AMICUS THERAPEUTICS, INC. - Quarter Report: 2015 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, 2015

 

OR

 

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

 

For the transition period from             to             

 

Commission file number 001-33497

 

Amicus Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

1 Cedar Brook Drive, Cranbury, NJ 08512

(Address of Principal Executive Offices and Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (609) 662-2000

 

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 definition of “large accelerated filer,” accelerated filer” and “smaller-reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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 shares outstanding of the registrant’s common stock, $.01 par value per share, as of October 29, 2015 was 124,899,439 shares.

 

 

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AMICUS THERAPEUTICS, INC.

 

Form 10-Q for the Quarterly Period Ended September 30, 2015

 

				Page
PART I.		FINANCIAL INFORMATION		4
	Item 1.		Financial Statements (unaudited)	4
			Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	4
			Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	5
			Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2015 and 2014	6
			Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	7
			Notes to Consolidated Financial Statements	8
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk	34
	Item 4.		Controls and Procedures	34
PART II.		OTHER INFORMATION		35
	Item 1.		Legal Proceedings	35
	Item 1A.		Risk Factors	35
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3.		Defaults Upon Senior Securities	36
	Item 4.		Mine Safety Disclosures	36
	Item 5.		Other Information	36
	Item 6.		Exhibits	37
SIGNATURES				38
INDEX TO EXHIBITS

 

We have registered or filed applications to register certain trademarks in the United States and abroad, including AMICUS™, AMICUS THERAPEUTICS™ (and design), GALAFOLD™, CHART™ (and design) and ZORBLISA™.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “potential,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward- looking statements contain these identifying words.

 

The forward-looking statements in this quarterly report on Form 10-Q include, among other things, statements about:

 

·                                     the progress and results of our clinical trials of our drug candidates, including our pharmacological chaperone migalastat HCl (“Galafold™”);

·                                     the cost of manufacturing drug supply for our clinical and preclinical studies, including the significant cost of new Fabry enzyme replacement therapy (“ERT”) cell line development and manufacturing as well as the cost of manufacturing Pompe ERT;

·                                     the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our product candidates including those testing the use of pharmacological chaperones co-formulated and co-administered with ERT and for the treatment of lysosomal storage disorders (“LSDs”);

·                                     the future results of on-going or later clinical trials for SD-101 (“Zorblisa”), including our ability to obtain regulatory approvals and commercialize Zorblisa and market acceptance of Zorblisa;

·                                     the costs, timing and outcome of regulatory review of our product candidates;

·                                     the number and development requirements of other product candidates that we pursue;

·                                     the costs of commercialization activities, including product marketing, sales and distribution;

·                                     the emergence of competing technologies and other adverse market developments;

·                                     our ability to obtain reimbursement for Galafold;

·                                     our ability to commercialize Galafold in the European Union;

·                                     the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

·                                     the extent to which we acquire or invest in businesses, products and technologies;

·                                     our ability to successfully integrate our recent acquisition of Scioderm, Inc. and its products and technology into our business, including the possibility that the expected benefits of the transaction will not be fully realized by us or may take longer to realize than expected; and

·                                     our ability to establish collaborations and obtain milestone, royalty or other payments from any such collaborators.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in Part I Item 1A — Risk Factors of the Annual Report on Form 10-K for the year ended December 31, 2014 and on Form 10-Q for the period ended June 30, 2015, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make.  Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make.

 

You should read this quarterly report on Form 10-Q in conjunction with the documents that we reference herein. We do not assume any obligation to update any forward-looking statements.

 

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PART I.                               FINANCIAL INFORMATION

 

Item 1.                                      Financial Statements (unaudited)

 

Amicus Therapeutics, Inc.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

		September 30, 2015			December 31, 2014
Assets:
Current assets:
Cash and cash equivalents		$	19,439		$	24,074
Investments in marketable securities		217,070			127,601
Prepaid expenses and other current assets		3,544			2,902
Total current assets		240,053			154,577
Investments in marketable securities		15,428			17,464
Property and equipment, less accumulated depreciation of $12,776 and $11,520 at September 30, 2015 and December 31, 2014, respectively		3,855			2,811
In-process research & development		518,810			23,000
Goodwill		207,564			11,613
Other non-current assets		982			502
Total Assets		$	986,692		$	209,967
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	30,565		$	16,345
Current portion of contingent consideration payable		5,300			—
Current portion of secured loan		—			3,840
Total current liabilities		35,865			20,185
Deferred reimbursements		36,620			36,620
Secured loan, less current portion		—			10,510
Due to related party		50,000			—
Contingent consideration payable, less current portion		277,684			10,700
Deferred tax liability		207,213			9,186
Other non-current liabilities		555			588
Commitments and contingencies
Stockholders’ equity:
Common stock, $.01 par value, 250,000,000 shares authorized, 124,617,490 shares issued and outstanding at September 30, 2015, 95,556,277 shares issued and outstanding at December 31, 2014		1,304			1,015
Additional paid-in capital		914,263			568,743
Accumulated other comprehensive loss		(142		)	(132		)
Accumulated deficit		(536,670		)	(447,448		)
Total stockholders’ equity		378,755			122,178
Total Liabilities and Stockholders’ Equity		$	986,692		$	209,967

 

See accompanying notes to consolidated financial statements

 

