Alkermes plc. - Quarter Report: 2014 September (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-35299

 

ALKERMES PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

Connaught House

1 Burlington Road

Dublin 4, Ireland

(Address of principal executive offices)

 

+ 353-1-772-8000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

 

The number of the registrant’s ordinary shares, $0.01 par value, outstanding as of October 24, 2014 was 146,231,502 shares.

 

 

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ALKERMES PLC AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

			Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):
		Condensed Consolidated Balance Sheets — September 30, 2014 and December 31, 2013	5
		Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income — For the Three and Nine Months Ended September 30, 2014 and 2013	6
		Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2014 and 2013	7
		Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
Item 4.	Controls and Procedures		28
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 5.	Other Information		29
Item 6.	Exhibits		29
Signatures			30
Exhibit Index			31
Ex-31.1 Section 302 Certification of Chief Executive Officer
Ex-31.2 Section 302 Certification of Chief Financial Officer
Ex-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
Ex-101 Instance Document
Ex-101 Schema Document
Ex-101 Calculation Linkbase Document
Ex-101 Labels Linkbase Document
Ex-101 Definition Linkbase Document
Ex-101 Presentation Linkbase Document

 

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Cautionary Note Concerning Forward-Looking Statements

 

This document contains and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, these statements can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue,” “believe,” “plan,” “estimate,” “intend” or other similar words. These statements discuss future expectations, and contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. Forward-looking statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) include, without limitation, statements regarding:

 

·                  our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;

·                  our expectations regarding our products, including the development, regulatory review (including expectations about regulatory approval and regulatory timelines) and therapeutic and commercial scope and potential of such products and the costs and expenses related thereto;

·                  our expectations regarding the initiation, timing and results of clinical trials of our products;

·                  our expectations regarding the competitive landscape, and changes therein, related to our products, including our development programs;

·                  our expectations regarding the financial impact of currency exchange rate fluctuations and valuations;

·                  our expectations regarding future amortization of intangible assets;

·                  our expectations regarding our collaborations and other significant agreements relating to our products, including our development programs;

·                  our expectations regarding the impact of adoption of new accounting pronouncements;

·                  our expectations regarding near-term changes in the nature of our market risk exposures or in management’s objectives and strategies with respect to managing such exposures;

·                  our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt service obligations; and

·                  our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

 

Actual results might differ materially from those expressed or implied by the forward-looking statements contained in this Form 10-Q because these forward-looking statements are subject to risks, assumptions and uncertainties. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or revise any forward-looking statements in this Form 10-Q, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. For more information regarding the risks and uncertainties of our business, see ‘‘Item 1A—Risk Factors’’ of our Transition Report on Form 10-K for the nine-month period ended December 31, 2013 (the “Transition Report”) and any subsequent reports filed with the U.S. Securities and Exchange Commission (“SEC”).

 

Unless otherwise indicated, information contained in this Form 10-Q concerning the disorders targeted by our products and the markets in which we operate is based on information from various third-party sources (including, without limitation, industry publications, medical and clinical journals and studies, surveys and forecasts) as well as our internal research. Our internal research involves assumptions that we have made, which we believe are reasonable, based on data from those and other similar sources and on our knowledge of the markets for our marketed and development products. Our internal research has not been verified by any independent source, and we have not independently verified any third-party information. These projections, assumptions and estimates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in ‘‘Item 1A—Risk Factors’’ of our Transition Report. These and other factors could cause results to differ materially from those expressed in the estimates included in this Form 10-Q.

 

Note Regarding Company

 

Alkermes plc (as used in this report, together with our subsidiaries, “Alkermes,” “the Company,” ‘‘us,’’ ‘‘we’’ and ‘‘our’’) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on our own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. We have a diversified portfolio of more than 20 commercial drug products and a clinical pipeline of product candidates that address central nervous system (“CNS”) disorders such as addiction, schizophrenia and depression.

