GALENA BIOPHARMA, INC., 10-Q filed on 11/6/2013
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2013
Oct. 31, 2013
Document Document And Entity Information [Abstract]
 
 
Entity Registrant Name
Galena Biopharma, Inc. 
 
Trading Symbol
GALE 
 
Entity Central Index Key
0001390478 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
105,236,516 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 51,396 
$ 32,807 
Restricted cash
100 
101 
Marketable securities
2,837 
2,678 
Accounts Receivable, Net, Current
1,543 
Inventories
425 
Prepaid expenses
485 
535 
Total current assets
56,786 
36,121 
Equipment and furnishings, net
545 
29 
In-process research and development
12,864 
12,864 
Abstral rights
15,032 
   
Goodwill
5,898 
5,898 
Deposits and other assets
129 
74 
Total assets
91,254 
54,986 
Current liabilities:
 
 
Accounts payable
1,890 
1,976 
Accrued expense and other current liabilities
8,889 
2,038 
Current maturities of capital lease obligations
Fair value of warrants potentially settleable in cash
24,267 
10,964 
Current contingent purchase price consideration
247 
935 
Current portion of long-term debt
1,215 
Total current liabilities
36,514 
15,919 
Capital lease obligations, net of current maturities
30 
51 
Deferred tax liability, non-current
5,053 
5,053 
Contingent purchase price consideration, net of current portion
6,454 
6,207 
Long-term debt, net of current portion
8,583 
Total liabilities
56,634 
27,230 
Commitments and contingencies
   
   
Stockholders' equity:
 
 
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding
   
   
Common stock, $0.0001 par value; 200,000,000 shares authorized, 105,588,771 shares issued and 104,913,771 shares outstanding at September 30, 2013; 125,000,000 shares authorized, 83,595,837 shares issued and 82,920,837 outstanding at December 31, 2012
10 
Additional paid-in capital
167,111 
132,168 
Accumulated other comprehensive income
1,722 
1,626 
Accumulated deficit
130,374 
102,197 
Less treasury shares at cost, 675,000 shares
(3,849)
(3,849)
Total stockholders' equity
34,620 
27,756 
Total liabilities and stockholders' equity
$ 91,254 
$ 54,986 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value (usd per share)
$ 0.0001 
$ 0.0001 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares issued
   
   
Preferred stock, shares outstanding
   
   
Common stock, par value (usd per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized
200,000,000 
125,000,000 
Common stock, shares issued
105,588,771 
83,595,837 
Common stock, shares outstanding
104,913,771 
82,920,837 
Treasury stock, shares
675,000 
675,000 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Income Statement [Abstract]
 
 
 
 
Revenue, Net
$ 1,170 
$ 0 
$ 1,170 
$ 0 
Cost of Revenue
301 
301 
Gross Profit
869 
869 
Operating expenses:
 
 
 
 
Research and development expense
3,500 
4,074 
13,599 
10,168 
Research and development employee stock-based compensation expense
117 
48 
324 
138 
Total research and development expense
16 
47 
67 
247 
Total research and development expense
3,633 
4,169 
13,990 
10,553 
Selling, general and administrative expense
3,801 
1,090 
7,416 
4,137 
Selling, general and administrative employee stock-based compensation expense
328 
85 
742 
366 
Selling, general and administrative non-employee stock-based compensation expense
184 
211 
565 
Total selling, general and administrative expense
4,129 
1,359 
8,369 
5,068 
Operating loss
7,762 
5,528 
22,359 
15,621 
Other income (expense):
 
 
 
 
Interest income (expense), net
(314)
(495)
(35)
Other income (expense)
(921)
(733)
(6,254)
(13,918)
Total non-operating income (expense), net
(1,235)
(733)
(6,749)
(13,953)
Loss from continuing operations before income taxes
(8,128)
(6,261)
(28,239)
(29,574)
Income tax expense (benefit)
1,159 
   
(62)
   
Loss from continuing operations before income taxes
(9,287)
(6,261)
(28,177)
(29,574)
Loss from discontinued operations
   
(1,644)
Net loss
(9,287)
(6,261)
(28,177)
(31,218)
Net loss per common share:
 
 
 