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Amicus Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2015			2014			2015			2014
Revenue:
Research revenue		—			$	293		—			$	1,224
Total revenue		—			293			—			1,224
Operating Expenses:
Research and development		$	20,971		$	12,049		$	54,318		$	32,019
General and administrative		15,372			5,270			30,077			15,199
Changes in fair value of contingent consideration payable		1,300			(600		)	2,400			(400		)
Restructuring charges		7			15			44			(74		)
Loss on extinguishment of debt		—			—			952			—
Depreciation		395			375			1,256			1,183
Total operating expenses		38,045			17,109			89,047			47,927
Loss from operations		(38,045		)	(16,816		)	(89,047		)	(46,703		)
Other income (expenses):
Interest income		316			55			645			133
Interest expense		(17		)	(377		)	(727		)	(1,106		)
Other expense		(54		)	(11		)	(93		)	(30		)
Net loss		$	(37,800	)	$	(17,149	)	$	(89,222	)	$	(47,706	)
Net loss per common shares — basic and diluted		$	(0.32	)	$	(0.22	)	$	(0.85	)	$	(0. 68	)
Weighted-average common shares outstanding — basic and diluted		118,724,882			78,889,346			104,885,956			70,216,251

 

See accompanying notes to consolidated financial statements

 

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Amicus Therapeutics, Inc.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2015			2014			2015			2014
Net loss		$	(37,800	)	$	(17,149	)	$	(89,222	)	$	(47,706	)
Other comprehensive income/(loss):
Unrealized (loss)/gain on available-for-sale securities		(91		)	4			(10		)	1
Other comprehensive (loss)/gain before income taxes		(91		)	4			(10		)	1
Provision for income taxes related to other comprehensive (loss)/income items (a)		—			—			—			—
Other comprehensive (loss)/income		$	(91	)	$	4		$	(10	)	$	1
Comprehensive loss		$	(37,891	)	$	(17,145	)	$	(89,232	)	$	(47,705	)

 

(a) — Taxes have not been accrued on unrealized gain on securities as the Company is in a loss position for all periods presented.

 

See accompanying notes to consolidated financial statements

 

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Amicus Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

		Nine Months
		Ended September 30
		2015			2014
Operating activities
Net loss		$	(89,222	)	$	(47,706	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense		136			176
Depreciation		1,256			1,183
Stock-based compensation		6,929			4,398
Restructuring charges		44			(74		)
Loss on extinguishment of debt		952			—
Non-cash changes in the fair value of contingent consideration payable		2,400			(400		)
Changes in operating assets and liabilities:
Receivable due from collaboration agreements		—			790
Prepaid expenses and other current assets		(668		)	3,433
Other non-current assets		(540		)	26
Accounts payable and accrued expenses		14,118			1,213
Non-current liabilities		(33		)	(200		)
Net cash used in operating activities		(64,628		)	(37,161		)
Investing activities
Sale and redemption of marketable securities		133,418			47,959
Purchases of marketable securities		(220,861		)	(75,109		)
Purchases of property and equipment		(2,246		)	(192		)
Acquisitions, net cash of acquired		(141,060		)	—
Net cash (used in) investing activities		(230,749		)	(27,342		)
Financing activities
Proceeds from issuance of common stock, net of issuance costs		243,042			38,736
Payments of secured loan agreement		(15,291		)	(299		)
Proceeds from related party		50,000			—
Purchase of vested restricted stock units		(1,682		)	—
Proceeds from exercise of stock options		10,673			2,097
Proceeds from exercise of warrants		4,000			—
Net cash provided by financing activities		290,742			40,534
Net decrease in cash and cash equivalents		(4,635		)	(23,969		)
Cash and cash equivalents at beginning of period		24,074			43,640
Cash and cash equivalents at end of period		$	19,439		$	19,671
Supplemental disclosures of cash flow information
Cash paid during the period for interest		$	605		$	864

 

See accompanying notes to consolidated financial statements

 

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Amicus Therapeutics, Inc.

 

Notes to Consolidated Financial Statements

 

Note 1. Description of Business

 

Corporate Information, Status of Operations, and Management Plans

 

Amicus Therapeutics, Inc. (the “Company,” “we,” “us,” or “our”) was incorporated on February 4, 2002 in Delaware and is a biopharmaceutical company focused on the discovery, development and commercialization of advanced therapies to treat a range of devastating rare and orphan diseases. Our lead product candidate is a small molecule, that can be used as a monotherapy and in combination with enzyme replacement therapy (“ERT”) for Fabry disease.  SD-101 (“Zorblisa”), a product candidate in late-stage development, is a potential first-to-market therapy for the chronic, rare connective tissue disorder Epidermolysis Bullosa (“EB”).  The Company is also leveraging its biologics and Chaperon-Advanced Replacement Therapy (“CHART”) platform technologies to develop next-generation ERT products for Fabry, Pompe and other lysosomal storage disorders (“LSDs”).  Our activities since inception have consisted principally of raising capital, establishing facilities, and performing research and development.

 

Our Fabry franchise strategy is to develop migalastat HCl for all patients with Fabry disease - as a monotherapy for patients with amenable mutations and in combination with ERT for all other patients. The Company has submitted a marketing application for migalastat monotherapy (“Galafold”) in the European Union, and plans to continue working with the U.S. Food and Drug Administration (“FDA”) to determine the optimal U.S. registration pathway.

 

In September 2015, Amicus acquired Scioderm, Inc., (“Scioderm”), which strengthens the Company’s pipeline significantly with the addition of a novel, late-stage, proprietary topical cream and potential first-to-market therapy for EB. This investigational product was granted FDA breakthrough therapy designation in 2013 based on results from Phase 2 studies for the treatment of lesions in patients suffering with EB. Zorblisa is currently being investigated in a Phase 3 study (SD-005) to support global regulatory submissions and was the first-ever treatment in EB clinical studies to show improvements in wound closure across all major EB subtypes.

