Translation
Assets and liabilities of foreign operations with non-U.S. dollar functional currencies are translated into U.S. dollars at the period end exchange rates. Income, expenses and cash flows
are translated at the average exchange rates prevailing during the period. Adjustments resulting from translation are reported as a separate component of accumulated other comprehensive
loss in stockholders' deficit. Certain transactions are denominated in currencies other than the functional currency. Transaction gains and losses are included in other income (expense) for
the period in which the transaction occurs.
(p) Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting stockholders' equity (deficit) that, under U.S. GAAP, are excluded from net income (loss).
For the Company, these consist of net unrealized gains or losses on marketable investment securities and foreign currency translation gains and losses. Accumulated other comprehensive
income (loss) as of December 31, 2014 and 2013 consists of accumulated net unrealized gains on marketable investment securities of $74,000 and unrealized losses of $15,000,
respectively, and unrealized foreign currency translation losses of $2.2 million and unrealized gains of $71,000, respectively.
78
(q) Concentration of Suppliers
The Company has entered into agreements with contract manufacturers to manufacture clinical and commercial supplies of its product candidates. In some instances, the Company is
dependent upon a single supplier. The loss of one of these suppliers could have a material adverse effect upon the Company's operations.
(r) Leases
The Company leases its facilities under terms of individual lease agreements which provides for rent holidays and escalating payments. Rent under operating leases is recognized on a
straight-line basis beginning with lease commencement through the end of the lease term. The Company records deferred lease payments in accrued expenses and other current liabilities
and in other long-term liabilities.
(s) Deferred Financing Costs
Costs incurred in connection with the issuance of the Sensipar Notes and under the agreements with DRI, in which the Company sold to DRI its right to receive future royalty
payments arising from sales of REGPARA under its license agreement with Kyowa Hakko Kirin and a future royalty in the mid-single digits from the sales of PTH, are amortized using the
effective-interest method over the same period and in the same manner as the related debt. The amortization of deferred financing costs is included in Interest expense in the Consolidated
Statements of Operations.
(t) Deferred License Fees
Cost of license fees are deferred if they are a direct cost of a revenue generating activity and that revenue is being deferred. These deferred costs are amortized over the same period
and in the same manner as the related deferred revenue. The amortization of deferred license fees is included in Cost of license fees in the Consolidated Statements of Operations.
(2) Collaborative and License Agreements
The Company has granted exclusive development, commercialization, and marketing rights under certain of the below-described collaborative research, development, and license
agreements, the success of each program is dependent upon the efforts of the licensees. Each of the respective agreements may be terminated early. If any of the licensees terminates an
agreement, such termination may have a material adverse effect on the Company's operations.
Following is a description of significant collaborations and license agreements:
(a) Amgen Inc.
In 1996, the Company licensed worldwide rights (with the exception of China, Japan, North and South Korea, and Taiwan) to Amgen, Inc. to develop and commercialize cinacalcet HCl for
the treatment of hyperparathyroidism and indications other than osteoporosis and related bone metabolism disorders. Amgen is incurring all costs of developing and commercializing these
products. Amgen paid the Company a $10.0 million nonrefundable license fee and agreed to pay up to $400,000 per year through 2000 in development support, potential additional
development milestone payments totaling $26.0 million, and royalties on any future product sales. Such $26.0 million of potential additional milestone payments includes the Company's
potential to earn a $5.0 million milestone payment upon the FDA approval to sell a compound under the license agreement having a different structural formula from cinacalcet HC1. The
future milestone is tied to future events outside the Company's control. The Company believes these are substantive in nature and there is no assurance that they will be achieved. Through
December 31, 2014, Amgen has paid the Company $21.0 million in milestone payments, of which none were recognized during 2014, 2013, and 2012, respectively. The Company
recognized royalties from product sales of $111.9 million, $112.9 million and $89.3 million in 2014, 2013 and 2012, respectively, under the contract.
The Company receives a royalty from Amgen that represents a percentage in the high single digits to low double digits of Amgen's sales of cinacalcet HCl. In June 2012, we amended
our agreement with Amgen and received a one-time non-refundable $25.0 million payment in July 2012 in exchange for our rights to receive royalties under the license agreement that are
earned after December 31, 2018. Amgen has a right to terminate upon 90 days written notice to the Company, and either party may terminate upon material default by the other party subject
to a right to cure such default.
79
(b) GlaxoSmithKline
In 1993, the Company entered into an agreement with GlaxoSmithKline (GSK) to collaborate on the research, development and commercialization of calcium receptor active compounds
to treat osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism. Under the terms of the agreement, the Company may receive milestone payments and royalties
from any product sales under the license and a share of the profits from co-promoted products. To date, GSK has paid the Company $12.0 million in milestone payments, of which none were
recognized during 2014, 2013 or 2012. The Company granted GSK the exclusive license to develop and market worldwide compounds described under the GSK agreement, subject to the
Company's right to co-promote in the United States. Once compounds have been selected for development, GSK has agreed to conduct and fund all development of such products, including
all human clinical trials and regulatory submissions. In December 2006, the Company entered into an amendment to the agreement with GSK that permits GSK to develop additional
compounds. In consideration for this amendment, the Company received a $3.0 million fee during 2006. The Company recognized no revenue related to its agreement with GSK in 2014,
2013 or 2012.
The Company is entitled to receive a royalty from GSK that represents a percentage in the high single digits or low double digits, depending on sales, of such compounds should GSK
commercialize any such compounds. The license agreement with GSK is effective for the longer of ten years from first marketing in the last country in the territory or the expiration of the last
patent. GSK may terminate the agreement on 30-day written notice on a country-by-country basis if it reasonably determines that any compound developed under the agreement is not worth
continued development. NPS may terminate the agreement on 90-day written notice if no compound is under development or commercialization for a period of twelve consecutive months,
subject to GSK showing that it has a compound under development or commercialization or that it intends to enter development within six months. Either party may terminate upon material
default by the other party subject to a right to cure such default. Upon termination, the rights and licenses the Company granted GSK revert to the Company.
In August 2011, the Company formed a new agreement with GSK which terminated and replaced the 1993 agreement. Under the agreement, GSK assigned to NPS the investigational
new drug filings for two Phase 1 calcilytic compounds, NPSP790 and NPSP795. The Company believes calcilytics may have clinical application in treating rare disorders involving increased
calcium receptor activity, such as autosomal dominant hypocalcemia with hypercalciuria (ADHH). The new agreement also expands GSK's licensed field of research for Ronacaleret to
include stem cell transplants, in addition to osteoporosis and other bone disorders. Under the terms of the agreement, the Company has the potential to earn up to $11.5 million in future
milestone payments upon the achievement of certain pre-specified product development and sales-based milestones plus royalties on product sales. The Company has the potential to earn
the next product development milestone of $1.0 million upon the decision by GSK to continue development in the first indication following the proof of concept trial. The remaining milestones
vary by additional indications, with $7.5 million relating to successful proof of concept studies and acceptance of regulatory filings, and $4.0 million relating to the first commercial sale of each
indication. The future milestones are tied to future events outside the Company's control. The Company believes these are substantive in nature and there is no assurance that they will be
achieved.
(c) Kyowa Hakko Kirin
In 1995, the Company entered into an agreement with the pharmaceutical division of Kyowa Hakko Kirin Co. Ltd, formerly Kirin Brewery Company Limited, to develop and commercialize
compounds for the treatment of hyperparathyroidism in Japan, China, North Korea, South Korea and Taiwan. Kyowa Hakko Kirin paid the Company a $5.0 million license fee during 2005
and agreed to pay up to $7.0 million in research support, potential additional milestone payments totaling $13.0 million and royalties on product sales. Kyowa Hakko Kirin is incurring all costs
of developing and commercializing products. Any payments subsequent to June 2000 represent milestone and royalty payments. Through December 31, 2014, Kyowa Hakko Kirin has paid
the Company $7.0 million in research support and $13.0 million in milestone payments none of which were recognized during 2014, 2013 or 2012. In October 2007, Kyowa Hakko Kirin
received approval from the Japanese Pharmaceuticals and Medical Devices Agency to market cinacalcet HCl in Japan for the treatment of patients with secondary hyperparathyroidism
during maintenance dialysis. The parties participate in a collaborative research program utilizing the Company's parathyroid calcium receptor technology. Under the Company's agreement
with Kyowa Hakko Kirin, the Company recognized no milestone and license fee revenue in 2014, 2013 and 2012, respectively, and royalty revenue of $8.5 million in 2014, $8.0 million in 2013
and $8.7 million in 2012.
80
The Company receives a royalty from Kyowa Hakko Kirin that represents a percentage in the single digits of sales. The agreement with Kyowa Hakko Kirin is effective until expiration of
the last patent. Kyowa Hakko Kirin has a right to terminate upon 90 days written notice to the Company, and either party may terminate upon material default by the other party subject to a
right to cure such default. Kyowa Hakko Kirin also has the right to terminate the agreement with respect to individual countries based upon a reasonable determination by if that continued
development or marketing of a compound is not justified in such country, subject to providing 60 days notice and the Company's right to delay termination for up to 90 days. Certain
agreements between the Company and DRI Capital Inc., or DRI (formerly Drug Royalty L.P.3) limit the Company's right to terminate this license (see note 8).
(d) Takeda GmbH
On March 18, 2013, the Company entered into a Termination and Transition Agreement, with Takeda GmbH, whereby the 2007 teduglutide and 2004 Preotact agreements
were terminated. (see note 10)
Revenues from Takeda related to the Preotact agreement, were $0, $0 and $4.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.
(e) Janssen Pharmaceuticals, Inc.