 
Basic and diluted per share, continuing operations (usd per share)
$ (0.11)
$ (0.09)
$ (0.33)
$ (0.49)
Basic and diluted loss per share, discontinued operations (usd per share)
$ 0 
$ 0.00 
$ 0 
$ (0.03)
Basic and diluted net loss per share (usd per share)
$ (0.11)
$ (0.09)
$ (0.33)
$ (0.52)
Weighted-average common shares outstanding: basic and diluted
87,319,450 
67,265,470 
84,678,612 
60,150,658 
Comprehensive loss
 
 
 
 
Net loss
(9,287)
(6,261)
(28,177)
(31,218)
Reclassification of unrealized gain upon sale of marketable securities
(841)
(1,636)
Unrealized gain (loss) on marketable securities, net of tax
(2,108)
   
1,795 
   
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax
330 
643 
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax
828 
(705)
Total comprehensive loss
(11,078)
(6,261)
(28,080)
(31,218)
Operating Income (Loss)
$ (6,893)
$ (5,528)
$ (21,490)
$ (15,621)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
September 2013 Common Stock Offering [Member]
Long-term Debt Financing [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Additional Paid-in Capital [Member]
September 2013 Common Stock Offering [Member]
Additional Paid-in Capital [Member]
Long-term Debt Financing [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Deficit [Member]
Treasury Stock [Member]
Beginning balance at Dec. 31, 2012
$ 27,756 
 
 
$ 8 
$ 132,168 
 
 
$ 1,626 
$ (102,197)
$ (3,849)
Beginning balance, shares at Dec. 31, 2012
 
 
 
83,595,837 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, shares
 
 
 
20,125,000 
 
 
 
 
 
 
Issuance of common stock
37,520 
 
 
37,518 
 
 
 
 
 
Common stock warrants issued in connection with September 2013 common stock offering
 
(8,238)
351 
 
 
(8,238)
351 
 
 
 
Issuance of common stock upon exercise of warrants, shares
 
 
 
1,320,904 
 
 
 
 
 
 
Issuance of common stock upon exercise of warrants
2,890 
 
 
 
2,890 
 
 
 
 
 
Issuance of common stock in settlement of contingent purchase price consideration, shares
 
 
 
384,688 
 
 
 
 
 
 
Issuance of common stock in settlement of contingent purchase price consideration
1,000 
 
 
 
1,000 
 
 
 
 
 
Issuance of common stock warrants with long-term debt financing
 
(8,238)
351 
 
 
(8,238)
351 
 
 
 
Issuance of common stock in exchange for services, shares
 
 
 
99,998 
 
 
 
 
 
 
Issuance of common stock in exchange for services
211 
 
 
 
211 
 
 
 
 
 
Issuance of common stock in connection with employee stock purchase plan, shares
 
 
 
52,532 
 
 
 
 
 
 
Issuance of common stock in connection with employee stock purchase plan
69 
 
 
 
69 
 
 
 
 
 
Stock based compensation for directors and employees
1,066 
 
 
 
1,066 
 
 
 
 
 
Stock based compensation for services
67 
 
 
 
67 
 
 
 
 
 
Unrealized gain on marketable securities, net of tax of $705
1,089 
 
 
 
 
 
 
1,089 
 
 
Realized gain on marketable securities, net of tax of $643
(993)
 
 
 
 
 
 
(993)
 
 
Exercise of stock options, shares
10,000 
 
 
9,812 
 
 
 
 
 
 
Exercise of stock options
 
 
 
 
 
 
 
 
Net loss
(28,177)
 
 
 
 
 
 
 
(28,177)
 
Ending balance at Sep. 30, 2013
$ 34,620 
 
 
$ 10 
$ 167,111 
 
 
$ 1,722 
$ (130,374)
$ (3,849)
Ending balance, shares at Sep. 30, 2013
 
 
 
105,588,771 
 
 
 
 
 
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Statement of Stockholders' Equity [Abstract]
 
Tax on unrealized gain on marketable securities
$ 705 
Tax on realized gain on marketable securities
$ 643 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Cash flows from operating activities:
 
 
Net loss
$ (28,177)
$ (31,218)
Adjustment to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization expense
168 
47 
Gain on sale of marketable securities
(1,392)
Deferred taxes
(63)
   
Non-cash stock-based compensation
1,344 
1,068 
Fair value of common stock warrants issued in exchange for services
   
342 
Change in fair value of common stock warrants
7,135 
11,899 
Change in fair value of contingent consideration
559 
2,019 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(1,543)
Inventories
(425)
Prepaid expenses and other assets
68 
(662)
Accounts payable
(86)
875 
Accrued expenses and other current liabilities
1,975 
(165)
Net cash used in operating activities
(20,437)
(15,795)
Cash flows from investing activities:
 