 

The Company acquired Scioderm in a cash and stock transaction. At closing, the Company paid Scioderm shareholders, option holders and warrant holders approximately $223.9 million, of which approximately $141.1 million was paid in cash and approximately $82.8 million was paid through the issuance of 5.9 million newly issued Amicus shares. The Company has agreed to pay up to an additional $361 million to Scioderm shareholders, option holders and warrant holders upon achievement of certain clinical and regulatory milestones and $257 million to Scioderm shareholders, option holders and warrant holders upon achievement of certain sales milestones. If Zorblisa is approved, EB qualifies as a rare pediatric disease and Amicus will request a Priority Review Voucher. If the Priority Review Voucher is obtained and subsequently sold, the Company will pay Scioderm shareholders, option holders and warrant holders the lesser of $100 million in the aggregate or 50% of the proceeds of such sale.

 

For more details, refer to “— Note 4. Acquisitions”

 

In September 2015, a Pre-New Drug Application (“NDA”) meeting was held with the FDA to discuss the oral small molecule pharmacological chaperone migalastat HCl for the treatment of Fabry disease. Based on FDA feedback and subsequent follow-up interactions with the agency, the Company is further evaluating several U.S. pathways including a potential submission requesting Subpart H approval, or potentially generating additional data on migalastat HCl’s effect on gastrointestinal symptoms in Fabry disease to support submission requesting full approval. Based on this updated guidance, the Company expects to provide an update on the U.S. regulatory plans in the first half of 2016.

 

In June 2015, the European Medicines Agency (“EMA”) validated the Company’s Marketing Authorization Application (“MAA”) submission for Galafold and the Centralized Procedure has begun under Accelerated Assessment. The Committee for Medicinal Products for Human Use (“CHMP”) may shorten the MAA review period from 210 days, under standard review, to 150 days under Accelerated Assessment. The CHMP opinion is then reviewed by the European Commission, which generally issues a final decision on European Union (“EU”) approval within three months. The MAA submission will be reviewed in the Centralized Procedure, which if authorized, provides a marketing license valid in all 28 EU member states. Once authorized, the Company would then begin the country-by-country reimbursement approval process. Following the MAA validation, the Company is also initiating the regulatory submission process in several additional geographies.

 

In October 2015, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with Redmile Capital Fund, LP and certain of its affiliates, whereby it sold, on a private placement basis, (a) $50.0 million aggregate

 

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principal amount of its unsecured promissory notes (“Notes”) and (b) five-year warrants (“Warrants”) for 1,349,998 shares of Common Stock.

 

For more details, refer to “—Note 14. Subsequent Events”

 

In June 2015, the Company issued a total of 19.5 million shares through a public offering at a price of $13.25 per share, with net proceeds of $243.0 million. The Company expects to use the net proceeds of the offering for investment in the global commercialization infrastructure for Galafold for Fabry disease, the continued clinical development of its product candidates and for other general corporate purposes.

 

The Company had an accumulated deficit of approximately $536.7 million at September 30, 2015 and anticipates incurring losses through the fiscal year ending December 31, 2015 and beyond. The Company has not yet generated commercial sales revenue and has been able to fund its operating losses to date through the sale of its redeemable convertible preferred stock, issuance of convertible notes, net proceeds from its initial public offering and subsequent stock offerings, collaboration payments from partners and other financing arrangements. The Company believes that its existing cash and cash equivalents and short-term investments will be sufficient to fund the current operating plan into 2017.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulations S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.  In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

 

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  For a complete description of the Company’s accounting policies, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Concentration of Credit Risk

 

The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains its cash and cash equivalents in bank accounts, which, at times, exceed federally insured limits. The Company invests its marketable securities in high-quality commercial financial instruments. The Company has not recognized any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on cash and cash equivalents or its marketable securities.

 

Significant Accounting Policies

 

There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2015, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. However, the following accounting policies are the most critical in fully understanding and evaluating the Company’s financial condition and results of operations.

 

Revenue Recognition

 

The Company recognizes revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.

 

In multiple element arrangements, revenue is allocated to each separate unit of accounting and each deliverable in an arrangement is evaluated to determine whether it represents separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there is no general right of return for the delivered elements. In instances when the aforementioned criteria are not met, the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition is determined for the combined unit as a single unit of accounting. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. In instances where there is determined to be a single unit of accounting, the total consideration is applied as revenue for the single unit of accounting and is recognized over the period of inception through the date where the last deliverable within the single unit of accounting is expected to be delivered.

 

The Company’s current revenue recognition policies provide that, when a collaboration arrangement contains multiple deliverables, such as license and research and development services, the Company allocates revenue to each separate unit of accounting based on a selling price hierarchy. The selling price hierarchy for a deliverable is based on (i) its vendor specific

 

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objective evidence (“VSOE”) if available, (ii) third party evidence (“TPE”) if VSOE is not available, or (iii) best estimated selling price (“BESP”) if neither VSOE nor TPE is available. The Company would establish the VSOE of selling price using the price charged for a deliverable when sold separately. The TPE of selling price would be established by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. The BESP would be established considering internal factors such as an internal pricing analysis or an income approach using a discounted cash flow model.

 

The Company also considers the impact of potential future payments it makes in its role as a vendor to its customers and evaluates if these potential future payments could be a reduction of revenue from that customer. If the potential future payments to the customer are:

 

·                  a payment for an identifiable benefit; and

·                  the identifiable benefit is separable from the existing relationship between the Company and its customer; and

·                  the identifiable benefit can be obtained from a party other than the customer; and

·                  the Company can reasonably estimate the fair value of the identifiable benefit

 

then the payments are accounted for separate from the revenue received from that customer. If, however, all these criteria are not satisfied, then the payments are treated as a reduction of revenue from that customer.