In December 2006, the Company entered into an agreement with Janssen Pharmaceuticals, Inc. formerly known as Ortho-McNeil Pharmaceutical (Janssen) pertaining to certain NPS
patents. Janssen paid the Company an $8.0 million fee and agreed to pay royalties on sales of licensed products. NPS will not incur any development or commercialization costs for these
products. The Company is responsible for patent prosecution and maintenance of the related patents. The Company may terminate the agreement if Janssen fails to make a payment and
does not cure that default within 30 days, or if it does not cure any other default within sixty days of notice. Janssen may terminate the agreement on 60 days written notice for material
breach if NPS has not cured the breach by that time or on 60 days written notice. Termination does not affect any previously-matured payment obligations. In November 2008, the U.S. Food
and Drug Administration (FDA) approved Nucynta (tapentadol) hydrochloride immediate release (IR) tablets for the relief of moderate to severe acute pain. This compound is covered under
our agreement and Janssen is required to pay the Company a royalty on the product's sales. Nucynta is a novel investigational, centrally acting oral analgesic, which was launched in the
second quarter of 2009. The Company recognized revenue of $2.6 million, $2.9 million and $2.8 million in 2014, 2013 and 2012, respectively.
(f) Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd.
In December 2008, the Company entered into an agreement with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd. (Roche), under which the Company granted the Roche entities
a non-exclusive license (with the right to grant sublicenses) to develop, make, import, use of for sale or sell products covered by patents relating to modulation of NMDA receptor activity using
glycine uptake antagonists. In return Roche paid the Company an upfront licensing fee of $2.0 million, and agreed to make additional payments for the achievement of certain regulatory
milestones. Through December 31, 2014, Roche has paid the Company $250,000 in milestone payments. Further, Roche agreed to pay royalties on sales of licensed products, if any.
Either party may terminate the agreement on 30 days written notice due to a material breach by the other, or in the case of the other party's insolvency. Amounts due prior to termination will
remain due thereafter. NPS will not incur any development or commercialization costs for these products. The Company has not recognized revenue in 2014, 2013 and 2012, respectively,
as the Company had no continuing involvement in the arrangement.
(g) In-License and Purchase Agreements
Depending on the commercial success of certain products, the Company may be required to pay license fees or royalties. Additionally, the Company is required to pay royalties on sales
of cinacalcet HCl up to a cumulative maximum of $15.0 million. To date, $15.0 million has been accrued for related royalties payable on sales of cinacalcet HC1, of which, $10.4 million has
been paid. Annual payments due are limited to a maximum of $1.0 million. Accruals of $3.6 million and $1.0 million at December 31, 2014 are recorded in other liabilities and accrued
expenses and other current liabilities, respectively.
81
(3) Income (loss) Per Common Share
Basic income (loss) per common share is the amount of income (loss) for the period divided by the weighted average shares of common stock outstanding during the reporting
period. Diluted income (loss) per common share is the amount of income (loss) for the period plus interest expense on convertible debt divided by the sum of weighted average shares of
common stock outstanding during the reporting period and weighted average shares that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares.
Potential common shares of approximately 5.6 million, 7.2 million and 8.0 million during the years ended December 31, 2014, 2013, and 2012, respectively, that
could potentially dilute basic income (loss) per common share in the future were not included in the computation of diluted income (loss) per share because to do so would have been
anti-dilutive for the periods presented. Potential dilutive common shares for the years ended December 31, 2014, 2013 and 2012 include approximately 817,000, 3.0 million and
3.0 million common shares related to convertible debentures, respectively, and 4.8 million, 4.1 million, and 5.0 million shares, respectively, related to stock options,
restricted stock, and restricted stock units.
(4) Fair Value Measurement
Summary of Assets Recorded at Fair Value
The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated
inputs).
Level 3- Inputs are unobservable and reflect the Company's assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on
the best information available.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets (all marketable investment securities) that are
required to be measured at fair value as of December 31, 2014 and December 31, 2013 (in thousands):
As of December 31, 2014: |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits |
|
$ |
- |
|
$ |
6,615 |
|
$ |
- |
|
$ |
6,615 |
Corporate debt |
|
|
- |
|
|
88,733 |
|
|
- |
|
|
88,733 |
Gevernment agency debt |
|
|
- |
|
|
3,278 |
|
|
- |
|
|
3,278 |
Money market funds |
|
|
42,349 |
|
|
- |
|
|
- |
|
|
42,349 |
Total assets at fair value |
|
$ |
42,349 |
|
$ |
98,626 |
|
$ |
- |
|
$ |
140,975 |
As of December 31, 2013: |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits |
|
$ |
- |
|
$ |
13,020 |
|
$ |
- |
|
$ |
13,020 |
Corporate debt |
|
|
- |
|
|
91,887 |
|
|
- |
|
|
91,887 |
Gevernment agency debt |
|
|
- |
|
|
27,131 |
|
|
- |
|
|
27,131 |
Money market funds |
|
|
23,043 |
|
|
- |
|
|
- |
|
|
23,043 |
Total assets at fair value |
|
$ |
23,043 |
|
$ |
132,038 |
|
$ |
- |
|
$ |
155,081 |
82
As of December 31, 2014 and December 31, 2013, the fair values of the Company's Level 2 securities were $98.6 million and $132.0 million, respectively. These securities are
certificates of deposit or commercial paper issued by domestic companies with an original maturity of greater than ninety days. These securities are currently rated A-1 or higher. The
Company's cash equivalents are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar
assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Data used in the
analysis include reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit spreads. The Company validates the prices provided by its third party pricing providers
by reviewing their pricing methods, analyzing pricing inputs and confirming that the securities have traded in normally functioning markets. The Company did not adjust or override any fair
value measurements provided by its pricing providers as of December 31, 2014 or 2013.
As of December 31, 2014 and 2013, the Company did not have any investments in Level 3 securities.
There were no transfers of assets or liabilities between Level 1 and Level 2 during the years ended December 31, 2014 and 2013.
The carrying amounts reflected in the consolidated balance sheets for certain short-term financial instruments including cash and cash equivalents, restricted cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and other liabilities approximate fair value due to their short-term nature except that the estimated fair value and carrying value of
the Brigham and Women's Hospital royalty liability using a discounted cash flow model is approximately $3.7 million and $4.6 million, respectively, at December 31, 2014 and $4.3 million and
$5.6 million, respectively, at December 31, 2013.
Summary of Liabilities Recorded at Carrying Value
The fair and carrying value of our debt instruments are detailed as follows (in thousands):
|
|
|
As of December 31, 2014 |
|
As of December 31, 2013 |
|
|
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
|
|
Value |
|
Value |
|
Value |
|
Value |
5.75% Convertible Notes |
|
|
$ |
- |
|
$ |
- |
|
$ |
92,338 |
|
$ |
16,545 |
Sensipar Notes |
|
|
|
26,312 |
|
|
26,230 |
|
|
54,097 |
|
|
54,395 |
PTH 1-84-Secured Debt |
|
|
|
54,730 |
|
|
42,790 |
|
|
50,058 |
|
|
42,790 |
Regpara-Secured Debt |
|
|
|
29,249 |
|
|
30,986 |
|
|
37,348 |
|
|
35,202 |
Total |
|
|
$ |
110,291 |
|
$ |
100,006 |
|
$ |
233,841 |
|
$ |
148,932 |
The fair values of the Company's convertible notes were estimated using the (i) terms of the convertible notes; (ii) rights, preferences, privileges, and restrictions of the underlying
security; (iii) time until any restriction(s) are released; (iv) fundamental financial and other characteristics of the Company; (v) trading characteristics of the underlying security (exchange,
volume, price, and volatility); and (vi) precedent sale transactions. The fair values of the Company's non-recourse Sensipar notes, PTH 1-84-secured debt and REGPARA-secured debt were
estimated using a discounted cash flow model. Within the hierarchy of fair value measurements, these are Level 3 fair values.
(5) Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable investment securities. The majority of the
Company's accounts receivable are payable by large pharmaceutical companies and specialty pharmacies and collateral is generally not required from these companies. Substantially all of
the Company's royalty revenues and the related accounts receivable balances for the years ended December 31, 2014 and 2013 were from three licensees of the Company. Substantially all
of the Company's product sales revenues for the year ended December 31, 2014 and 2013, and substantially all of the Company's trade accounts receivable balances at December 31, 2014
and 2013 were from six specialty pharmacies. The Company's portfolio of marketable investment securities is subject to concentration limits set within the Company's investment policy that
help to mitigate its credit exposure.