 

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Note Regarding Trademarks

 

We are the owner of various U.S. federal trademark registrations (“®”) and registration applications (“TM”), including LinkeRx® and VIVITROL®. The following are trademarks of the respective companies listed: ABILIFY®— Otsuka Pharmaceutical Co., Ltd.; AMPYRA® and FAMPYRA®—Acorda Therapeutics, Inc.; BYDUREON® and BYETTA®—Amylin Pharmaceuticals, LLC; FOCALIN XR®—Novartis AG; INVEGA® SUSTENNA®, XEPLION®, and RISPERDAL® CONSTA®—Johnson & Johnson Corp. (or its affiliate); MEGACE®—E.R. Squibb & Sons, LLC; TECFIDERA®—Biogen Idec MA Inc.; TRICOR®—Fournier Industrie et Sante Corporation; ZOHYDRO® ER—Zogenix, Inc.; and ZYPREXA®—Eli Lilly and Company. Other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:

 

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

		September 30,			December 31,
		2014			2013
		(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	136,182		$	167,562
Investments — short-term		436,387			194,669
Receivables		143,692			134,154
Inventory		50,471			46,218
Prepaid expenses and other current assets		46,174			27,535
Total current assets		812,906			570,138
PROPERTY, PLANT AND EQUIPMENT, NET		262,128			274,490
INTANGIBLE ASSETS — NET		494,656			537,565
GOODWILL		92,740			92,740
INVESTMENTS — LONG-TERM		143,747			87,764
OTHER ASSETS		31,678			14,891
TOTAL ASSETS		$	1,837,855		$	1,577,588
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	100,329		$	91,173
Long-term debt — current		6,750			6,750
Deferred revenue — current		3,061			2,974
Total current liabilities		110,140			100,897
LONG-TERM DEBT		352,801			357,543
DEFERRED TAX LIABILITIES, NET — LONG-TERM		21,258			29,169
DEFERRED REVENUE — LONG-TERM		11,519			12,213
OTHER LONG-TERM LIABILITIES		8,545			12,580
Total liabilities		504,263			512,402
COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS’ EQUITY:
Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at September 30, 2014 and December 31, 2013, respectively		—			—
Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 147,071,192 and 138,482,571 shares issued; 146,088,467 and 137,792,626 shares outstanding at September 30, 2014 and December 31, 2013, respectively		1,468			1,382
Treasury shares, at cost (982,725 and 689,945 shares at September 30, 2014 and December 31, 2013, respectively)		(30,881		)	(17,833		)
Additional paid-in capital		1,908,721			1,553,337
Accumulated other comprehensive (loss) income		(2,866		)	10,574
Accumulated deficit		(542,850		)	(482,274		)
Total shareholders’ equity		1,333,592			1,065,186
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,837,855		$	1,577,588

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(unaudited)

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2014			2013			2014			2013
		(In thousands, except per share amounts)
REVENUES:
Manufacturing and royalty revenues		$	132,028		$	118,571		$	373,674		$	385,278
Product sales, net		25,802			19,227			64,476			51,232
Research and development revenue		2,162			2,004			5,478			5,345
Total revenues		159,992			139,802			443,628			441,855
EXPENSES:
Cost of goods manufactured and sold (exclusive of amortization of acquired intangible assets shown below)		47,335			45,423			129,464			139,407
Research and development		78,263			45,947			197,610			115,209
Selling, general and administrative		51,888			39,454			145,101			107,066
Amortization of acquired intangible assets		15,244			12,856			42,909			35,894
Restructuring		—			—			—			12,300
Impairment of long-lived assets		—			—			—			3,346
Total expenses		192,730			143,680			515,084			413,222
OPERATING (LOSS) INCOME		(32,738		)	(3,878		)	(71,456		)	28,633
OTHER (EXPENSE) INCOME, NET:
Interest income		546			295			1,380			627
Interest expense		(3,356		)	(3,477		)	(10,097		)	(18,418		)
Gain on sale of investment in Acceleron Pharma Inc.		—			—			15,296			—
Gain on sale of property, plant and equipment		36			—			12,321			—
Other (expense) income, net		(921		)	(469		)	(2,253		)	(455		)
Total other (expense) income, net		(3,695		)	(3,651		)	16,647			(18,246		)
(LOSS) INCOME BEFORE INCOME TAXES		(36,433		)	(7,529		)	(54,809		)	10,387
INCOME TAX PROVISION		3,523			233			5,766			7,818
NET (LOSS) INCOME		$	(39,956	)	$	(7,762	)	$	(60,575	)	$	2,569
(LOSS) EARNINGS PER ORDINARY SHARE:
Basic		$	(0.27	)	$	(0.06	)	$	(0.42	)	$	0.02
Diluted		$	(0.27	)	$	(0.06	)	$	(0.42	)	$	0.02
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING:
Basic		145,896			136,106			144,732			134,670
Diluted		145,896			136,106			144,732			143,022
COMPREHENSIVE (LOSS) INCOME:
Net (loss) income		$	(39,956	)	$	(7,762	)	$	(60,575	)	$	2,569
Holding (losses) gains, net of tax of $89, none, $7,715 and none, respectively		(154		)	8,506			1,855			8,241
Reclassification of unrealized gains to realized gains		—			—			(15,296		)	—
COMPREHENSIVE (LOSS) INCOME		$	(40,110	)	$	744		$	(74,016	)	$	10,810