 

If the Company determines that any potential future payments to its customers are to be considered as a reduction of revenue, it must evaluate if the total amount of revenue to be received under the arrangement is fixed and determinable. If the total amount of revenue is not fixed and determinable due to the uncertain nature of the potential future payments to the customer, then any customer payments cannot be recognized as revenue until the total arrangement consideration becomes fixed and determinable.

 

The reimbursements for research and development costs under collaboration agreements that meet the criteria for revenue recognition are included in Research Revenue and the costs associated with these reimbursable amounts are included in research and development expenses.

 

In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (“FASB”) guidance on the milestone method of revenue recognition at the inception of a collaboration agreement. The criteria requires that (i) the Company determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from the Company’s activities to achieve the milestone, (ii) the milestone be related to past performance, and (iii) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved.

 

Fair Value Measurements

 

The Company records certain asset and liability balances under the fair value measurements as defined by the FASB guidance. Current FASB fair value guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, current FASB guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions that market participants assumptions would use in pricing assets or liabilities (unobservable inputs classified within Level 3 of the hierarchy).

 

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

 

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Contingent Liabilities

 

On an ongoing basis, the Company may be involved in various claims, and legal proceedings. On a quarterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, the Company will accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals will be based on our best estimates based on available information. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation or settlement of claims, the Company may reassess the potential liability related to these matters and may revise these estimates, which could result in a material adverse adjustments to the Company’s operating results.

 

Recent Accounting Pronouncements

 

In September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued. We have early adopted this standard as of September 30, 2015 and this standard had no impact on our consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted.  We are currently assessing the impact that this standard will have on our consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 are intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated in June 2015 that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 Imputation of Interest adds the SEC paragraph to the Topic. We are currently assessing the impact that this standard will have on our consolidated financial statements.

 

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in ASU 2014-17 provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The ASU is effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

 

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In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.

 

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers, 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 ASU 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 ASU 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. In July 2015, the Financial Accounting Standards Board voted to delay the effective date of this standard until the first quarter of 2018. Companies are permitted to early adopt the standard in the first quarter of 2017. Presently, we are assessing the effect the adoption of ASU 2014-09 will have on our consolidated financial statements.

 

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Note 3.  Cash, Money Market Funds and Marketable Securities

 

As of September 30, 2015, the Company held $19.4 million in cash and cash equivalents and $232.5 million of available-for-sale securities which are reported at fair value on the Company’s balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive income/(loss) in the statements of comprehensive loss. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. To date, only temporary impairment adjustments have been recorded.

 

Consistent with the Company’s investment policy, the Company does not use derivative financial instruments in its investment portfolio. The Company regularly invests excess operating cash in deposits with major financial institutions, money market funds, notes issued by the U.S. government, as well as fixed income investments and U.S. bond funds both of which can be readily purchased and sold using established markets. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated as many of these securities are either government backed or of the highest credit rating. Investments that have original maturities or greater than 3 months but less than 1 year are classified as short-term and investments with maturities that are greater than 1 year are classified as long-term.

 

Cash and available-for-sale securities are all current unless mentioned otherwise and consisted of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

		As of September 30, 2015
		Cost			Unrealized Gain			Unrealized Loss			Fair Value
Cash balances		$	19,439		$	—		$	—		$	19,439
Corporate debt securities		127,841			19			(210		)	127,650
Commercial paper		104,450			48			—			104,498
Certificate of deposit		350			—			—			350
		$	252,080		$	67		$	(210	)	$	251,937
Included in cash and cash equivalents		$	19,439		$	—		$	—		$	19,439
Included in marketable securities		232,641			67			(210		)	232,498
Total cash and marketable securities		$	252,080		$	67		$	(210	)	$	251,937

 

		As of December 31, 2014
		Cost			Unrealized Gain			Unrealized Loss			Fair Value
Cash balances		$	24,074		$	—		$	—		$	24,074
Corporate debt securities, current portion		115,862			—			(110		)	115,752
Corporate debt securities, non-current portion		17,508			—			(44		)	17,464
Commercial paper		11,477			22			—			11,499
Certificate of deposit		350			—			—			350
		$	169,271		$	22		$	(154	)	$	169,139
Included in cash and cash equivalents		$	24,074		$	—		$	—		$	24,074
Included in marketable securities		145,197			22			(154		)	145,065
Total cash and marketable securities		$	169,271		$	22		$	(154	)	$	169,139

 

Unrealized gains and losses are reported as a component of other comprehensive income/ (loss) in the statements of comprehensive loss.  For the nine months ended September 30, 2015, unrealized holding loss of $10 thousand and for the year ended December 31, 2014, unrealized holding loss of $132 thousand, were included in the statement of comprehensive loss.

 

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For the nine months ended September 30, 2015 and the year ended December 31, 2014, there were no realized gains or losses.  The cost of securities sold is based on the specific identification method.

 

Unrealized loss positions in the available for sale securities as of September 30, 2015 and December 31, 2014 reflect temporary impairments that have not been recognized and have been in a loss position for less than twelve months.  The fair value of these available for sale securities in unrealized loss positions was $103.3 million and $129.2 million as of September 30, 2015 and December 31, 2014, respectively.

 

The Company holds available-for-sale investment securities which are reported at fair value on the Company’s balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive income (“AOCI”) in the statements of comprehensive loss.  The changes in AOCI associated with the unrealized holding gain on available-for-sale investments during the three and nine months, ended September 30, 2015 and 2014, were as follows (in thousands):

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2015			2014			2015			2014
Balance, beginning		$	(51	)	$	(2	)	$	(132	)	$	1
Current period changes in fair value, (a)		(91		)	4			(10		)	1
Reclassification of earnings, (a)		—			—			—			—
Balance, ending		$	(142	)	$	2		$	(142	)	$	2

 

(a) — Taxes have not been accrued on the unrealized gain on securities as the Company is in a loss position for all periods presented.