83
The following is a summary of the Company's marketable investment securities (in thousands):
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
Amortized |
|
|
holding |
|
|
holding |
|
|
Fair |
As of December 31, 2014: |
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
$ |
95,423 |
|
$ |
3 |
|
$ |
(78) |
|
$ |
95,348 |
Government agency |
|
|
3,277 |
|
|
1 |
|
|
- |
|
|
3,278 |
Total marketable investment securites |
|
$ |
98,700 |
|
$ |
4 |
|
$ |
(78) |
|
$ |
98,626 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
Amortized |
|
|
holding |
|
|
holding |
|
|
Fair |
As of December 31, 2013: |
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
$ |
103,175 |
|
$ |
23 |
|
$ |
(60) |
|
$ |
103,138 |
Government agency |
|
|
26,110 |
|
|
22 |
|
|
- |
|
|
26,132 |
Total marketable investment securites |
|
$ |
129,285 |
|
$ |
45 |
|
$ |
(60) |
|
$ |
129,270 |
Marketable investment securities available for sale in an unrealized loss position as of December 31, 2014 and 2013 are summarized as follows (in thousands):
|
|
Held for less than 12 months |
|
Held for more than 12 months |
|
Total |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
|
|
Fair value |
|
|
losses |
|
|
Fair value |
|
|
losses |
|
|
Fair value |
|
|
losses |
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
$ |
90,327 |
|
$ |
78 |
|
$ |
- |
|
$ |
- |
|
$ |
90,327 |
|
$ |
78 |
Government agency |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
$ |
90,327 |
|
$ |
78 |
|
$ |
- |
|
$ |
- |
|
$ |
90,327 |
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
$ |
74,407 |
|
$ |
56 |
|
$ |
5,732 |
|
$ |
4 |
|
$ |
80,139 |
|
$ |
60 |
Government agency |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
$ |
74,407 |
|
$ |
56 |
|
$ |
5,732 |
|
$ |
4 |
|
$ |
80,139 |
|
$ |
60 |
Summary of Contractual Maturities
Maturities of marketable investment securities are as follows at December 31, 2014 and December 31, 2013 (in thousands):
|
|
|
As of December 31, 2014 |
|
As of December 31, 2013 |
|
|
|
|
Amortized |
|
|
|
|
|
Amortized |
|
|
|
|
|
|
|
cost |
|
|
Fair value |
|
|
cost |
|
|
Fair value |
Due within one year |
|
|
$ |
95,499 |
|
$ |
95,430 |
|
$ |
103,280 |
|
$ |
103,266 |
Due after one year through five years |
|
|
|
3,201 |
|
|
3,196 |
|
|
26,005 |
|
|
26,004 |
Due after five years through ten years |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Due after ten years |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Total debt securities |
|
|
$ |
98,700 |
|
$ |
98,626 |
|
$ |
129,285 |
|
$ |
129,270 |
84
Impairments
No impairment losses were recognized through earnings related to available for sale securities during the years ended December 31, 2014 or 2013.
Proceeds from Available for Sale Securities
The proceeds from maturities and sales of available for sale securities and resulting realized gains and losses, were as follows (in thousands):
|
|
|
For the Years Ended December 31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
Proceeds from sales and maturities |
|
|
$ |
134,667 |
|
$ |
107,871 |
|
$ |
119,507 |
Realized gains |
|
|
|
12 |
|
|
4 |
|
|
4 |
Realized losses |
|
|
|
- |
|
|
- |
|
|
- |
(6) Inventory
Inventories are stated at the lower of cost or market. Inventory is as follows at December 31, 2014 and 2013 (in thousands):
|
|
|
|
December 31, |
|
|
|
|
2014 |
|
|
2013 |
Raw materials |
|
|
$ |
34,020 |
|
$ |
29,330 |
Finished goods |
|
|
|
2,795 |
|
|
705 |
Total inventory |
|
|
$ |
36,815 |
|
$ |
30,035 |
Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research and development as incurred. The Company begins to capitalize the costs
associated with the production of the inventory upon marketing approval of a product candidate.
(7) Property and Equipment, Net
Property and equipment is recorded at cost and consists of the following (in thousands):
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2014 |
|
|
2013 |
Office Equipment |
|
|
|
|
$ |
8,346 |
|
$ |
5,519 |
Laboratory Equipment |
|
|
|
|
|
223 |
|
|
216 |
Leasehold Improvements |
|
|
|
|
|
2,109 |
|
|
2,023 |
Total property and equipment |
|
|
|
|
|
10,678 |
|
|
7,758 |
Less accumulated depreciation |
|
|
|
|
|
(4,892) |
|
|
(3,356) |
Total equipment, net |
|
|
|
|
$ |
5,786 |
|
$ |
4,402 |
85
(8) Leases
The Company has non-cancelable operating leases for its office space in Bedminster, New Jersey that expire in 2016. The Company also has non-cancelable operating leases for office
space in Europe for the expansion of the Company's global business and certain equipment that expire between 2015 and 2016. Rent-free periods and other incentives granted under the
leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related terms of the lease. Rental expense for operating leases was approximately $2.6
million, $1.7 million, and
$1.6 million for 2014, 2013, and 2012, respectively. The future lease payments under non-cancelable operating leases as of December 31, 2014 are as follows (in thousands):
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
leases |
Year ending December 31: |
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
$ |
3,154 |
2016 |
|
|
|
|
|
|
1,835 |
2017 |
|
|
|
|
|
|
4 |
2018 |
|
|
|
|
|
|
- |
2019 |
|
|
|
|
|
|
- |
Total minimum lease payments |
|
|
|
|
|
$ |
4,993 |
(9) Long-term Debt
The following table reflects the carrying value of our long-term debt under various financing arrangements as of December 31, 2014 and 2013 (in thousands):
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
Convertible notes |
|
$ |
- |
|
$ |
16,545 |
Non-recourse debt |
|
|
100,006 |
|
|
132,387 |
Total debt |
|
|
100,006 |
|
|
148,932 |
Less current portion |
|
|
10,252 |
|
|
25,297 |
Total long-term debt |
|
$ |
89,754 |
|
$ |
123,635 |
(a) Convertible Notes
On April 8, 2014, the holders of the 5.75% Convertible Notes converted the remaining outstanding notes at a conversion price of $5.44 per share. The Company issued 3.0 million shares
pursuant to this conversion and retired the remaining $16.5 million of the outstanding 5.75% Convertible Notes.
(b) Non-recourse Debt
Sensipar and Mimpara-secured Non-recourse Debt
As of December 31, 2014 and 2013, the outstanding principal balances on Sensipar and Mimpara-secured debt were $26.2 million and $54.4 million, respectively. The Sensipar and
Mimpara-secured debt is non-recourse to the Company and solely secured and serviced by its Sensipar and Mimpara (cinacalcet HCl) royalty revenues and milestone payments. The
Sensipar and Mimpara-secured non-recourse debt relates to the following royalty monetization transactions: (i) the private placement of $175.0 million in non-recourse 8.0% Notes due March
30, 2017 (Class A Notes), (ii) the private placement of $100.0 million in non-recourse 15.5% Notes due March 30, 2017 (Class B Notes), and (iii) the amendment of the Company's agreement
with Amgen in August 2011.
86
The Class A Notes were paid in full on March 30, 2011 and the Class B Notes were paid in full on September 30, 2011 when they were redeemable at their par value.
The Company amended its agreement with Amgen effective September 30, 2011 whereby Amgen advanced $145.0 million of Sensipar and Mimpara royalties to the Company. The
Sensipar Notes accrue interest at an annual rate of 9%, compounded quarterly and payable forty-five days after the close of each quarter. The payment of the royalty advance and discount
shall be satisfied solely by Amgen's withholding of royalties and except in the event of a breach of certain customary representations and warranties under the agreement, the Company will
have no obligation to repay any unsettled amount. The Company further amended the agreement with Amgen effective June 29, 2012, limiting the royalty offset of the royalty advance up to
$8.0 million per quarter with royalties in excess of $8.0 million paid to the Company for the respective quarter, thereby extending the royalty advance repayment period. After the payment of
the royalty advance and a 9 percent per annum discount on the balance of the advance, Amgen will resume paying NPS all royalties earned through December 31, 2018. As of December
31, 2014, the Company classified $7.4 million of the Sensipar Notes as current based on royalty payments accrued as of December 31, 2014. The Sensipar Notes are non-recourse to the
Company. Accrued interest on the Sensipar Notes was approximately $286,000 and $592,000 as of December 31, 2014 and 2013, respectively. The Company incurred debt issuance costs
of $96,000, which are being amortized using the effective interest method. The effective interest rate on the Sensipar Notes, including debt issuance costs, is approximately 9%.
Under the Company's agreement for the Sensipar Notes, the Company would potentially be liable for its breaches or defaults, if any.
PTH 1-84-secured Non-recourse Debt
As of December 31, 2014 and 2013, the outstanding principal balances on the PTH 1-84-secured debt were $42.8 million, respectively. In July 2007, the Company entered into
an agreement with DRI Capital, or DRI, formerly Drug Royalty L.P.3, in which the Company sold to DRI its right to receive future royalty payments arising from sales of recombinant human
parathyroid hormone 1-84 [rDNA origin] ("PTH") under its license agreement with Takeda. Under the agreement, DRI paid the Company an up-front purchase price of $50.0
million. If and when DRI receives two and a half times the amount paid to the Company, the agreement will terminate and the remainder of the royalties, if any, will revert back to the
Company. In connection with the Company's July 2007 agreement with DRI, the Company granted DRI a security interest in its license agreement with Takeda for Preotact and certain of its
patents and other intellectual property underlying that agreement. In the event of a default by NPS under the agreement with DRI, DRI would be entitled to enforce its security interest against
NPS and the property described above.
In December 2013, the Company entered into an amendment and restatement (the "Amendment and Restatement") to its agreement with DRI. Pursuant to the Termination
and Transition Agreement between NPS and Takeda (See note 10), NPS' license agreement with Takeda was terminated and NPS re-acquired exclusive rights worldwide, excluding Israel, to
develop and commercialize PTH. Preotact is the brand name that Takeda had used to market PTH for the treatment of osteoporosis in certain of its licensed territories. NPS is developing
PTH in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism. NPS filed a BLA for Natpara with the FDA in October 2013.
Pursuant to the Amendment and Restatement, (i) DRI has consented to the commercialization of PTH by the Company, (ii) the terms of the 2007 Agreement are tolled, and
(iii) the parties' rights and obligations regarding PTH and related technology are governed by the Amendment and Restatement.