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		Nine Months Ended
		September 30,
		2014			2013
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(60,575	)	$	2,569
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Depreciation and amortization		72,719			65,722
Share-based compensation expense		46,240			30,899
Excess tax benefit from share-based compensation		(22,444		)	(12,969		)
Impairment of long-lived assets		—			3,346
(Gain) loss on sale of property, plant and equipment		(11,942		)	391
Gain on sale of investment of Acceleron Pharma Inc.		(15,296		)	—
Deferred income taxes		(18,731		)	(2,049		)
Loss on debt refinancing transaction		—			7,541
Prepayment penalty in connection with debt refinancing		—			(3,733		)
Other non-cash charges		9,921			2,177
Changes in assets and liabilities:
Receivables		(9,538		)	(613		)
Inventory, prepaid expenses and other assets		(17,774		)	(2,530		)
Accounts payable and accrued expenses		25,103			18,869
Deferred revenue		(607		)	(208		)
Other long-term liabilities		420			7
Cash flows (used in) provided by operating activities		(2,504		)	109,419
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment		(20,326		)	(17,457		)
Proceeds from the sale of property, plant and equipment		14,361			125
Investment in Civitas		—			(1,191		)
Purchases of investments		(550,102		)	(196,525		)
Sales and maturities of investments		246,540			95,149
Cash flows used in investing activities		(309,527		)	(119,899		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of ordinary shares, net		248,406			—
Proceeds from the issuance of ordinary shares under share-based compensation arrangements		27,431			50,790
Excess tax benefit from share-based compensation		22,444			12,969
Employee taxes paid related to net share settlement of equity awards		(12,566		)	(8,529		)
Principal payments of long-term debt		(5,064		)	(7,137		)
Cash flows provided by financing activities		280,651			48,093
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(31,380		)	37,613
CASH AND CASH EQUIVALENTS — Beginning of period		167,562			135,892
CASH AND CASH EQUIVALENTS — End of period		$	136,182		$	173,505
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Non-cash investing and financing activities:
Purchased capital expenditures included in accounts payable and accrued expenses		$	691		$	1,184

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Unaudited)

 

1. THE COMPANY

 

Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. Alkermes has a diversified portfolio of more than 20 commercial drug products and a clinical pipeline of product candidates that address CNS disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes has a research and development (“R&D”) center in Waltham, Massachusetts; R&D and manufacturing facilities in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements of the Company for the three and nine months ended  September 30, 2014 and 2013 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the nine-month transition period ended December 31, 2013 (the “Transition Period”). The year-end Condensed Consolidated Balance Sheet data, which is presented for comparative purposes, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”) (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to present fairly the results of operations for the reported periods.

 

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Alkermes, which are contained in the Company’s Transition Report on Form 10-KT, which has been filed with the SEC. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period, including the Transition Period, or for a full fiscal year.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly owned subsidiaries as disclosed in Note 2: Summary of Significant Accounting Policies within Part II, Item 8 of our Transition Report. During the nine months ended September 30, 2014, the following wholly owned subsidiaries were added:Alkermes Science Three Limited; Alkermes Science Four Limited; Alkermes Science Five Limited; and Alkermes Science Six Limited. Intercompany accounts and transactions have been eliminated.

 

Use of Estimates

 

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates and judgments and methodologies, including those related to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments and derivative instruments, litigation and restructuring charges. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 

Segment Information

 

The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines designed to yield better therapeutic outcomes and improve the lives of patients with serious diseases. The Company’s chief decision maker, the Chairman and Chief Executive Officer, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“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 July 2013, the FASB adopted clarifying guidance on the presentation of unrecognized tax benefits when various qualifying tax credits exist. The amendment requires that unrecognized tax benefits be presented on the consolidated balance sheet as a reduction to deferred tax assets created by net operating losses (‘‘NOLs’’) or other tax credits from prior periods that occur in the same taxing jurisdiction. To the extent that the unrecognized tax benefit exceeds these NOLs or other tax credits, it shall be presented as a liability. This update, required to be adopted for all annual periods and interim reporting periods beginning after December 15, 2013, was adopted by the Company on January 1, 2014. The adoption of this standard did not have a material impact on the presentation of the Company’s financial position.