 

Note 4.   Acquisitions

 

Acquisition of Scioderm, Inc.

 

On September 30, 2015, Amicus acquired Scioderm, a privately-held biopharmaceutical company focused on developing innovative therapies for treating the rare disease Epidermolysis Bullosa (“EB”). The acquisition leverages the Scioderm development team’s EB expertise with Amicus’ global clinical infrastructure to advance Zorblisa toward regulatory approvals and Amicus’ commercial, patient advocacy and medical affairs infrastructure to support a successful global launch. The acquisition of Scioderm was accounted for as a purchase of a business in accordance with FASB Accounting Standard Codification 805 Business Combinations.

 

As a result, Scioderm became a wholly owned subsidiary of Amicus. At the effective date of the acquisition, Amicus paid holders of Scioderm’s (i) capital stock, (ii) options to purchase Scioderm’s common stock, (iii) restricted stock units and (iv) warrants to purchase Scioderm’s common stock (collectively, the “Effective Time Holders”), an amount equal to (i) $220 million, plus (ii) the exercise price of all outstanding options and warrants to purchase Scioderm’s common stock, plus (iii) Scioderm’s cash and cash equivalents (with an adjustment to account for closing working capital and Scioderm’s fees and expenses, which include employee bonuses and certain severance payments) (collectively, the “Initial Amount”). $135.6 million of the Initial Amount was paid in cash and the remaining $79.6 million was paid in shares of Common Stock. On September 30, 2015, Amicus also completed its previously announced agreement with all of the holders of Scioderm ‘s Series B Preferred Stock, par value $0.001 per share (the “Series B Additional Purchase Price Agreement”), pursuant to which Amicus made payments of $5.5 million in cash and the remaining $3.2 million was paid in shares of Common Stock directly to the holders of Scioderm Series B Preferred Stock. Payments under the Series B Additional Purchase Price Agreement were made pro rata based on the number of shares of Scioderm Series B Preferred Stock held.

 

The preliminary assessment of the fair value of the contingent acquisition consideration payments on the acquisition date was $269.9 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions included a range of rates between 0.4% and 1.2% as interpolated from the U.S. Treasury constant maturity yield curve over the time frame of anticipated milestones.  See “— Note 8. Assets and Liabilities Measured at Fair Value”, for additional discussion regarding fair value measurements of the contingent acquisition consideration payable.

 

For additional information, see “— Note 5. Goodwill and Intangible Assets.”

 

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The allocation of the purchase price accounting is preliminary as the Company has not yet completed its analysis of estimating the fair value of the assets and liabilities acquired. The following table presents the preliminary allocation of the purchase consideration, including the contingent acquisition consideration payable, based on fair value:

 

		(in thousands)
Upfront cash payments		$	141,060
Upfront equity payments		82,845
Contingent acquisition consideration payable		269,884
Total consideration		493,789
Property, plant and equipment, net		55
Intangible assets—In-process Research and Development (“IPR&D”)		495,810
Total identifiable assets acquired		495,865
Deferred tax liability		(198,027		)
Total liabilities assumed		(198,027		)
Net identifiable assets acquired		297,838
Goodwill		195,951
Net assets acquired		$	493,789

 

A substantial portion of the assets acquired consisted of intangible assets related to Zorblisa. The Company determined that the estimated acquisition-date fair values of the indefinite lived IPR&D related to the Zorblisa was $495.8 million. The Company is still in the process of valuing the assets acquired and liabilities assumed; therefore the allocation of the acquisition consideration is subject to change.

 

The $198.0 million of deferred tax liabilities relates to the tax impact of future amortization or possible impairments associated with the identified intangible assets acquired, which are not deductible for tax purposes. The goodwill results from the recognition of the deferred tax liability on the intangible assets as well as synergies expected from the acquisition and other benefits that do not qualify for separate recognition as acquired intangible assets. None of the goodwill is expected to be deductible for income tax purposes. The Company recorded the goodwill in the consolidated balance sheet as of the acquisition date.

 

The Company recognized $2.8 million of acquisition-related transaction costs in selling, general and administrative expenses during 2015, which consisted primarily of consulting and legal fees related to the acquisition.

 

The following unaudited consolidated pro forma financial information presents the combined results of operations of the Company and Scioderm as if the acquisition had occurred as of January 1, 2015. The unaudited pro forma consolidated financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition been completed as of January 1, 2015. In addition, the unaudited pro forma consolidated financial information does not attempt to project the future results of operations of the Company combined with Scioderm.

 

There were no revenues reported for Scioderm during the three and nine months ended September 30, 2015.  There were no nonrecurring adjustments in the Pro Forma Scioderm results for the three and nine months ended September 30, 2015.

 

		Nine months ended September 30,
Unaudited Pro Forma Consolidated Information:		2015			2014
( in thousands)
Revenue		$	—		$	1,224
Net loss		$	(99,300	)	$	(54,167	)

 

Acquisition of Callidus Biopharma, Inc.

 

In November 2013, the Company acquired Callidus a privately-held biologics company focused on developing best-in-class ERTs for LSDs with its lead ERT ATB200 for Pompe disease in late preclinical development. The acquisition of the Callidus assets and technology complements Amicus’ CHART platform for the development of next generation ERTs.

