Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

v3.7.0.1
Discontinued Operations
3 Months Ended
Mar. 31, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations

On March 3, 2017, the Company completed the sale to Cardinal Health 414 of its assets used, held for use, or intended to be used in operating its business of developing, manufacturing and commercializing a product used for lymphatic mapping, lymph node biopsy, and the diagnosis of metastatic spread to lymph nodes for staging of cancer, including the Company’s radioactive diagnostic agent marketed under the Lymphoseek® trademark for current approved indications by the FDA and similar indications approved by the FDA in the future, in Canada, Mexico and the United States.

 

In exchange for the Acquired Assets, Cardinal Health 414 (i) made a cash payment to the Company at closing of approximately $80.6 million after adjustments based on inventory being transferred and an advance of $3 million of guaranteed earnout payments as part of the CRG settlement, (ii) assumed certain liabilities of the Company associated with the Product as specified in the Purchase Agreement, and (iii) agreed to make periodic earnout payments (to consist of contingent payments and milestone payments which, if paid, will be treated as additional purchase price) to the Company based on net sales derived from the purchased Product subject, in each case, to Cardinal Health 414’s right to off-set. In no event will the sum of all earnout payments, as further described in the Purchase Agreement, exceed $230 million over a period of ten years, of which $20.1 million are guaranteed payments of $6.7 million per year for each of the three years immediately after closing of the Asset Sale. At the closing of the Asset Sale, $3 million of such earnout payments were advanced by Cardinal Health 414 to the Company, and paid to CRG as part of the Deposit Amount paid to CRG. This advance is to be applied to the third year of guaranteed payments.

 

We recorded a net gain on the sale of the Business of $88.7 million for the three months ended March 31, 2017, including $16.5 in guaranteed consideration, which was discounted to the present value of future cash flows. The proceeds were offset by $3.3 million in estimated fair value of warrants issued to Cardinal Health 414, $2.0 million in legal and other fees related to the sale, $800,000 in net balance sheet dispositions and write-offs, and $4.6 million in estimated taxes.

 

As a result of the Asset Sale, we reclassified certain assets and liabilities as assets and liabilities associated with discontinued operations. The following assets and liabilities have been segregated and included in assets associated with discontinued operations or liabilities associated with discontinued operations, as appropriate, in the consolidated balance sheets:

 

 

   

March 31,

2017

    December 31, 2016  
Accounts and other receivables   $     $ 1,598,994  
Inventory, net           1,374,618  
Prepaid expenses           170,635  
Assets associated with discontinued operations, current           3,144,247  
Property and equipment, net of accumulated depreciation           70,973  
Patents and trademarks, net of accumulated amortization           34,282  
Assets associated with discontinued operations, noncurrent           105,255  
Total assets associated with discontinued operations   $     $ 3,249,502  
                 
Accounts payable   $ 152,108     $ 1,957,938  
Accrued liabilities     3,402,212       607,659  
Deferred revenue           2,300,000  
Liabilities associated with discontinued operations, current   $ 3,554,320     $ 4,865,597  

 

In addition, we reclassified certain revenues and expenses related to the Business to discontinued operations for all periods presented, including interest expense related to the CRG and Platinum debt obligations as required by current accounting guidance. The following amounts have been segregated from continuing operations and included in discontinued operations in the consolidated statements of operations:

 

    Three Months Ended March 31,  
    2017     2016  
Revenue:            
Lymphoseek sales revenue   $ 2,917,213     $ 3,773,880  
Grant and other revenue           190  
Total revenue     2,917,213       3,774,070  
Cost of goods sold     364,192       533,440  
Gross profit     2,553,021       3,240,630  
Operating expenses:                
Research and development     283,533       587,249  
Selling, general and administrative     820,203       1,463,534  
Total operating expenses     1,103,736       2,050,783  
Income from discontinued operations     1,449,285       1,189,847  
Interest expense     (1,718,506 )     (2,194,280 )
Loss before income taxes     (269,221 )     (1,004,433 )
Benefit from income taxes     13,360        
Loss from discontinued operations   $ (255,861 )   $ (1,004,433 )