 

In April 2014, the FASB adopted guidance that amends the requirements for reporting discontinued operations. Under the amendment, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results will be reported as discontinued operations in the financial statements. Currently, many disposals, some of which may be routine in nature and not a change in an entity's strategy, are reported in discontinued operations. The guidance also requires expanded disclosures for discontinued operations. This guidance becomes effective for the Company in its year ending December 31, 2015 and early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued or available for issuance. The adoption of this standard is not expected to have a material impact on the Company's results of operations, cash flows or financial condition.

 

In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. Existing GAAP does not contain explicit guidance on how to account for these share-based payments. The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities have the option of prospectively applying the guidance to awards granted or modified after the effective date or retrospectively applying the guidance to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements. The guidance becomes effective for the Company in its year ending December 31, 2016, and early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

 

In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The guidance becomes effective for the Company in its year ending December 31, 2017, and early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

3. INVESTMENTS

 

Investments consisted of the following:

 

					Gross Unrealized
								Losses
		Amortized						Less than			Greater than			Estimated
		Cost			Gains			One Year			One Year			Fair Value
		(In thousands)
September 30, 2014
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		$	220,312		$	170		$	—		$	—		$	220,482
Corporate debt securities		178,312			97			(46		)	—			178,363
International government agency debt securities		36,321			20			—			—			36,341
		434,945			287			(46		)	—			435,186
Money market funds		1,201			—			—			—			1,201
Total short-term investments		436,146			287			(46		)	—			436,387
Long-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		101,464			—			(163		)	(22		)	101,279
Corporate debt securities		31,390			—			(37		)	(4		)	31,349
International government agency debt securities		9,577			—			(4		)	(1		)	9,572
		142,431			—			(204		)	(27		)	142,200
Held-to-maturity securities:
Certificates of deposit		1,547			—			—			—			1,547
Total long-term investments		143,978			—			(204		)	(27		)	143,747
Total investments		$	580,124		$	287		$	(250	)	$	(27	)	$	580,134
December 31, 2013
Short-term investments:
Available-for-sale securities:
U.S. government and agency debt securities		$	130,669		$	80		$	(1	)	$	—		$	130,748
Corporate debt securities		38,614			64			(30		)	—			38,648
International government agency debt securities		24,097			8			(33		)	—			24,072
		193,380			152			(64		)	—			193,468
Money market funds		1,201			—			—			—			1,201
Total short-term investments		194,581			152			(64		)	—			194,669
Long-term investments:
Available-for-sale securities:
Equity securities		8,732			21,253			—			—			29,985
U.S. government and agency debt securities		28,503			—			(61		)	(3		)	28,439
Corporate debt securities		20,266			—			(30		)	(75		)	20,161
International government agency debt securities		7,691			—			(5		)	—			7,686
		65,192			21,253			(96		)	(78		)	86,271
Held-to-maturity securities:
Certificates of deposit		1,493			—			—			—			1,493
Total long-term investments		66,685			21,253			(96		)	(78		)	87,764
Total investments		$	261,266		$	21,405		$	(160	)	$	(78	)	$	282,433

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

The proceeds from the sales and maturities of marketable securities, which were primarily reinvested and resulted in realized gains and losses, were as follows:

 

		Nine Months Ended
		September 30,
(In thousands)		2014			2013
Proceeds from the sales and maturities of marketable securities		$	246,540		$	95,149
Realized gains		$	15,352		$	54
Realized losses		$	(10	)	$	(5	)

 

During the three months ended June 30, 2014, the Company sold its investment in Acceleron Pharma Inc. (“Acceleron”), which consisted of common stock and warrants to purchase the common stock of Acceleron. The Company received net proceeds of $24.0 million and realized a gain of $15.3 million from the sale of this investment. The Company reclassified the gain from accumulated other comprehensive (loss) income to gain on sale of investment in Acceleron in its Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

 