The Company will be required to pay royalties in the mid-single digits to DRI based upon sales of PTH by the Company and its licensees (if any) worldwide, excluding Israel. The
Company has agreed to undertake certain efforts to commercialize PTH. If the Company does not submit a Marketing Authorization Application to the European Medicines Agency for PTH in
the European Union by an agreed upon date, DRI will have the right to revoke the consent granted in the Amendment and Restatement, reinstate the 2007 Agreement, and either cause the
Company to enter into a new license agreement with a third party with respect to PTH on terms that are substantially similar and no more extensive (when taken as a whole) than the terms
contained in the terminated Takeda License Agreement, or negotiate such an agreement on NPS' behalf.
87
The Company's obligation to pay royalties to DRI under the Amendment and Restatement shall expire on a country-by-country basis upon the later of (i) the last to expire patent
controlled by the Company with claims covering PTH in such country or (ii) the expiration of any period of regulatory exclusivity applicable to PTH in such country. The Company's
obligation to pay royalties to DRI under the Amendment and Restatement shall terminate in its entirety once cumulative royalty payments made to DRI by Takeda and the Company total
$125.0 million. As of December 31, 2014, $45.5 million in royalties had been paid to DRI.
DRI continues to maintain a security interest in NPS patents that contain claims covering PTH and certain other NPS intellectual property related to PTH. In the event of a default by NPS
under the Amendment and Restatement, DRI would be entitled to enforce its security interest against NPS and such intellectual property.
The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest method over the estimated life. Accrued interest under
the DRI agreement was $6.2 million and $0 as of December 31, 2014 and 2013, respectively. The repayment of the remaining $42.8 million is secured solely by future royalty payments
arising from sales of PTH by the Company. The PTH-secured debt is non-recourse to the Company.
REGPARA-secured Non-recourse Debt
As of December 31, 2014 and 2013, the outstanding principal balances on REGPARA-secured debt were $31.0 million and $35.2 million, respectively. In February 2010, the Company
entered into an agreement with an affiliate of DRI, in which the Company sold to DRI its right to receive future royalty payments arising from sales of REGPARA®
(cinacalcet HC1) under its license agreement with Kyowa Hakko Kirin. Under the agreement, DRI paid the Company an up-front purchase price of $38.4 million. If and when DRI receives
two and a half times the amount paid to the Company, the agreement will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the
Company's February 2010 agreement with DRI, the Company granted DRI a security interest in its license agreement with Kyowa Hakko Kirin for REGPARA and certain of its patents and
other intellectual property underlying that agreement. In the event of a default by NPS under the agreement with DRI, DRI would be entitled to enforce its security interest against NPS and
the property described above. The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest method over the estimated
life of approximately 11 years. In accordance with the agreement, on March 1, 2010, DRI received the $2.1 million royalty owed to NPS for REGPARA sales during the six months ended
December 31, 2009, which reduced the liability recorded for the DRI transaction to $36.3 million. As of December 31, 2014 and 2013, the Company classified $2.8 million and $1.9 million,
respectively, of the REGPARA-secured debt as current based on royalty payments accrued as of December 31, 2014 and 2013, respectively. Accrued interest under the DRI agreement was
$576,000 and $1.1 million as of December 31, 2014 and 2013, respectively. Through December 31, 2014, $36.2 million has been paid to DRI. The repayment of the remaining $31.0 million
is secured solely by future royalty payments arising from sales of REGPARA by Kyowa Hakko Kirin. The effective interest rate under the agreement, including issuance costs, is
approximately 15.6%. The REGPARA-secured debt is non-recourse to the Company.
(c) Contractual maturities of long-term debt
The aggregate contractual maturities of long-term debt, including estimated maturities of the Non-recourse Debt, due subsequent to December 31, 2014 are as follows (in thousands):
Year ending December 31: |
|
|
|
|
|
|
2015 |
|
|
|
|
$ |
31,964 |
2016 |
|
|
|
|
|
5,290 |
2017 |
|
|
|
|
|
4,733 |
2018 |
|
|
|
|
|
5,177 |
2019 |
|
|
|
|
|
26,894 |
Thereafter |
|
|
|
|
|
25,948 |
Total long-term debt |
|
|
|
|
$ |
100,006 |
88
(10) Takeda Termination and Transition Agreement
On March 18, 2013, the Company entered into a Termination and Transition Agreement (the Agreement), with Takeda GmbH (Takeda GmbH), and Takeda Pharma A/S
(Takeda Pharma and, together with Takeda GmbH, Takeda).
The Agreement provides for the termination of the license agreement, dated July 2, 2007, as amended, which granted Takeda Pharma the exclusive license to sell, market and
commercialize recombinant human parathyroid hormone 1-84 [rDNA origin] (rhPTH 1-84) worldwide, except for the U.S., Israel, and Japan, and a non-exclusive license to manufacture
and develop rhPTH 1-84 (the rhPTH 1-84 License Agreement). Pursuant to the rhPTH 1-84 License Agreement the rights were returned to the Company without consideration. Preotact is
the brand name that Takeda Pharma has used to market rhPTH 1-84 for the treatment of osteoporosis in certain of its licensed territories. The Company developed rhPTH 1-84 in the U.S.
under the trade name Natpara for the treatment of hypoparathyroidism. In January 2015, the FDA approved the Company's second product, Natpara® (parathyroid hormone) for Injection
as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism,
The Agreement also provides for the termination of the license agreement, dated September 24, 2007, as amended, which granted Takeda GmbH the exclusive license to develop
and commercialize teduglutide worldwide, except for North America and Israel (the Revestive License Agreement). Takeda GmbH developed and obtained approval in the EU in
August 2012 for teduglutide under the trade name Revestive for the treatment of Short Bowel Syndrome (SBS) in adults. The Company obtained U.S. Food and Drug Administration
approval in the U.S. in December 2012 for teduglutide under the trade name Gattex for adult patients with SBS who are dependent on parenteral support. As a result of the termination
of the License Agreements, the Company now has the exclusive rights worldwide to develop and commercialize teduglutide and PTH, except as noted in Note 9.
Takeda assigned to NPS its assets related to the two products, including all of its active pharmaceutical ingredient inventory and information related to the products' continued
development, manufacture, and commercialization, including life cycle management assets. Takeda received 6.1 million shares of NPS common stock that were valued at $54.9 million as of
the date of the transaction. Takeda will also earn a $30.0 million milestone payment in the first calendar year that combined worldwide net sales of both products exceed $750 million. This
milestone includes an early payment trigger upon a qualified change of control. NPS has the option of making this milestone payment in cash or NPS common stock. Pending the closing of
the tender offer related to the Merger Agreement, that transaction would be considered a qualifying change in control.
The Company engaged an independent valuation firm to assist it in determining the fair value of the assets acquired. Using these fair values, the Company assigned $16.6 million to
the Revestive active pharmaceutical ingredient (API), $17.1 million to the PTH API and $20.7 million to the Revestive product rights. The Company capitalized the Revestive and PTH API as
inventory and capitalized the product rights to intangibles, net on the Company's balance sheet due to the fact that Revestive and Preotact are approved in the EU for SBS and Osteoporosis,
respectively. The Company is amortizing the Revestive product rights on a straight-line basis over the estimated useful life of approximately 12 years. Through December 31, 2014, $3.2
million of the Revestive products rights have been amortized and expensed. The estimated amortization expense for each of the next five years is approximately $1.8 million.
(11) Capital Stock
Equity Financing
In May 2013, the Company completed a public sale of 6,900,000 shares of its common stock at a per share price of $14.53. Net proceeds to the Company from the sale totaled
approximately $93.5 million, after deducting expenses and the commission in connection with the offering paid by the Company.
Convertible Debt
On April 8, 2014, the holders of the 5.75% Convertible Notes converted the remaining outstanding notes at a conversion price of $5.44 per share. The Company issued 3.0
million shares pursuant to this conversion and retired the remaining $16.5 million of the outstanding 5.75% Convertible Notes.
89
(12) Share-Based Compensation Plans
As of December 31, 2014, the Company has five equity incentive plans: the 1994 Nonemployee Directors' Stock Option Plan (the Directors' Plan), the 1998 Stock Option Plan (the
1998 Plan), the 2005 Omnibus Incentive Plan (the 2005 Plan), the 2014 Omnibus Equity Compensation Plan (the 2014 Plan), and the Employee Stock Purchase Plan ("ESPP").
These plans provide that in the event of certain change in control transactions, including a merger or consolidation in which the Company is not the surviving corporation or a reorganization in
which more than fifty-percent (50%) of the shares of the Company's common stock entitled to vote are exchanged, all outstanding, unvested equity awards under these plans will vest, and in
the case of stock options, will become immediately exercisable.
As of December 31, 2014, there are no shares reserved for future grant under the Directors' Plan, the 1998 Plan and the 2005 Plan. As of December 31, 2014, there are
6,504,764 shares reserved for future grant under the 2014 Plan. The Company's 2014 Plan provides for the grant of nonqualified stock options, incentive stock options, stock appreciation
rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards, dividend equivalents and other stock-based awards. Under the Company's 2014
Plan, the exercise price of stock options, the grant price of stock appreciation rights and the initial value of performance awards, will not be less than the fair market value of the Company's
common stock on the date of award. Stock options generally vest 25% after year one and 6.25% every three months thereafter. Under the Company's 2005 Plan, the exercise price of stock
options, the grant price of stock appreciation rights and the initial value of performance awards, must be equal to at least 100% of the fair market value of the Company's common stock on
the date of grant. Stock options generally vest 28% after year one and 2% per month thereafter or 25% after year one and 6.25% every three months thereafter. Under the Company's
1998 Plan, the exercise price of options is not less than the fair market value of the Company's common stock on the date of grant. The number of shares, terms, and exercise period are
determined by the board of directors on a grant-by-grant basis, and the exercise period does not extend beyond ten years from the date of the grant. Stock options generally vest 28% after
one year and 2% or 3% per month thereafter or 25% after year one and 6.25% every three months thereafter.