 
Change in restricted cash
   
Cash paid for acquisition of Abstral rights
(10,075)
   
Proceeds from sale of marketable securities
1,392 
Cash paid for purchase of equipment and furnishings
(554)
   
Cash transferred with the RXi spin-off
   
(87)
Net cash used in investing activities
(9,236)
(87)
Cash flows from financing activities:
 
 
Net proceeds from issuance of common stock
37,520 
13,937 
Cash paid for repurchase of common stock warrants
   
(266)
Net proceeds from exercise of common stock options
   
Net proceeds from exercise of common stock warrants
820 
5,672 
Common stock issued in connection with ESPP
69 
39 
Net proceeds from issuance of convertible notes payable
   
500 
Net proceeds from issuance of long-term debt
9,865 
Repayments of capital lease obligations
(21)
(10)
Net cash provided by financing activities
48,262 
19,872 
Net increase (decrease) in cash and cash equivalents
18,589 
3,990 
Cash and cash equivalents at the beginning of period
32,807 
11,433 
Cash and cash equivalents at end of period
51,396 
15,423 
Supplemental disclosure of cash flow information:
 
 
Cash received during the periods for interest
13 
Cash paid during the periods for interest
195 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Future payment for Abstral rights included in accrued expenses
5,000 
   
Fair value of warrants issued in connection with common stock recorded as cost of equity
8,238 
   
Net liabilities distributed to common stock holders in the RXi spin-off, net of cash transferred
2,246 
Reclassification of warrant liabilities upon exercise
(2,070)
(10,741)
Basic and diluted per share, continuing operations
$ (0.33)
$ (0.49)
Basic and diluted loss per share, discontinued operations
$ 0 
$ (0.03)
Basic and diluted net loss per share
$ (0.33)
$ (0.52)
Common stock issued in settlement of contingent purchase price consideration
1,000 
1,579 
Change in fair value of marketable securities
$ 1,551 
    
Business and Basis of Presentation
Business and Basis of Presentation
Business and Basis of Presentation

Galena Biopharma, Inc. (“we,” “us,” “our,” “Galena” or the “company”) is a biopharmaceutical company focused on developing and commercializing innovative, targeted oncology treatments that address major unmet medical needs to advance cancer care.

Our strategy is to build value for patients and shareholders by:
Phase 3 PRESENT of our lead product candidate, NeuVaxTM (nelipepimut-S) currently in the Phase 3 randomized, multicenter present (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) study in 700 patients under the FDSA-approved Special Protocol Assessment (SPA).
Phase 2b randomized, multicenter clinical trial is also enrolling 300 patients to study NeuVax in combination with Herceptin® (trastuzumab; Genetech/Roche).
Phase 1/2 FBP (folate binding protein) cancer immunotherapy trials in ovarian and endometrial cancers; and
In April 2013, we acquired rights to our first commercial product, Abstral® (fentanyl) sublingual tablets, for sale and distribution in the United States with our official product launch in the fourth quarter of 2013.

Galena is developing peptide vaccine (off-the-shelf) cancer immunotherapies, which address patient populations of cancer survivors to prevent disease recurrence by harnessing the patient's own immune system to seek out and attack any residual cancer. In this case, 25% of resectable node-positive breast cancer patients, despite having no evidence of disease following surgery and chemo/radiation therapy, will still relapse within 3 years. Increased presence of circulating tumor cells (CTCs) predict Disease Free Survival (DFS) and Overall Survival (OS) - suggesting a dormancy of isolated micrometastases, which over time, leads to recurrence. Our lead product, NeuVaxTM (nelipepimut-S) elicits a robust, specific and durable killer CD8+ cytotoxic T lymphocyte (CTLs) response to lyse HER2 expressing tumor cells.

NeuVax™ (nelipepimut-S) is the immunodominant nonapeptide derived from the extracellular domain of the HER2 protein, a well-established target for therapeutic intervention in breast carcinoma. The nelipepimut sequence stimulates specific CTLs following binding to HLA-A2/A3 molecules on antigen presenting cells (APC). These activated specific CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading. Based on a successful Phase 2 trial, which achieved its primary endpoint of DFS, the Food and Drug Administration (FDA) granted NeuVax a Special Protocol Assessment (SPA) for its Phase 3 PRESENT (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) study. The PRESENT trial is ongoing and additional information on the study can be found at www.neuvax.com. A randomized, multicenter, investigator-sponsored, 300 patient Phase 2b clinical trial is also enrolling patients to study NeuVax in combination with Herceptin® (trastuzumab; Genentech/Roche).