 

In consideration for the merger, the Company agreed to issue an aggregate of 7.2 million shares of its common stock, par value $0.01 per share, to the former stockholders of Callidus.  In addition, the Company will be obligated to make additional payments to the former stockholders of Callidus upon the achievement by the Company of certain clinical milestones of up to $35 million and regulatory approval milestones of up to $105 million as set forth in the Merger Agreement, provided that the aggregate consideration shall not exceed $130 million.  The Company may, at its election, satisfy certain milestone payments identified in the Merger Agreement aggregating $40 million in shares of its Common Stock (calculated based on a price per share equal to the average of the last closing bid price per share for the Common Stock on The NASDAQ Global Select Market for the ten (10) trading days

 

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immediately preceding the date of payment).  The milestone payments not permitted to be satisfied in Common Stock (as well as any payments that the Company is permitted to, but chooses not to, satisfy in Common Stock), as a result of the terms of the Merger Agreement, the rules of The NASDAQ Global Select Market, or otherwise, will be paid in cash.

 

The fair value of the contingent acquisition consideration payments on the acquisition date was $10.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions included a discount rate of 11.5% and various probability factors.  As of September 30, 2015, the range of outcomes and assumptions used to develop these estimates has changed to better reflect the probability of certain milestone outcomes.  (see “— Note 8. Assets and Liabilities Measured at Fair Value”, for additional discussion regarding fair value measurements of the contingent acquisition consideration payable).  The Company determined the fair value of the contingent consideration to be $13.1 million at September 30, 2015, of which $5.3 million is payable in the next twelve months, resulting in an increase in the contingent consideration payable and related expense of $1.3 million and $2.4 million for three and  nine months ended September 30, 2015, respectively. The expense is recorded as part of operating expense in the Consolidated Statement of Operations. For further information, see “— Note 5. Goodwill & — Note 6. Intangible Assets.”

 

Note 5.   Goodwill and Intangible Assets

 

In connection with the acquisitions discussed in “—Note 4. Acquisitions, the Company has recognized goodwill of $207.6 million.  The following table represents the changes in goodwill for the nine months ended September 30, 2015:

 

		(in millions)
Balance at December 31, 2014		$	11.6
Goodwill related to the acquisition of Scioderm (See Note 4)		196.0
Balance at September 30, 2015		$	207.6

 

In connection with the acquisitions discussed in “—Note 4. Acquisitions,” the Company recognized IPR&D of $518.8 million.  Intangible assets related to IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D assets below their respective carrying amounts.  The following table represents the changes in IPR&D for the nine months ended September 30, 2015 (in thousands):

 

		(in millions)
Balance at December 31, 2014		$	23.0
IPR&D related to the acquisition of Scioderm (See Note 4)		495.8
Balance at September 30, 2015		$	518.8

 

During the 2014 impairment assessment, it was determined that the goodwill and intangible assets had not been impaired and there were no changes to these balances in 2014. Goodwill and intangible assets are assessed annually for impairment on October 1 and whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that the full carrying amount of an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset exceeds its fair value. For the nine months ended September 30, 2015, there were no indicators of impairment.

 

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Note 6.   Related Party Transaction

 

During September 2015, the Company was in the process of negotiating a finance arrangement with Redmile Capital Fund, LP and certain of its affiliates (collectively, “Redmile”). The Company received the proceeds related to the arrangement of $50.0 million cash on September 28, 2015 and has recorded this liability on the balance sheet as “Due to related party” as of September 30, 2015. As discussed in “—Note 14. Subsequent Events” the Company completed the transaction on October 1, 2015. As of September 30, 2015, Redmile beneficially owned approximately 5% of the Company’s outstanding shares of common stock.

 

Note 7.   Stockholders’ Equity

 

Common Stock and Warrants

 

As of September 30, 2015, the Company was authorized to issue 250 million shares of common stock. Dividends on common stock will be paid when, and if, declared by the board of directors. Each holder of common stock is entitled to vote on all matters that are appropriate for stockholder voting and is entitled to one vote for each share held.

 

In September 2015, the Company acquired Scioderm through a cash and stock transaction. As part of the acquisition, the Company paid holders of Scioderm an amount equal to $223.9 million, of which approximately $141.1 million was paid in cash and approximately $82.8 million was paid through the issuance of 5.9 million newly issued shares. The Company agreed to pay up to an additional $361 million upon achievement of certain clinical and regulatory milestones, and $257 million to Scioderm shareholders, option holders and warrant holders upon achievement of certain sales milestones.

 

In June 2015, the Company issued a total of 19.5 million shares through a public offering at a price of $13.25 per share, with net proceeds of $243.0 million. The Company expects to use the net proceeds of the offering for investment in the global commercialization infrastructure for Galafold for Fabry disease, the continued clinical development of its product candidates and for other general corporate purposes.

 

In November 2014, we sold a total of 15.9 million shares of our common stock, par value $0.01 per share, at a public offering price of $6.50 per share. The aggregate offering proceeds were approximately $97.2 million.

 

In July 2014, the Company completed a $40 million at the market (“ATM”) equity offering under which the Company sold shares of its common stock, par value $0.01 per shares with Cowen and Company LLC as sales agent.  Under the ATM equity program the Company sold 14.3 million shares of common stock resulting in net proceeds of $38.6 million.

 

Nonqualified Cash Plan

 

In July 2014, the Board of Directors approved the Company’s Deferral Plan, (the “Deferral Plan”) which provides certain key employees and members of the Board of Directors as selected by the Compensation Committee, with an opportunity to defer the receipt of such participant’s base salary, bonus and director’s fees, as applicable. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code of 1986 as amended.