During the year ended December 31, 2010, the Company's Board of Directors awarded a total of 1,130,700 performance condition options to certain of the Company's employees.
Vesting of these options are subject to the Company achieving certain performance criteria established at the grant date and the individuals fulfilling a service condition (continued
employment). As of December 31, 2014, the performance criteria of 884,590 of these options had been satisfied and these options will become exercisable based on the following vesting
schedule: 25% on each of the first four anniversaries of the date of grant, which was February 20, 2010 (the date of grant). The Company recognized $192,000, $277,000 and $1.1 million of
compensation expense during the years ended December 31, 2014, 2013 and 2012, respectively, related to these options. The final performance criteria had not been met and therefore the
remaining 246,110 options have been forfeited. The Company utilized the Black-Scholes option pricing model to determine the grant date fair value of the awards.
On May 19, 2010, the shareholders approved an ESPP whereby qualified employees are allowed to purchase limited amounts of the Company's common stock at the lesser of 85% of
the market price at the beginning or end of the offering period. The shareholders have authorized 500,000 shares for purchase by employees. During the years ended December 31, 2014,
2013 and 2012, employees purchased 40,120, 72,937 and 45,553 shares, respectively, under the ESPP. The Company has 289,465 shares available for future purchase as of December 31,
2014.
The Company estimates expected volatility considering implied volatility based on market-traded options on the Company's common stock and historical volatility of the Company's
common stock over the expected life of the options. In estimating volatility for the years ended December 31, 2014, 2013 and 2012 the Company weighted implied volatility at zero
percent and historical volatility at 100%. The Company recognizes compensation cost for awards on a straight-line basis over the requisite service period for the entire award. Additionally,
the Company's policy is to issue new shares of common stock to satisfy stock option exercises, ESPP purchases or grants of restricted shares or deferred stock units.
The compensation expense related to stock options, ESPP purchases, restricted shares and deferred stock units are recorded in expense categories based on where other compensation
cost is recorded for employees receiving the awards.
90
The following table summarizes the effect of compensation cost arising from share-based payment arrangements in the Company's Statements of Operations for the years ended
December 31, 2014, 2013 and 2012 for the Company's stock option plans, the ESPP and other share-based awards (in thousands):
|
|
Years ended December 31, |
|
|
2014 |
|
2013 |
|
2012 |
Research and development |
|
$ |
5,657 |
|
$ |
4,107 |
|
$ |
3,343 |
Selling, general and administrative |
|
|
9,346 |
|
|
5,330 |
|
|
4,205 |
Amounts charged against income, before |
|
|
|
|
|
|
|
|
|
income tax expense |
|
$ |
15,003 |
|
$ |
9,437 |
|
$ |
7,548 |
The fair value of each option award is estimated, on the date of grant using the Black-Scholes option-pricing valuation model, which incorporates ranges of assumptions for inputs as
shown in the following table. The assumptions are as follows:
- The expected volatility is a blend of implied volatility based on market-traded options on the Company's common stock and historical volatility of the Company's stock
over the expected term of the options.
- The Company uses historical data to estimate the expected term of the option; separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected term of options granted represents the period of time the options are expected to be outstanding.
- The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the option.
- The expected dividend yield is based on the Company's current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the
option.
|
|
|
Years ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
Dividend yield |
|
|
— |
|
|
— |
|
|
— |
Expected volatility |
|
|
57.98% — 60.69% |
|
|
59.15% — 60.69% |
|
|
61.22% — 67.58% |
Risk-free interest rate |
|
|
1.4% — 1.8% |
|
|
0.7% — 3.7% |
|
|
0.6% — 1.1% |
Expected term (in years) |
|
|
5.2 — 5.6 |
|
|
5.2 — 6.0 |
|
|
5.1 — 5.9 |
A summary of activity related to aggregate stock options under all plans is indicated in the following table (in thousands, except per share amounts):
|
|
Year ended December 31, 2014 |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
Number |
|
|
average |
|
|
average remaining |
|
|
Aggregate |
|
|
of |
|
|
exercise |
|
|
contractual |
|
|
intrinsic |
|
|
options |
|
|
price |
|
|
term |
|
|
value |
|
|
(in thousands) |
|
|
|
|
|
(in years) |
|
|
(in thousands) |
Options outstanding at beginning |
|
|
|
|
|
|
|
|
|
|
|
of year |
|
6,656 |
|
$ |
8.03 |
|
|
|
|
|
|
Options granted |
|
1,269 |
|
|
32.80 |
|
|
|
|
|
|
Options exercised |
|
1,245 |
|
|
7.48 |
|
|
|
|
|
|
Options forfeited/expired |
|
559 |
|
|
11.56 |
|
|
|
|
|
|
Options outstanding at end of year |
|
6,121 |
|
|
12.96 |
|
|
7.21 |
|
$ |
141,011 |
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest |
|
5,838 |
|
|
12.53 |
|
|
7.14 |
|
$ |
136,909 |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year |
|
3,246 |
|
$ |
7.16 |
|
|
6.11 |
|
$ |
92,865 |
91
The weighted-average grant-date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was $17.54, $5.66 and $4.46, respectively. The intrinsic
value for stock options is defined as the difference between the current market value and the grant price. The total intrinsic value of stock options exercised during the years ended
December 31, 2014, 2013 and 2012 was $31.5 million, $33.4 million and $2.0 million, respectively.
Restricted stock, restricted stock units and deferred stock unit grants consist of the Company's common stock. The fair value of each restricted stock grant, restricted stock unit and
deferred stock unit is equal to the market price of the Company's stock at the date of grant. Restricted stock and restricted stock unit grants are time vested. During the years ended
December 31, 2014, 2013 and 2012, the Company granted 7,136, 35,097 and 20,334 deferred stock units, respectively, to directors for services, which did not contain any vesting
restrictions. During the years ended December 31, 2014, 2013 and 2012, the Company granted 27,432, 75,940 and 106,575 restricted stock units, respectively, to directors for
services, which vest over one year. At December 31, 2014, there are 649,642 deferred stock units outstanding. During the years ended December 31, 2014, 2013 and 2012 the
Company granted to employees 328,916, 317,212 and 307,720 shares of restricted stock, respectively, which will vest over a period of one to three years. During the years ended
December 31, 2014, 2013 and 2012 the Company granted to employees 30,412, 141,507 and 0 shares of restricted stock, respectively, which have certain performance criteria that is
set by the Compensation Committee. If the performance criteria is met, the awards will vest over a period of one to three years.
A summary of activity related to aggregate restricted stock, restricted stock units and deferred stock units as of December 31, 2014, is indicated in the following table (shares in
thousands, except per share amounts):
|
|
Number of |
|
Weighted-average |
|
|
shares |
|
grant date fair value |
Nonvested at beginning of year |
|
752 |
|
$ |
8.89 |
Granted |
|
394 |
|
|
31.07 |
Vested |
|
(229) |
|
|
9.19 |
Forfeited |
|
(59) |
|
|
12.40 |
Nonvested at December 31, 2014 |
|
858 |
|
$ |
18.75 |
As of December 31, 2014, there was $23.2 million of total unrecognized compensation cost related to all unvested share-based compensation arrangements that is expected to be
recognized over a weighted-average period of 2.82 years.
(13) Income Taxes
The components of loss before income taxes for the years ended December 31, 2014, 2013 and 2012 includes the following (in thousands):
|
|
|
Years ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
36,829 |
|
$ |
(9,748) |
|
$ |
(18,735) |
Foreign |
|
|
(44,768) |
|
|
(3,574) |
|
|
- |
Loss before income taxes |
|
$ |
(7,939) |
|
$ |
(13,322) |
|
$ |
(18,735) |
The Company has recorded income tax expense for the years ended December 31, 2014, 2013 and 2012 of $766,000, $182,000, and $0, respectively. The income tax expense
for the year ended December 31, 2014 was primarily related to state income taxes and other non-U.S. income taxes and the income tax expense for the year ended December 31, 2013 was
primarily related to a non-cash charge for state income taxes.