Our second product candidate, Folate Binding Protein, or “FBP,” is derived from a protein that is over-expressed (20-80 fold) in more than 90% of ovarian and endometrial cancers. FBP is a highly immunogenic peptide that can stimulate CTLs to recognize and destroy preclinical FBP-expressing cancer cells. The FBP vaccine consists of the FBP peptide(s) combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF). Galena’s FBP vaccine is currently in a Phase 1/2 trial in two gynecological cancers: ovarian and endometrial adenocarcinomas.

Our first commercial product, Abstral® (fentanyl) Sublingual Tablets, is an important treatment option for inadequately controlled breakthrough cancer pain (BTcP) which affects an estimated 40%-80% of all cancer patients. Abstral is approved by the FDA, and is a sublingual (under the tongue) fentanyl tablet indicated only for the management of breakthrough pain in patients with cancer, 18 years of age and older, who are already receiving, and who are tolerant to, opioid therapy for their persistent baseline cancer pain. The innovative Abstral formulation delivers the analgesic power and increased bioavailability of micronized fentanyl in a more convenient sublingual tablet which rapidly dissolves under the tongue in seconds, provides rapid relief of breakthrough pain in minutes, and matches the duration of the entire pain episode.
In the future, we may pursue selective strategic alliances and acquisitions of other cancer treatments to complement or add to our existing cancer product pipeline.

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements included herein have been prepared by Galena pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The year-end condensed consolidated balance sheet information was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Unless the context otherwise indicates, references in this quarterly report to the “company,” “we,” “us” or “our” refer (i) to Galena, our wholly owned subsidiary, Apthera, Inc., or “Apthera,” and our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi,” collectively, prior to our partial spin-off of RXi in April 2012; and (ii) to Galena and Apthera, together, after the partial spin-off.

Based on the product launch of Abstral and the significant commercial operations during the three months ended September 30, 2013, Galena is no longer a development stage entity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, "Development Stage Entities," and the financial statements for the period ended September 30, 2013 will no longer reflect financial information since inception.

Uses of Estimates in Preparation of Financial Statements — The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Principles of Consolidation — The consolidated financial statements include the accounts of Galena and its wholly owned subsidiary. All material intercompany accounts have been eliminated in consolidation.

Reclassifications — Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on net loss per share.

Cash and Cash Equivalents — The company considers all highly liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and demand deposits.

Restricted Cash — Restricted cash consists of certificates of deposit on hand with the company’s financial institutions as collateral for its corporate credit cards.

Marketable Securities — Marketable securities consist of shares of common stock of our former subsidiary, RXi Pharmaceuticals Corporation, a publicly traded company, and are classified as available-for-sale and carried at fair value on the balance sheet. Changes in the fair value of marketable securities are recorded as other comprehensive income (loss).

Fair Value of Financial Instruments — The carrying amounts reported in the balance sheet for cash equivalents, marketable securities, accounts receivable, accounts payable, and capital leases approximate their fair values due to their short-term nature and market rates of interest.

Accounts Receivable - The company maintains credit limits for all customers based upon several factors, including but not limited to financial condition and stability, payment history, published credit reports and use of credit references. Management performs analysis to evaluate accounts receivables to ensure recorded amounts reflect estimate net realizable value.

Inventories — Inventories are stated at the lower of cost or market value and are determined using the first-in, first-out ("FIFO") method. Inventories consist of Abstral work-in-process and finished goods. The company has entered into manufacturing and supply agreements for the manufacture and packing of Abstral finished goods. As of September 30, 2013, the company had inventories of $425,000, consisting of $270,000 of work-in-process and $155,000 of finished goods. The company had no inventory as of December 31, 2012.

Equipment and Furnishings — Equipment and furnishings are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally three to five years for equipment and furniture) of the related assets.

Goodwill and Intangible Assets — Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level, or more frequently if events and circumstances indicate impairment may have occurred. Factors the company considers important that could trigger an interim review for impairment include, but are not limited to, the following:
Significant changes in the manner of its use of acquired assets or the strategy for its overall business;
Significant negative industry or economic trends;
Significant decline in stock price for a sustained period; and
Significant decline in market capitalization relative to net book value.

Goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment. If it is determined that impairment is more likely than not, the company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.

Intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

The company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of September 30, 2013.

Revenue Recognition - The company recognizes revenue from the sale of Abstral. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

We sell Abstral product in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively, our "customers," subject to rights of return. During the three months ended September 30, 2013, we began recognizing Abstral product sales at the time title transfers to our customer, and providing for an estimate of future product returns. Revenue from product sales is recorded net of provisions for estimated returns, prompt pay discounts, wholesaler discounts, rebates, chargebacks, patient assistance program rebates and other deductions as needed.

Product Sales Discounts and Allowances - The company recognizes revenue at the point of sale to its wholesale pharmaceutical distributors and retail pharmacies and the allowances for product returns, rebates and allowances are recognized at the point of sale. The company is required to make significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the company will be required to make adjustments to these allowances in the future.

Prompt Pay Discounts - As an incentive for prompt payment, the company offers a cash discount to customers, generally 2% of gross sales. The company expects that all customers will comply with the contractual terms to earn the discount. The company records the discount as an allowance against accounts receivable and a reduction of revenue.

Wholesaler Discounts - The company offers discounts to certain wholesalers and distributors based on contractually determined rates. The company accrues the discount as a reduction of receivables due from the wholesalers upon shipment to the respective wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Rebates - The company participates in certain rebate programs, which provide discounted prescriptions to members of group purchasing organization and specialty pharmacies. Under these rebate programs, the company pays a rebate to the third-party administrator of the program, generally two to the three months after the quarter in which prescriptions subject to the rebate are filled. The company estimates and accrues these rebates based on current contract prices, historical and estimated future percentages of product sold to qualifying member pharmacies and estimated levels of inventory in the distribution channel. Rebates are recognized as a reduction in the period that the related revenue is recognized.

Chargebacks - The company provides discounts primarily to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid or Medicare contracts and regulations. These entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the company the difference between the current retail price and the price the entity paid for the product. The company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historic chargeback activity. Chargebacks are recognized as a reduction of revenue in the period the related revenue is recognized.

Patient Assistance Programs - The company offers discount card programs to patients for Abstral in which patients receive discounts on their Abstral prescriptions that are reimbursed by the company. The company estimates the total amount that will be recognized based on a percentage of actual redemption applied to inventory in the distribution and retail channel and recognizes the discount as a reduction of revenue and as an other current liability (see Note 5) in the same period the related revenue is recognized.

Acquisitions and In-Licensing — For all in-licensed products and technologies, we perform an analysis to determine whether we hold a variable interest or a controlling financial interest in a variable interest entity. On the basis of our interpretations and conclusions, we determine whether the acquisition falls under the purview of variable interest entity accounting and if so, consider the necessity to consolidate the acquisition. As of September 30, 2013, we determined there were no variable interest entities required to be consolidated.

We also perform an analysis to determine if the assets and liabilities acquired in an acquisition qualify as a "business." The excess of the purchase price over the fair value of the net assets acquired can only be recognized as goodwill in a business combination.

The acquisition of the Abstral U.S. rights has been accounted for as an asset acquisition and not a business combination. The purchase price, including transaction costs, was recorded as an intangible asset related to the license and distribution rights acquired in the transaction. No other significant assets or liabilities were acquired or assumed in the transaction. The license and distribution rights will be amortized over ten years in a pattern based on our Abstral sales projections. Amortization expense, related to the Abstral rights, of $43 was recorded in cost of revenue for the three months ended September 30, 2013. There was no amortization recorded prior to the three months ended September 30, 2013. Refer to Note 12 for further information regarding the acquisition of Abstral U.S. rights.
 
Contingent Purchase Price Consideration — Contingent consideration is recorded at the estimated fair value as of the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period with any adjustments in fair value included in our consolidated statement of comprehensive loss.

Patents and Patent Application Costs — Although the company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.

Share-based Compensation — The company follows the provisions of the FASB ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including stock options and warrants. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

For stock options and warrants granted as consideration for services rendered by non-employees, the company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50 (“ASC 505-50”), “ Equity Based Payments to Non- Employees.” Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.

Derivative Financial Instruments — Historically, the company has from time to time granted warrants to vendors as consideration for their services. We may also issue warrants as part of a debt or equity financing. The company does not enter into any derivative contracts for speculative purposes.

The company recognizes all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. In accordance with FASB ASC Topic 815-40, “ Derivatives and Hedging — Contracts in Entity’s Own Stock,” the value of warrants that are deemed to meet the definition of derivatives are required to be recorded as a liability, as the holders have an option to put the warrants back to the company upon the occurrence of certain events described in the warrants.