The Company’s available-for-sale and held-to-maturity securities at September 30, 2014 had contractual maturities in the following periods:

 

		Available-for-sale						Held-to-maturity
		Amortized			Estimated			Amortized			Estimated
(In thousands)		Cost			Fair Value			Cost			Fair Value
Within 1 year		$	298,878		$	298,972		$	1,547		$	1,547
After 1 year through 5 years		278,498			278,414			—			—
Total		$	577,376		$	577,386		$	1,547		$	1,547

 

At September 30, 2014, the Company believed that the unrealized losses on its available-for-sale investments were temporary. The investments with unrealized losses consisted primarily of U.S. government and agency debt securities and corporate debt securities. In making the determination that the decline in fair value of these securities was temporary, the Company considered various factors, including but not limited to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; financial condition and near-term prospects of the issuers; and the Company’s intent not to sell these securities and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.

 

The Company’s investment in Civitas Therapeutics, Inc. (“Civitas”) was zero and $2.0 million at September 30, 2014 and December 31, 2013, respectively, which was recorded within “Other Assets” in the accompanying Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2014, the Company invested an additional $1.0 million in Civitas and recorded a reduction in its investment in Civitas of $2.0 million, which represented the Company’s proportionate share of Civitas’ net losses for this period.  As the Company’s interest in Civitas has reached zero, the Company no longer records its proportionate share of Civitas’ net losses until such time as the Company’s share of Civitas’ net income exceeds its share of Civitas’ net losses not recognized during the period the equity method is suspended.

 

In October 2014, Civitas was acquired by Acorda Therapeutics, Inc. (“Acorda”) for approximately $525.0 million. As a result of this transaction, the Company received $30.0 million for the sale of certain commercial-scale pulmonary manufacturing equipment used by Civitas. The Company also received $27.2 million and will receive an additional $2.3 million, subject to release of all amounts held in escrow, for its approximate 6% equity interest in Civitas.

 

In May 2014, the Company entered into an agreement whereby it is committed to provide up to €7.4 million to a partnership, Fountain Healthcare Partners II, L.P. of Ireland (“Fountain”), which was created to carry on the business of investing exclusively in companies and businesses engaged in healthcare, pharmaceutical and life sciences sectors. The Company’s commitment represents approximately 10% of the partnership’s total funding, and the Company is accounting for its investment in Fountain under the equity method.  At September 30, 2014, the Company had made payments of, and its investment is equal to, $1.2 million (€0.9 million), which is included within “Other assets” in the accompanying Condensed Consolidated Balance Sheets.

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

4. FAIR VALUE MEASUREMENTS

 

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

 

		September 30,
(In thousands)		2014			Level 1			Level 2			Level 3
Assets:
Cash equivalents		$	1,201		$	1,201		$	—		$	—
U.S. government and agency debt securities		321,761			169,120			152,641			—
Corporate debt securities		209,712			—			209,712			—
International government agency debt securities		45,913			—			45,913			—
Total		$	578,587		$	170,321		$	408,266		$	—

 

		December 31,
		2013			Level 1			Level 2			Level 3
Assets:
Cash equivalents		$	1,201		$	1,201		$	—		$	—
U.S. government and agency debt securities		159,187			63,213			95,974			—
Corporate debt securities		58,809			—			58,809			—
International government agency debt securities		31,758			—			31,758			—
Equity securities		29,985			28,459			—			1,526
Total		$	280,940		$	92,873		$	186,541		$	1,526
Liabilities:
Interest rate swap contract		$	(275	)	$	—		$	(275	)	$	—
Total		$	(275	)	$	—		$	(275	)	$	—

 

The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fair value hierarchies at the end of each reporting period.

 

There were no transfers of any securities from Level 1 to Level 2 or from Level 2 to Level 1 during the nine months ended September 30, 2014. The following table is a rollforward of the fair value of the Company’s investments whose fair value was determined using Level 3 inputs at September 30, 2014:

 

(In thousands)		Fair Value
Balance, January 1, 2014		$	1,526
Total unrealized losses included in other comprehensive (loss) income		(383		)
Sale of equity securities		(1,143		)
Balance, September 30, 2014		$	—

 

As disclosed in Note 3, Investments, during the three months ended June 30, 2014, the Company sold its Level 3 investment, which consisted of warrants to purchase the common stock of Acceleron.