92
Income tax differed from the amounts computed by applying the U.S. federal income tax rate of 34% to loss before income tax expense (benefit) as a result of the following (in thousands):
|
|
|
Years ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
Computed "expected" tax benefit |
|
$ |
(2,699) |
|
$ |
(4,529) |
|
$ |
(6,370) |
IRC §382 adjustment |
|
|
- |
|
|
6,575 |
|
|
59,822 |
Change in the valuation allowance for deferred tax assets |
|
|
|
|
|
|
|
|
|
attributable to operations and other adjustments |
|
|
(7,158) |
|
|
2,840 |
|
|
(42,124) |
Research credit |
|
|
(9,217) |
|
|
(12,237) |
|
|
(10,231) |
State income taxes, net of federal tax effect |
|
|
527 |
|
|
182 |
|
|
- |
Equity based compensation expense |
|
|
1,310 |
|
|
678 |
|
|
513 |
Intercompany license of intellectual property |
|
|
- |
|
|
5,440 |
|
|
- |
Foreign tax rate differences |
|
|
15,358 |
|
|
940 |
|
|
- |
Non-recourse debt |
|
|
2,056 |
|
|
(78) |
|
|
(1,663) |
Other |
|
|
589 |
|
|
371 |
|
|
53 |
|
|
$ |
766 |
|
$ |
182 |
|
$ |
- |
The tax effects of temporary differences that give rise to the deferred tax assets at December 31, 2014 and 2013 are presented below (in thousands):
|
|
|
2014 |
|
|
2013 |
Deferred tax assets: |
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
109,751 |
|
$ |
132,101 |
Research credit carryforward |
|
|
82,633 |
|
|
68,277 |
Capital loss carryforward |
|
|
4,101 |
|
|
4,186 |
Non-recourse debt |
|
|
26,060 |
|
|
27,769 |
Acquired intellectual property |
|
|
26,344 |
|
|
29,452 |
Capitalization of inventory |
|
|
11,021 |
|
|
9,429 |
Stock compensation expense |
|
|
4,479 |
|
|
2,935 |
Accrued compensation |
|
|
3,269 |
|
|
3,117 |
Other |
|
|
697 |
|
|
555 |
Total deferred tax assets |
|
|
268,355 |
|
|
277,821 |
Less valuation allowance |
|
|
(268,355) |
|
|
(277,821) |
Deferred tax assets |
|
|
- |
|
|
- |
Deferred tax liabilities |
|
|
- |
|
|
- |
Net deferred tax asset (liability) |
|
$ |
- |
|
$ |
- |
Carryfowards
At December 31, 2014, the Company had U.S. federal net operating loss carryforwards of approximately $348.9 million which begin to expire in 2018, U.S. federal research credit
carryforwards of $82.6 million, which begin to expire in 2030, and U.S. federal capital loss carryforwards of $10.7 million which begin to expire in 2015. The Company's domestic tax loss
carryforwards for alternative minimum tax purposes is approximately the same as the Company's regular tax loss carryforwards. The Company also has New Jersey state net operating loss
and capital loss carryforwards of approximately $337.5 million and $15.3 million, respectively, which begin to expire in 2015, and other domestic state net operating loss carryforwards and tax
credit carryforwards in varying amounts depending on the different state laws.
The Company uses the "with-and-without" approach in determining the order in which tax attributes are utilized. Using the "with-and-without" approach, the
Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other net operating loss carryforwards currently
available to the Company have been utilized, but prior to the utilization of other tax attributes.
93
The U.S. federal net operating loss carryforwards of approximately $348.9 million include approximately $10.1 million of excess tax benefits related to share-based payments that are
presented on a tax effected basis within the deferred tax assets. Since this amount was recorded through additional paid-in capital, the related valuation allowance on these net operating
loss carryforwards will be reversed through additional paid-in capital when these excess tax benefits are realized. Also, included in the U.S. federal net operating loss carryforwards are
excess tax benefits related to share-based payments of approximately $51.8 million that are not recognized as a deferred tax asset as the amounts would not have resulted in a reduction in
current taxes payable if all other net operating loss carryforwards currently available to the Company were utilized. The benefit of these deductions will be recognized through additional
paid-in capital at the time the tax deduction results in a reduction of current taxes payable.
Section 382 of the Internal Revenue Code can potentially limit a company's ability to use net operating loss, tax credits, capital loss, and other tax attributes in periods subsequent to a
change in ownership. The Company periodically updates its Section 382 study to assess whether the Company has undergone certain greater than 50% changes of ownership as defined in
Section 382 of the Internal Revenue Code. This study concluded that the Company had an ownership change in 2010. As a result, the Company determined that certain net operating
loss, tax credit and capital loss carryforwards will expire prior to their utilization due to the expected annual Section 382 limitation, and accordingly the net operating loss, tax credit, and capital
loss carryforwards on the above deferred tax asset table have been reduced.
Valuation Allowance
The Company determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into consideration all available positive and negative
evidence, including historical operating results, expectations of future taxable income, carryforward periods available to the Company for tax reporting purposes, various income tax strategies
and other relevant factors. Significant judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the recoverability of
its deferred tax assets at that time.
At December 31, 2014 and 2013, the Company maintained a full valuation allowance on its deferred tax assets. The Company has a history of cumulative losses. The Company's
cumulative loss position was significant negative evidence in assessing the need for a valuation allowance. The valuation allowance for deferred tax assets decreased by $9.5 million in 2014
and increased by $215,000 in 2013.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):
|
|
|
|
|
|
Unrecognized |
|
|
|
|
|
|
Tax Benefits |
Balance as of January 1, 2013 |
|
|
|
|
$ |
4,614 |
Additions for current year tax positions |
|
|
|
|
|
- |
Reductions for prior year tax positions |
|
|
|
|
|
(677) |
Balance as of December 31, 2013 |
|
|
|
|
|
3,937 |
Additions for current year tax positions |
|
|
|
|
|
- |
Reductions for prior year tax positions |
|
|
|
|
|
- |
Balance as of December 31, 2014 |
|
|
|
|
$ |
3,937 |
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the
settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that
the balance of gross unrecognized tax benefits will not change during the next 12 months. However, changes in the occurrence, expected outcomes and timing of those events could
cause the Company's current estimate to change materially in the future.
94
Due to the Company's net operating loss carryforwards, any adjustment related to an unrecognized tax benefit would not be expected to result in a cash tax liability. Accordingly, the
Company has not accrued for interest or penalties for the U.S. (both Federal and State) as of December 31, 2014 and 2013. Assuming the continued existence of a full valuation allowance
on the Company's deferred tax assets, future recognition of any of the Company's unrecognized tax benefits would not impact the effective tax rate.
The Company files income tax returns in the United States and various foreign jurisdictions. Of the major jurisdictions, the Company is subject to examination in: the United States for U.S.
federal purposes for 2011 and forward and for New Jersey for 2011 and forward. In August 2012, the IRS completed its examination of the Company's U.S. federal income tax returns for the
year ended December 31, 2009. In May 2013, the State of New Jersey completed its examination of the Company's New Jersey income tax returns through the year ended December
31, 2010. There were no adjustments as a result of these examinations.
(14) Employee Benefit Plans
The Company maintains a tax-qualified employee savings and retirement plan (401(k) Plan) covering all of the Company's employees in the United States. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation up to the maximum percent allowable, not to exceed the limits of code section 401(k), 403(b), 404 and 415, of eligible
compensation or the prescribed IRS annual limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional matching
contributions to the 401(k) Plan by the Company on behalf of all participants. During the years ended December 31, 2014, 2013 and 2012, the Company matched 100% of employee
contributions up to 3% of employee pre-tax contributions and 50% of employee contribution on the next 3% of employee pre-tax contributions. The Company recorded an expense associated
with these matching contributions for the years ended December 31, 2014, 2013, and 2012 of $1.6 million, $1.1 million and $620,000, respectively.
(15) Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of
operations upon adoption.
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," which requires entities
to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most of the
existing revenue recognition requirements in U.S. GAAP when it becomes effective. This pronouncement is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company is
currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures.
(16) Commitments and Contingencies
The Company has agreed to indemnify, under certain circumstances, certain manufacturers and service providers from and against any and all losses, claims, damages or liabilities
arising from services provided by such manufacturers and service providers or from any use, including clinical trials, or sale by the Company or any Company agent of any product supplied
by the manufacturers.
The Company has contractual commitments of $17.4 million with external marketing, commercial readiness and market research organizations relating to pre-launch activities for
Revestive and Natpara. These agreements are cancellable on notice of up to six months. The Company also has approximately $43.2 million in contractual commitments for other service
agreements with varying terms and conditions.
The Company has entered into long-term agreements with various third-party contract manufacturers for the production and packaging of drug substance and drug product. Under the
terms of these various contracts, the Company will be required to purchase certain minimum quantities of drug product each year.
95
The Company has contractual commitments of $73.7 million for drug substance, drug product and other manufacturing processes as of December 31, 2014 for the manufacture of
clinical and commercial supplies of Gattex/Revestive and Natpara. Amounts owed to third-party contract manufacturers are based on firm commitments for the purchase of drug product.
Amounts purchased under contractual inventory commitments from third-party contract manufacturers for the years ended December 31, 2014, 2013 and 2012 were $14.8 million,
$15.0 million and $25.9 million, respectively.
In December 2009, the Company sold a majority interest in its subsidiary, Allelix, to a group of investors ("Investors"). NPS received $5.6 million in connection with the
transactions in 2009. NPS is entitled to receive an additional Canadian $4.8 million, which would only be paid upon further investment in Allelix by the Investors, which would be expected to
occur upon the successful completion of certain Canadian court proceedings. In connection with the transaction, the Company has indemnified the Investors for various items including
product liabilities arising from the past operations of Allelix and has guaranteed that certain tax attributes exist as of the closing date. The maximum potential future payments related to these
indemnifications or guarantees shall not exceed the amounts the Company has received in connection with the transaction ($5.1 million at December 31, 2014).