Research and Development Expenses — Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead related to our research and development departments, as well as costs to acquire technology licenses and clinical trial expenses.

Clinical trial expenses include direct costs associated with contract research organizations ("CROs"), as well as well as patient-related costs from the sites at which our trial is being conducted.

Direct costs associated with our CROs are generally payable on a time and materials basis, or when certain enrollment and monitoring milestones are achieved. Expense related to milestones is recognized in the period in which the milestone is achieved or in which we determine that it is more likely than not that the milestone will be achieved.

The invoicing from clinical trial sites can lag several months. We accrue these site costs based on our estimate of upfront set-up costs upon the screening of the first patient at each site, and the patient related costs based on our knowledge of patient enrollment status at each site.

Income Taxes — The company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. ASC 740-10 requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. The company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the company’s income tax provision or benefit. The recognition and measurement of benefits related to the company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and the company’s assumptions or changes in the company’s assumptions in future periods are recorded in the period they become known.

For the three months ended September 30, 2013, we recognized income tax expense of $1,159,000. This expense offsets the tax impact related to the unrealized loss on our marketable securities, which is presented as other comprehensive income, net of tax, on our condensed consolidated statement of comprehensive loss. For the nine months ended September 30, 2013, we recognized an income tax benefit of $62,000, which offsets the tax impact related to the unrealized gain on our marketable securities. We continue to maintain a full valuation allowance against our net deferred tax assets.

Concentrations of Credit Risk — Financial instruments that potentially subject the company to significant concentrations of credit risk consist principally of cash and cash equivalents. The company maintains cash balances in several accounts with two banks, which at times are in excess of federally insured limits. As of September 30, 2013, the company’s cash equivalents were invested in money market mutual funds. The company’s investment policy does not allow investment in any debt securities rated less than “investment grade” by national ratings services. The company has not experienced any losses on its deposits of cash and cash equivalents. As of September 30, 2013, we had approximately $50,877,000 in interest-bearing accounts above federally insured limits.

Comprehensive Loss — Comprehensive loss consists of our net loss and other comprehensive income related to the unrealized gain (loss), net of tax, on our marketable securities, which are classified as available-for-sale.
Recently Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements

In July 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-02, IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets, a new accounting pronouncement intended to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. The new standard permits an entity to first assess qualitative factors to determine whether it is “more likely than not” (defined as having a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired, in order to determine whether further impairment testing is necessary. The new standard was effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Adoption of this new standard did not have a material impact on the company’s condensed consolidated financial statements for the three and nine months ended September 30, 2013 or the fiscal year ended December 31, 2012.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, a new accounting pronouncement intended to improve the reporting of reclassifications out of accumulated other comprehensive income. The new standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The new standard also requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not required to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference to other required disclosures that provide additional detail about those amounts. The new standard was effective for reporting periods beginning after December 31, 2012. Adoption of this new standard for the three and nine months ended September 30, 2013 did not have a material impact on the company’s condensed consolidated financial statements.
RXi Spin-off
RXi Spin-off
RXi Spin-off

On September 24, 2011, the company entered into a contribution agreement with our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi,” pursuant to which we assigned and contributed to RXi substantially all of the company’s RNAi-related technologies and assets. The contributed assets consisted primarily of our novel RNAi compounds and licenses relating to our RNAi technologies, as well as the lease of our Worcester, Massachusetts laboratory facility, fixed assets and other equipment located at the facility and our employment arrangements with certain scientific, corporate and administrative personnel who became employees of RXi. The company also contributed $1.5 million of cash to the capital of RXi.

Pursuant to the contribution agreement, RXi assumed certain accrued expenses of our former RXI-109 development program and all subsequent obligations under the contributed licenses, employment arrangements and other agreements. RXi also has agreed to make future milestone payments to us of up to $45 million, consisting of two one-time payments of $15 million and $30 million, respectively, if RXi achieves annual net sales equal to or greater than $500 million and $1 billion, respectively, of any covered products that may be developed with the contributed RNAi technologies.