 

The Company’s investments in U.S. government and agency debt securities, international government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated the prices developed using the market-observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

The carrying amounts reflected in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature. The fair value of the remaining financial instruments not currently recognized at fair value on the Company’s Condensed Consolidated Balance Sheets consisted of the $300.0 million, seven-year term loan bearing interest at LIBOR plus 2.75% with a LIBOR floor of 0.75% (“Term Loan B-1”) and the $75.0 million, four-year term loan bearing interest at LIBOR plus 2.75%, with no LIBOR floor (“Term Loan B-2” and together with Term Loan B-1, the “Term Loan Facility”). The estimated fair value of these term loans, which was based on quoted market price indications (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future, was as follows at September 30, 2014:

 

		Carrying			Estimated
(In thousands)		Value			Fair Value
Term Loan B-1		$	292,130		$	289,346
Term Loan B-2		$	67,421		$	66,825

 

5. INVENTORY

 

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consisted of the following:

 

		September 30,			December 31,
(In thousands)		2014			2013
Raw materials		$	18,594		$	18,410
Work in process		24,106			15,581
Finished goods		7,771			12,227
Total inventory		$	50,471		$	46,218

 

6. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 

		September 30,			December 31,
(In thousands)		2014			2013
Land		$	8,163		$	8,440
Building and improvements		148,856			148,044
Furniture, fixture and equipment		231,426			220,984
Leasehold improvements		24,251			23,980
Construction in progress		32,462			26,688
Subtotal		445,158			428,136
Less: accumulated depreciation		(183,030		)	(153,646		)
Total property, plant and equipment, net		$	262,128		$	274,490

 

In April 2014, the Company sold certain of its land, buildings and equipment at its Athlone, Ireland facility that had a carrying value of $2.2 million, in exchange for $17.5 million. $3.0 million of the sale proceeds will remain in escrow pending the completion of certain additional services the Company is obligated to perform, and will be recognized as “Gain on sale of property, plant and equipment” as the services are provided.

 

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ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS — (Continued)

 

7. GOODWILL AND INTANGIBLE ASSETS

 

Goodwill and intangible assets consisted of the following:

 

				September 30, 2014
		Weighted		Gross			Accumulated			Net
(In thousands)		Amortizable Life		Carrying Amount			Amortization			Carrying Amount
Goodwill				$	92,740		$	—		$	92,740
Finite-lived intangible assets:
Collaboration agreements		12		$	499,700		$	(115,102	)	$	384,598
NanoCrystal technology		13		74,600			(12,001		)	62,599
OCR technology		12		66,300			(18,841		)	47,459
Total				$	640,600		$	(145,944	)	$	494,656

 

Based on the Company’s most recent analysis, amortization of intangible assets included within its Condensed Consolidated Balance Sheets at September 30, 2014 is expected to be approximately $60.0 million, $65.0 million, $70.0 million, $70.0 million and $70.0 million in the years ending December 31, 2014 through 2018, respectively. Although the Company believes such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying its expectations regarding such future revenues, there is the potential for the Company’s actual results to vary significantly from such expectations. If revenues are projected to change, the related amortization of the intangible assets will change in proportion to the change in revenues.

 

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

		September 30,			December 31,
(In thousands)		2014			2013
Accounts payable		$	27,233		$	19,493
Accrued compensation		25,121			28,101
Accrued restructuring		4,268			7,296
Accrued other		43,707			36,283
Total accounts payable and accrued expenses		$	100,329		$	91,173

 

9. RESTRUCTURING

 

On April 4, 2013, the Company approved a restructuring plan at its Athlone, Ireland manufacturing facility consistent with the evolution of the Company’s product portfolio and designed to improve operational performance for the future. The restructuring plan calls for the Company to terminate manufacturing services for certain older products that are expected to no longer be economically practicable to produce due to decreasing demand from its customers resulting from generic competition. The Company expects to continue to generate revenues from the manufacturing of these products through the year ending December 31, 2015.

 

As a result of the termination of these services, the Company also implemented a corresponding reduction in headcount of up to 130 employees. In connection with this restructuring plan, during the twelve months ended March 31, 2013, the Company recorded a restructuring charge of $12.3 million, which consisted of severance and outplacement services. The Company has paid in cash $8.6 million and recorded an adjustment of $0.1 million due to changes in foreign currency since inception of this restructuring plan.  Restructuring activity during the nine months ended September 30, 2014 was as follows:

 

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