 

Deferred compensation amounts under the Deferral Plan as of September 30, 2015 were approximately $0.5 million, as compared to $0.1 million on December 31, 2014 and are included in other long-term liabilities. As of December 31, 2014, the amounts deferred under the Deferral Plan had not been invested and the investments were subsequently made in the nine months ended September 30, 2015.  Deferral Plan assets as of September 30, 2015 were $0.5 million and are classified as trading securities. The Deferred Plan assets are recorded at fair value with changes in the investments’ fair value recognized in the period they occur. During the three and nine months ended September 30, 2015, income from the investments was $1 thousand and $8 thousand respectively and unrealized loss was $54 thousand and $64 thousand respectively.

 

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Equity Incentive Plan

 

Stock Option Grants

 

The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

		Three Months ended September 30,						Nine Months ended September 30,
		2015			2014			2015			2014
Expected stock price volatility		74.4		%	81.0		%	75.4		%	81.3		%
Risk free interest rate		1.7		%	1.9		%	1.7		%	1.9		%
Expected life of options (years)		6.25			6.25			6.25			6.25
Expected annual dividend per share		$	0.00		$	0.00		$	0.00		$	0.00

 

A summary of the Company’s stock options for the nine months ended September 30, 2015 is as follows:

 

		Number of Shares ( in thousands)		Weighted Average Exercise Price			Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ( in millions)
Balance at December 31, 2014		10,020.7		$	5.02
Options granted		3,609.2		$	11.75
Options exercised		(1,954.3	)	$	5.49
Options forfeited		(101.4	)	$	5.71
Balance at September 30, 2015		11,574.2		$	7.03		7.5 years		$	81.9
Vested and unvested expected to vest September 30, 2015		10,660.2		$	6.86		7.4 years		$	77.1
Exercisable at September 30, 2015		5,302.8		$	5.78		5.9 years		$	43.6

 

As of September 30, 2015, the total unrecognized compensation cost related to non-vested stock options granted was $24.7 million and is expected to be recognized over a weighted average period of 3.2 years.

 

Restricted Stock Units

 

A summary of non-vested Restricted Stock Units (“RSU”) activity under the Plan for the nine months ended September 30, 2015 is as follows:

 

		Number of Shares ( in thousands)		Weighted Average Grant Date Fair Value			Weighted Average Remaining Years		Aggregate Intrinsic Value ( in millions)
Non-vested units as of December 31, 2014		955		$	2.28
Granted		210		$	12.94
Vested		(417	)	$	10.90
Forfeited		—		$	—
Non-vested units as of September 30, 2015		748		$	5.26		1.0		$	6.3
Non-vested units expected to vest at September 30, 2015		748		$	5.26		1.0		$	6.3

 

For the nine months ended September 30, 2015, 0.4 million of the RSUs vested and all non-vested units are expected to vest over their normal term. The total fair value of RSUs that vested and were released in the nine months ended September 30, 2015 was $4.6 million.

 

As of September 30, 2015, there was $2.7 million of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of 1.0 year.

 

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Compensation Expense Related to Equity Awards

 

The following table summarizes information related to compensation expense recognized in the statements of operations related to the equity awards (in thousands):

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2015			2014			2015			2014
Equity compensation expense recognized in:
Research and development expense		$	1,232		$	698		$	3,224		$	1,950
General and administrative expense		1,505			953			3,705			2,448
Total equity compensation expense		$	2,737		$	1,651		$	6,929		$	4,398

 

Note 8.  Assets and Liabilities Measured at Fair Value

 

The Company’s financial assets and liabilities are measured at fair value and classified within the fair value hierarchy which is defined as follows:

 

Level 1 — 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 other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

 

Level 3 — Inputs that are unobservable for the asset or liability.

 

Cash, Money Market Funds and Marketable Securities

 

The Company classifies its cash and money market funds within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in active market for identical assets at the measurement date.  The Company considers its investments in marketable securities as available-for-sale and classifies these assets within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the three months ended September 30, 2015.  No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three and nine months ended September 30, 2015.

 

Success Fee Payable

 

In connection with the Term Loan, as disclosed in “—Note 9. Short Term Borrowings and Long Term Debt”, the Company recorded a contingent liability of $0.4 million related to a success fee payable within six months of trigger event, with the trigger event being regulatory acceptance of NDA or MAA submission. The success fee payable to the lender was probability adjusted and discounted utilizing an appropriate discount rate and hence classified as Level 3. In June 2015, EMA validated the submission of the Company’s MAA and the success fee became payable. The Company paid the success fee in connection with the re-payment of the debt in June 2015.

 

Contingent Consideration Payable

 

The contingent consideration payable resulted from acquisition of Scioderm and Callidus, as discussed in “—Note 4. Acquisitions.” Our most recent valuation was determined using a probability weighted discounted cash flow valuation approach. Using this approach, expected future cash flows are calculated over the expected life of the agreement, are discounted, and then exercise scenario probabilities are applied.

 

Significant assumptions used in the Scioderm preliminary valuation include (i) SD-101 clinical forecasts (ii) the probability and timing related to the achievement of certain developmental milestones and (iii) the discount rate which is a measure of the credit risk associated with settling the liability.  The discount rate used was a range of rates between 0.4 and 1.2% as interpolated from the U.S. Treasury constant maturity yield curve over the time frame of anticipated milestone payments.  The probability of achievement of clinical milestones is at 70% with milestone payments ranging from $0 to $269.9 million.  The valuation will be performed quarterly. Gains and losses are included in the statement of operations.  There is no assurance that any of the conditions for the milestone payments will be met.