The company agreed in the securities purchase agreement to distribute to our stockholders on a share-for-share basis a total of approximately 66,959,894 RXi shares, which distribution was made in April 2012. The company retained 33,476,595 shares of common stock of RXi, which were subject to a one-year lock-up period that expired on April 27, 2013. On July 24, 2013, RXi effected a 1-for-30 reverse stock split of its outstanding shares of common stock, including RXi shares held by the company. During the three months ended September 30, 2013, the company sold 204,623 RXi shares, on a post-split basis, for total proceeds of $814,000, which is included in other income. During the nine months ended September 30, 2013, the company had sold 305,359 RXi shares, on a post-split basis, for total proceeds of $1,392,000, which is included in other income.

The value of RXi shares held by the company at September 30, 2013 was approximately $2,837,000, based on the closing price of RXi shares on the last trading day of the quarter of $3.50 per share as reported on the OTCQX marketplace. The value of our RXi shares will depend on RXi’s success in developing and commercializing products developed based upon its RNAi technologies and other factors that are subject to significant risks and uncertainties described in RXi’s filings with the SEC. There is no assurance, therefore, as to any value we may realize from our RXi shares.

The company classified the RXi activities for previously reported periods as discontinued operations in the accompanying condensed consolidated statements of comprehensive loss retroactively for all periods presented. The net assets of RXi were removed from the condensed consolidated balance sheet as of the date of the spin-off, and were recorded as an equity distribution.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements

The company follows ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) for the company’s financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are as defined as follows:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The company categorized its cash equivalents and marketable securities as Level 1 inputs. The valuations for Level 1 were determined based on a “market approach” using quoted prices in active markets for identical assets. Valuation of these assets does not require a significant degree of judgment. The company categorized its warrants potentially settleable in cash as Level 2 inputs. The warrants are measured at market value on a recurring basis and are being marked to market each quarter-end until they are completely settled. The warrants are valued using an appropriate pricing model, using assumptions consistent with our application of ASC 718. The contingent purchase price consideration is categorized as Level 3 inputs and is measured at its estimated fair value on a recurring basis and is adjusted at each quarter-end until it is completely settled. The contingent price consideration is valued based on the expected timing of milestones, the expected probability of success for each milestone and discount rates based on a corporate debt interest rate index publicly issued.
The following tables present information about our assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets (in thousands):
 
Description
September 30, 2013
 
Quoted Prices In    
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable 
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
49,431

 
$
49,431

 
$

 
$

Marketable securities
2,837

 
2,837

 

 

Total assets measured and recorded at fair value
$
52,268

 
$
52,268

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Warrants potentially settleable in cash
$
24,267

 
$

 
$
24,267

 
$

Contingent purchase price consideration
6,701

 

 

 
6,701

Total liabilities measured and recorded at fair value
$
30,968

 
$

 
$
24,267

 
$
6,701


Description
December 31, 2012
 
Quoted Prices In    
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable 
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
32,431

 
$
32,431

 
$

 
$

Marketable securities
2,678

 
2,678

 

 

Total assets measured and recorded at fair value
$
35,109

 
$
35,109

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Warrants potentially settleable in cash
$
10,964

 
$

 
$
10,964

 
$

Contingent purchase price consideration
7,142

 

 

 
7,142

Total liabilities measured and recorded at fair value
$
18,106

 
$

 
$
10,964

 
$
7,142



The company has not transferred any financial instruments into or out of Level 3 classification during the nine months ended September 30, 2013 or 2012. A reconciliation of the beginning and ending Level 3 liabilities for the nine months ended September 30, 2013 is as follows (in thousands):
 
 
Fair Value
Measurements
Using Significant
Unobservable
Inputs
(Level 3)
Balance, January 1, 2013
$
7,142

Milestone payment
(1,000
)
Change in the estimated fair value of the contingent purchase price consideration
559

Balance at September 30, 2013
$
6,701



The fair value of the contingent purchase price consideration is measured at the end of each reporting period using Level 3 inputs in a probability-weighted, discounted cash-outflow model. The significant unobservable assumptions include the probability of achieving each milestone, the date we expect to reach the milestone, and a determination of present value factors used to discount future expected cash outflows.
Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 
September 30, 2013
 
December 31, 2012
Abstral milestone payment
$
5,000

 
$

Contract research organizations
1,559

 
1,705

Compensation and related benefits
1,161

 
217

Patient assistance programs
808

 

Professional fees
150

 
116

Royalties
141

 

Interest expense
70

 