(17) Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2014 and 2013 (in thousands, except for per share amounts):
|
|
Quarters Ended |
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
44,040 |
|
$ |
56,127 |
|
$ |
57,200 |
|
$ |
66,695 |
Operating (loss) income |
|
|
(2,948) |
|
|
5,790 |
|
|
1,351 |
|
|
857 |
Net (loss) income |
|
|
(6,576) |
|
|
1,992 |
|
|
(2,146) |
|
|
(1,975) |
Basic (loss) income per common share |
|
$ |
(0.06) |
|
$ |
0.02 |
|
$ |
(0.02) |
|
$ |
(0.02) |
Diluted (loss) income per common |
|
|
|
|
|
|
|
|
|
|
|
|
and potential common share |
|
$ |
(0.06) |
|
$ |
0.02 |
|
$ |
(0.02) |
|
$ |
(0.02) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
25,434 |
|
$ |
36,505 |
|
$ |
39,202 |
|
$ |
54,451 |
Operating (loss) income |
|
|
(4,531) |
|
|
(9,321) |
|
|
1,769 |
|
|
10,588 |
Net (loss) income |
|
|
(7,796) |
|
|
(12,389) |
|
|
(1,087) |
|
|
7,768 |
Basic (loss) income per common share |
|
$ |
(0.09) |
|
$ |
(0.13) |
|
$ |
(0.01) |
|
$ |
0.08 |
Diluted (loss) income per common |
|
|
|
|
|
|
|
|
|
|
|
|
and potential common share |
|
$ |
(0.09) |
|
$ |
(0.13) |
|
$ |
(0.01) |
|
$ |
0.07 |
ITEM 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
Not applicable
96
a) Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures" within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our
disclosure controls and procedures, or Disclosure Controls, are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act,
such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and
forms. Our Disclosure Controls include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Annual Report on Form 10-K, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, which was
done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on the controls evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the date of their evaluation, our disclosure controls and procedures were effective as of December 31, 2014.
(b) Management's Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide our
management and board of directors reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with
GAAP. Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because
of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management has assessed the effectiveness of internal control over financial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as of
December 31, 2014, our internal control over financial reporting is effective based on those criteria.
KPMG LLP, our independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K has issued an audit report on our internal
control over financial reporting as of December 31, 2014. This report appears on page 65 of this report.
(c) Change in Internal Control over Financial Reporting.
On January 1, 2014, the Company adopted the Committee of Sponsoring Organizations new internal control framework ("COSO 2013"), which did not have a material impact
on the Company's disclosure controls and procedures and internal controls over financial reporting. Other than the adoption of COSO 2013, there have been no changes in our internal
control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
None.
97
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
Certain of the information required by this item will be contained in our definitive Proxy Statement with respect to our 2015 Annual Meeting of Stockholders, under the captions
"Election of Directors," and "Compliance with Section 16(a) of the Exchange Act." Such information is incorporated into this item by reference. For information
regarding our executive officers see Part I of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. Executive Compensation.
The information required by this item will be contained in our definitive Proxy Statement with respect to our 2015 Annual Meeting of Stockholders, under the captions "Executive
Compensation," "Compensation Committee Interlocks and Insider Participation," and "Compensation Committee Report" and is incorporated into this item by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters.
The information required by this item will be contained in our definitive Proxy Statement with respect to our 2015 Annual Meeting of Stockholders, under the captions "Security
Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated into this item by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be contained in our definitive Proxy Statement with respect to our 2015 Annual Meeting of Stockholders under the captions "Certain
Relationships and Related Transactions" and "Independence of the Board" and is incorporated into this item by reference.
ITEM 14. Principal Accountant Fees and Services.
The information required by this item will be contained in our definitive Proxy Statement with respect to our 2015 Annual Meeting of Stockholders, under the caption "Principal
Accountant Fees and Services" and is incorporated into this item by reference.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K.
1. Financial Statements. The financial statements listed on the accompanying Index to Consolidated Financial Statements are filed as part of this report.
2. Financial statement schedules. There are no financial statements schedules included because they are either not applicable or the required information is shown in
the consolidated financial statements or the notes thereto.
3. Exhibits. The following exhibits are filed or incorporated by reference as part of this Form 10-K.
Exhibit
Number |
|
Description of Document |
2.1 |
|
Termination and Transition Agreement, dated as of March 18, 2012, by and among Takeda GmbH, Takeda Pharma A/S and the Registrant,
incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File No. 000-23272), filed March 19, 2013. |
|
|
|
2.2 |
|
Agreement and Plan of Merger, dated as of January 11, 2015, among NPS Pharmaceuticals, Inc., Shire Pharmaceutical Holdings Ireland
Limited, Knight Newco 2, Inc. and Shire plc, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed January 12, 2015. |
|
|
|
98
3.1A |
|
Amended and Restated Certificate of Incorporation of the Registrant, incorporated herein by reference to the Registrant's Registration Statement on
Form S-1 (SEC File No. 333-74318), filed January 21, 1994. |
|
|
3.1B |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, dated December 16, 1999, incorporated herein
by reference to the Registrant's Registration Statement on Form S-3 (SEC File No. 333-45274), filed September 6, 2000. |
|
|
|
3.1C |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, dated September 30, 2003, incorporated herein
by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (SEC File No. 000-23272), filed February 10, 2004.
|
3.1D |
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, dated May 19, 2011, incorporated herein by
reference to the Registrant's Current Report on Form 8-K (SEC File No. 000-23272), filed May 24, 2011. |
|
|
3.2 |
|
Amended and Restated Bylaws of the Registrant, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed January 12,
2015. |
|
|
|
3.3A |
|
Certificate of Designation of Series A Junior Participating Preferred Stock of the Registrant, dated December 18, 1996, incorporated herein by
reference to the Registrant's Current Report on Form 8-K (SEC File No. 000-23272), filed December 19, 1996. |
|
|
|
3.3B |
|
Amendment to Certificate of Designation of Series A Junior Participating Preferred Stock of the Registrant, dated September 5, 2000, incorporated
herein by reference to the Registrant's Registration Statement on Form S-3 (SEC File No. 333-45274), filed September 6, 2000. |
|
|
|
4.1 |
|
Specimen Common Stock Certificate, incorporated herein by reference to the Registrant's Registration Statement on Form S-1 (SEC File
No. 333-74318), filed January 21, 1994. |
|
|
|
4.2 |
|
Indenture, dated as of August 8, 2013, between the Registrant and The Bank of New York Mellon, as trustee, incorporated herein by reference to the
Registrant's Registration Statement on Form S-3 (SEC File No. 333-190494), filed August 8, 2013. |
|
|
|
10.1A** |
|
1998 Stock Option Plan (reflects all amendments by the Board of Directors through May 2008), incorporated herein by reference to the Registrant's
Current Report on Form 8-K (SEC File No. 000-23272), filed May 28, 2008. |
|
|
10.1B** |
|
Form of Performance-Based Stock Option Agreement under the NPS Pharmaceutical, Inc. 1998 Stock Option Plan, incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (SEC File No. 000-23272), filed March 16, 2009. |
|
|
|
10.2** |
|
Form of Indemnity Agreement entered into between the Registrant and each of its officers and directors, incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (SEC File No. 333-74318), filed January 21, 1994. |
|
|
10.3** |
|
Change in Control Severance Pay Plan, as amended, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed January
12, 2015. |
|
|
|
10.4A |
|
Collaborative Research and License Agreement between the Registrant and SmithKline Beecham Corporation (now GlaxoSmithKline), dated
November 1, 1993, incorporated herein by reference to the Registrant's Registration Statement on Form S-1 (SEC File No. 333-74318), filed January 21, 1994. |
|
|
99
10.4B |
|
Amendment Agreement to Collaborative Research and License Agreement between GlaxoSmithKline, effective June 29, 1995, incorporated herein by
reference to Amendment No. 1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (SEC File No. 000-23272), filed March 29,
1996. |
|
|
10.4C |
|
Amendment Agreement between the Registrant and GlaxoSmithKline, dated October 28, 1996, incorporated herein by reference to the Registrant's
Current Report on Form 8-K (SEC File No. 000-23272), filed December 19, 1996. |
|
|
10.4D |
|
Amendment Agreement between the Registrant and GlaxoSmithKline, dated October 27, 1997, incorporated herein by reference to the Registrant's
Current Report on Form 8-K (SEC File No. 000-23272), filed January 27, 1998. |
|
|
|
10.4E |
|
Amendment to Collaborative Research and License Agreement between the Registrant and GlaxoSmithKline, dated November 26, 1997, incorporated
herein by reference to the Registrant's Current Report on Form 8-K (SEC File No. 000-23272), filed January 27, 1998. |
|
|
10.4F |
|
Letter, dated January 24, 2000, from SmithKline Beecham to the Registrant Re: Amendment Agreement to Amend the November 26, 1997
Amendment Agreement, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (SEC File No. 000-23272), filed
March 21, 2003. |
|
|
10.4G |
|
Letter, dated May 15, 2000, from SmithKline Beecham to the Registrant Re: Amendment Agreement, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (SEC File No. 000-23272), filed March 21, 2003. |
|
|
10.4H |
|
Letter, dated August 1, 2001, from GlaxoSmithKline to the Registrant Re: Amendment Agreement to Amend the January 24, 2000 Amendment
Agreement, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (SEC File No. 000-23272), filed
March 21, 2003. |
|
|
10.4I |
|
Amendment Agreement between the Registrant and SmithKline Beecham Corporation (d/b/a GlaxoSmithKline), dated December 14, 2006,
incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (SEC File No. 000-23272), filed March 14,
2007. |
|
|
10.4J* |
|
Exclusive Patent License Agreement between the Registrant and GlaxoSmithKline LLC dated July 29, 2011, incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (SEC File No. 000-23272), filed November 3, 2011. |
|
|
|
10.5A |
|
Patent Agreement between the Registrant and The Brigham and Women's Hospital, Inc., dated February 19, 1993, incorporated herein by reference to
the Registrant's Registration Statement on Form S-1 (SEC File No. 333-74318), filed January 21, 1994. |
|
|
10.5B |
|
Letter, dated March 15, 1993 from the Registrant to The Brigham and Women's Hospital, Inc. regarding Patent Agreement between the Registrant and
The Brigham and Women's Hospital, Inc., incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (SEC File No.