 

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Significant assumptions used in the Callidus valuation include (i) ATB200 clinical forecasts (ii) the probability and timing related to the achievement of certain developmental milestones and (iii) the discount rate of 11.5% which is a measure of the credit risk associated with settling the liability.  The probability of achievement of clinical milestones ranged from 24% to 95% with milestone payment outcomes ranging from $0 to $81 million.  The valuation is performed quarterly. Gains and losses are included in the statement of operations.  There is no assurance that any of the conditions for the milestone payments will be met.

 

The contingent consideration payable has been classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market.  If different assumptions were used for the various inputs to the valuation approach the estimated fair value could be significantly higher or lower than the fair value the Company determined.  The Company may be required to record losses in future periods.

 

The following table shows the change in the balance of contingent consideration payable for the three and nine months ended September 30, 2015 and 2014 respectively:

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2015			2014			2015			2014
Balance, beginning of the period		$	11,800		$	10,800		$	10,700		$	10,600
Additions, from business acquisitions		269,884			—			269,884			—
Unrealized change in fair value change during the period, included in Statement of Operations		1,300			(600		)	2,400			(400		)
Balance, end of the period		$	282,984		$	10,200		$	282,984		$	10,200

 

Deferred Compensation Plan- Investment and Liability

 

As disclosed in “—Note 7. Stockholders’ Equity”, the Deferral Plan provides certain key employees and members of the Board of Directors with an opportunity to defer the receipt of such participant’s base salary, bonus and director’s fees, as applicable. Deferral Plan assets as of September 30, 2015 were $0.5 million, are classified as trading securities and recorded at fair value with changes in the investments’ fair value recognized in the period they occur. The asset investments consist of market exchanged mutual funds. During the three and nine months ended September 30, 2015, the unrealized loss was $54 thousand and $64 thousand respectively.  The Company considers its investments in marketable securities, as available-for-sale and classifies these assets and related liability within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities.

 

A summary of the fair value of the Company’s assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of September 30, 2015, are identified in the following table (in thousands):

 

		Level 1			Level 2			Total
Assets:
Cash/ money market funds		$	19,439		$	—		$	19,439
Corporate debt securities		—			127,650			127,650
Commercial paper		—			104,498			104,498
Certificate of deposit		—			350			350
Deferred compensation plan assets		—			532			532
		$	19,439		$	233,030		$	252,469

 

		Level 1			Level 2			Level 3			Total
Liabilities:
Contingent consideration payable		—			—			282,984			282,984
Deferred compensation plan liability		—			541			—			541
		$	—		$	541		$	282,984		$	283,525

 

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A summary of the fair value of the Company’s assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of December 31, 2014, are identified in the following table (in thousands):

 

		Level 1			Level 2			Total
Assets:
Cash/ money market funds		$	24,074		$	—		$	24,074
Corporate debt securities		—			133,216			133,216
Commercial paper		—			11,499			11,499
Certificate of deposit		—			350			350
		$	24,074		$	145,065		$	169,139

 

		Level 1			Level 2			Level 3			Total
Liabilities:
Contingent success fee payable		—			—			341			341
Contingent consideration payable		—			—			10,700			10,700
Deferred compensation plan liability		—			124			—			124
		$	—		$	124		$	11,041		$	11,165

 

Note 9.   Short-Term Borrowings and Long-Term Debt

 

In December 2013, the Company entered into a credit and security agreement with a lending syndicate consisting of MidCap Funding III, LLC, Oxford Finance LLC, and Silicon Valley Bank. The Company drew $15 million of the aggregate principal amount which bore interest at a rate per annum fixed at 8.5%.  The Company made interest-only payments on the Term Loan from January 1, 2014. In June 2015, the Company paid off the outstanding balance of the term loan and in connection with this repayment the Company also paid a $0.4 million exit fee and a $0.4 million success fee due to the successful acceptance of the MAA in June 2015. The net loss on extinguishment of the debt was $1.0 million and is included in the statement of operations for the nine months ended September 30, 2015.

 

Note 10.  Collaborative Agreements

 

GSK

 

In November 2013, Amicus entered into the Revised Agreement with GlaxoSmithKline (“GSK”), pursuant to which Amicus has obtained global rights to develop and commercialize Galafold as a monotherapy and in combination with ERT for Fabry disease. The Revised Agreement amends and replaces in its entirety the Expanded Agreement entered into between Amicus and GSK in July 2012. Under the terms of the Revised Agreement, there was no upfront payment from Amicus to GSK. For Galafold monotherapy, GSK is eligible to receive post-approval and sales-based milestones up to $40 million, as well as tiered royalties in the mid-teens in eight major markets outside the United States.

 

Under the terms of the Revised Agreement, GSK will no longer jointly fund development costs for all formulations of Galafold.

 

Biogen

 

In September 2013, the Company entered into a license and collaboration agreement (the “Biogen Agreement”) with Biogen Idec (“Biogen”) to discover, develop and commercialize novel small molecules for the treatment of Parkinson’s disease. Under terms of the agreement, the Company and Biogen collaborated in the discovery of a new class of small molecules that target the GCase enzyme, for further development and commercialization by Biogen.  Biogen was responsible for funding all discovery, development, and commercialization activities.  In addition, the Company was reimbursed for all full-time employees working on the project as part of a cost sharing arrangement.  The Company was also eligible to receive development and regulatory milestones, as well as modest royalties in global net sales.

 

In accordance with the revenue recognition guidance related to reimbursement of research and development expenses, the Company identified all deliverables at the inception of the agreement.  As the Company has not commenced its planned principal operations (i.e. selling commercial products), the Company is only performing development of its compounds, and therefore, development activities are part of the Company’s ongoing central operations.  Additionally, the Company has the following accounting policies:

 

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