000-23272), filed March 21, 2003. |
|
|
10.5C |
|
Amendment to Patent Agreement between the Registrant and The Brigham and Women's Hospital, Inc., effective February 7, 1996, incorporated
herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (SEC File No. 000-23272), filed March 29, 1996. |
|
|
10.5D |
|
1999 Patent Agreement Amendment between the Registrant and The Brigham and Women's Hospital, Inc., effective February 18, 1999, incorporated
herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (SEC File No. 000-23272), filed March 21, 2003.
|
|
|
100
10.6 |
|
Collaborative Research and License Agreement between the Registrant and Kirin Brewery Company, Ltd. dated June 29, 1995, incorporated herein by
reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (SEC File No. 000-23272). |
|
|
10.7* |
|
Development and License Agreement between the Registrant (conformed copy through Fifth Amendment, dated as of June 29, 2012), incorporated
herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed February 18, 2014. |
|
|
10.8A** |
|
2005 Omnibus Incentive Plan, as amended through May 18, 2011, incorporated herein by reference to the Registrant's Current Report on Form 8-K
(SEC File No. 000-23272), filed May 24, 2011. |
|
|
|
10.8B** |
|
2005 Omnibus Incentive Plan, as amended through May 7, 2013, incorporated herein by reference to the Registrant's Current Report on Form 8-K
(SEC File No. 000-23272), filed May 9, 2013. |
|
|
|
10.8C** |
|
Form of Stock Option Grant Agreement, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File No. 000-23272),
filed February 13, 2013. |
|
|
|
10.8D** |
|
Form of Restricted Stock Unit Agreement for Non-Employee Directors, Incorporated herein by reference to the Registrant's Current Report on Form 8-
K (SEC File No. 000-23272), filed February 13, 2013. |
|
|
|
10.8E** |
|
Form of Restricted Stock Unit Agreement for Employees, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File
No. 000-23272), filed February 13, 2013. |
|
|
|
10.8F** |
|
Form of Restricted Stock Unit Agreement for Employees, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File
No. 000-23272), filed February 13, 2013. |
|
|
|
10.8G** |
|
Form of Restricted Stock Unit Agreement for Employees, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File
No. 000-23272), filed February 13, 2013. |
|
|
|
10.8H** |
|
Non-Employee Director Compensation Program, incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2012 (SEC File No. 333-17521), filed May 3, 2012. |
|
|
|
10.9A** |
|
Non-Employee Director Deferred Compensation Program, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File
No. 000-23272), filed July 1, 2005. |
|
|
10.9B** |
|
Form of Deferred Stock Unit Award Agreement, incorporated herein by reference to the Registrant's Current Report on Form 8-K (SEC File
No. 000-23272), filed July 1, 2005. |
|
|
10.10* |
|
License Agreement, dated September 28, 1995, between 1149336 Ontario Inc., Daniel J. Drucker, and Allelix Biopharmaceuticals Inc., incorporated
herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 (SEC File No. 000-23272), filed November 9,
2007. |
|
|
|
10.11 |
|
Asset Purchase Agreement, dated October 9, 2007, between AstraZeneca AB and the Registrant, incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (SEC File No. 000-23272), filed March 17, 2008. |
|
|
|
10.12A* |
|
Commercial Manufacturing Agreement, dated October 18, 2002, by and between NPS Allelix Corp. and Boehringer Ingelheim Austria GmbH,
incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (SEC File No. 000-23272), filed March 17,
2008. |
|
|
|
101
10.12B* |
|
Amending Agreement, dated March 15, 2004, by and between NPS Allelix Corp. and Boehringer Ingelheim Austria GmbH, incorporated herein by
reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (SEC File No. 000-23272), filed March 17, 2008. |
|
|
|
10.12C* |
|
Amendment Number One to Amending Agreement, dated December 22, 2005, by and between NPS Allelix Corp. and Boehringer Ingelheim Austria
GmbH, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (SEC File No. 000-23272), filed March 17,
2008. |
|
|
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10.12D* |
|
Amendment Number Two to Amending Agreement, dated August 28, 2007, by and between NPS Allelix Corp. and Boehringer Ingelheim Austria
GmbH, incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (SEC File No. 000-23272), filed May 3,
2011. |
|
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10.12E* |
|
Letter Agreement, dated January 19, 2009, by and between the Registrant and Boehringer Ingelheim Austria GmbH, incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (SEC File No. 000-23272), filed May 3, 2011. |
|
|
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10.12F* |
|
Amendment Number Three to Amending Agreement, dated February 1, 2011, by and between the Registrant and Boehringer Ingelheim Austria GmbH,
incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (SEC File No. 000-23272), filed May 3,
2011. |
|
|
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10.13A** |
|
Employment Agreement with Francois Nader, incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2008 (SEC File No. 000-23272), filed May 19, 2008. |
|
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10.13B** |
|
First Amendment to the Employment Agreement with Francois Nader, incorporated herein by reference to the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 2008 (SEC File No. 000-23272), filed March 16, 2009. |
|
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10.13C** |
|
Second Amendment to the Employment Agreement with Francois Nader, incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2008 (SEC File No. 000-23272), filed March 16, 2009. |
|
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10.14** |
|
First Amendment to Restrictive Covenant Agreement with Francois Nader, incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2008 (SEC File No. 000-23272), filed May 19, 2008. |
|
|
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10.15** |
|
Employment Agreement with Roger Garceau, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 (SEC File No. 000-23272), filed March 16, 2009. |
|
|
|
10.16* |
|
Agreement for Sale and Assignment of Rights, dated February 26, 2010, between the Registrant and LSRC II S.ÀR.L., incorporated herein by
reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (SEC File No. 000-23272), filed March 11, 2010. |
|
10.17** |
|
NPS Pharmaceuticals, Inc. 2010 Employee Stock Purchase Plan, incorporated herein by reference to the Registrant's Current Report on Form 8-K
(SEC File No. 000-23272), filed May 24, 2010. |
|
10.18A* |
|
Development and Supply Agreement between the Registrant and Hospira Worldwide, Inc. dated March 25, 2009, incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (SEC File No. 000-23272), filed May 3, 2011. |
|
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|
102
10.18B* |
|
First Amendment to Development and Supply Agreement, effective as of May 14, 2014, by and between Hospira Worldwide, Inc. and the Registrant,
incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, filed November 10, 2014. |
|
|
|
10.19** |
|
Amended and Restated Employment Agreement with Eric Pauwels dated May 6, 2014, incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2014, filed May 8, 2014. |
|
|
|
10.20* |
|
Manufacturing Agreement between the Registrant and SynCo Bio Partners B.V., dated August 1, 2009, incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (SEC File No. 000-23272), filed November 3, 2011. |
|
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10.21* |
|
Commercial Manufacturing Agreement between the Registrant and Vetter Pharma International GmbH dated December 21, 2009, incorporated herein
by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 (SEC File No. 000-23272), filed November 9, 2012. |
|
|
|
10.22* |
|
Amended and Restated Agreement for the Sale and Assignment of Rights, dated as of December 20, 2013, by and between the Registrant and Drug
Royalty L.P. 3, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013, filed February 18, 2014. |
|
|
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10.23** |
|
Offer Letter of Susan Graf, dated as of April 29, 2013, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2013, filed February 18, 2014. |
|
|
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10.24* |
|
Contract Manufacturing and Supply Agreement, dated as of September 7, 2012, by and between Patheon UK Limited and the Registrant, as assignee
of Takeda GmbH (f/k/a Nycomed Danmark ApS), incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed
February 18, 2014. |
|
|
|
10.25** |
|
NPS Pharmaceuticals, Inc. 2014 Omnibus Equity Compensation Plan, incorporated herein by reference to the Registrant's Current Report on Form 8-
K, filed May 7, 2014. |
|
|
|
10.26** |
|
Form of Incentive Stock Option Award Agreement, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed May 7,
2014. |
|
|
|
10.27** |
|
Form of Nonqualified Stock Option Award Agreement, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed May 7,
2014. |
|
|
|
10.28** |
|
Form of Restricted Stock Unit Award Agreement, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed May 7,
2014. |
|
|
|
10.29** |
|
NPS Pharmaceuticals, Inc. Deferred Compensation Plan, incorporated herein by reference to the Registrant's Current Report on Form 8-K, filed May 7,
2014. |
|
|
|
10.30** |
|
Employment Agreement with Christine Mikail, dated January 30, 2014, incorporated herein by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2014, filed May 8, 2014. |
|
|
|
10.31** |
|
Offer Letter with Robin Friedman dated January 30, 2014, incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2014, filed May 8, 2014. |
|
|
|
10.32** |
|
Employment Agreement with Paul Firuta dated March 3, 2014, incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2014, filed May 8, 2014. |
|
|
|
103
12.1+ |
|
Computation Ratio of Earnings Available to Cover Fixed Charges |
|
|
21.1+ |
|
List of Subsidiaries |
|
|
23.1+ |
|
Consent of Independent Registered Public Accounting Firm |
|
|
31.1+ |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2+ |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32+ |
|
Certification of Annual Financial Report by the Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
|
101INS |
|
XBRL Instance Document |
|
|
101SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
101CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
________________
+ |
Filed herewith. |
* |
Confidential information was omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and
Exchange Commission. |
** |
Management contract, compensatory plan or arrangement.
|
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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|
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NPS PHARMACEUTICALS, INC. |
|
|
|
Date: February 18, 2015 |
|
By: |
|
/s/ F RANCOIS NADER
Francois Nader
President and Chief Executive Officer (Principal Executive Officer) and Director |
|
|
|
Date: February 18, 2015 |
|
By: |
|
/s/ L UKE M. BESHAR
Luke M. Beshar
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.