Accrued expenses and other current liabilities
$
8,889

 
$
2,038

Long-term Debt
Long-term Debt
Long-term Debt

On May 8, 2013 we entered into a loan and security agreement with Oxford Finance LLC, as collateral agent, and related lenders under which we may borrow up to $15 million (the “Loan”) in two tranches. We borrowed the first tranche of $10 million on May 8, 2013, and may borrow the second tranche of $5 million on or before May 31, 2014, subject to our achievement of certain operational and financial conditions. There is no assurance these conditions will be achieved. The Loan payments will include 12 months of interest-only payments at the fixed coupon rate of 8.45%, followed by 30 months of amortization of principal and interest until maturity in November 2016. In connection with the Loan, we paid the lender a 1% cash facility fee and a 5.5% cash final payment and granted to the lenders seven-year warrants to purchase up to 182,186 shares of our common stock at an exercise price of $2.47, which equaled a 20-day average market price of our common stock prior to the date of the grant.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity

Preferred Stock — The company has authorized up to 5,000,000 shares of preferred stock, $0.0001 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the company’s board of directors upon its issuance. To date, the company has not issued any preferred shares.

Common Stock — The company has authorized up to 200,000,000 shares of common stock, $0.0001 par value per share, for issuance. Shares of common stock are reserved as follows (in thousands):

September 2013 Underwritten Public Offering - On September 18, 2013 the company closed an underwritten public offering of 17,500,000 units at a price to the public of $2.00 per unit for gross proceeds of $35 million (the "September 2013 Offering"). Each unit consists of one share of common stock, and a warrant to purchase 0.35 of a share of common stock at an exercise price of $2.50 per share. The offering included an over-allotment option for the underwriters to purchase an additional 2,625,000 shares of common stock and/or warrants up to 918,750 share of common stock. On September 23, 2013, the underwriters exercised their over-allotment option in full. The additional gross proceeds to the company as a result of the full exercise of the over-allotment option were approximately $5.2 million. The total net proceeds of the September 2013 offering, including the exercise of the over-allotment option, were $37.5 million, after deducting underwriting discounts and commissions and offering expenses payable by the company.
 
 
As of September 30, 2013
Warrants outstanding
18,903

Stock options outstanding
9,928

Options reserved for future issuance under the Company’s 2007 Incentive Plan
5,304

Shares reserved for future issuance under the Employee Stock Purchase Plan
756

Total reserved for future issuance
34,891

Warrants
Warrants
Warrants

The following is a summary of warrant activity for the nine months ended September 30, 2013 (in thousands):
 
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
 
Consultant
and Oxford Warrants
 
Total
Outstanding, January 1, 2013

 
7,578

 
2,846

 
361

 
360

 
978

 
1,093

 
13,216

Granted
7,044

 

 

 

 

 

 
182

 
7,226

Exercised

 
(8
)
 
(998
)
 
(183
)
 

 

 
(160
)
 
(1,349
)
Expired

 

 

 

 

 

 
(190
)
 
(190
)
Outstanding, September 30, 2013
7,044

 
7,570

 
1,848

 
178

 
360

 
978

 
925

 
18,903

Expiration
September 2018
 
December 2017
 
April 2017
 
March 2016
 
March 2016
 
August 2014
 
Varies 2013-2020
 
 


Warrants consist of warrants potentially settleable in cash, which are liability-classified warrants, and equity-classified warrants.

Warrants classified as liabilities

Liability-classified warrants consist of warrants to purchase common stock issued in connection with equity financings in September 2013, December 2012, April 2011, March 2011, March 2010 and August 2009. These warrants are potentially settleable in cash and were determined not to be indexed to our common stock.

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of comprehensive loss as other income (expense). The fair value of the warrants is estimated using an appropriate pricing model with the following inputs:
 
 
As of September 30, 2013
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
Strike price
$
2.50

 
$
1.90

 
$
0.65

 
$
0.65

 
$
2.15

 
$
4.50

Expected term (years)
4.97

 
4.23

 
3.56

 
2.43

 
2.49

 
0.84

Volatility %
79.43
%
 
71.45
%
 
72.36
%
 
74.21
%
 
73.96
%
 
65.21
%
Risk-free rate %
1.38
%
 
1.11
%
 
0.86
%
 
0.47
%
 
0.49
%
 
0.08
%
 
 
As of December 31, 2012
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
Strike price

 
$
1.90

 
$
0.65

 
$
0.65

 
$
2.18

 
$
4.50

Expected term (years)

 
4.98

 
4.30

 
3.18

 
3.24

 
1.59

Volatility %

 
80.93
%
 
82.48
%
 
69.90
%
 
69.79
%
 
74.13
%
Risk-free rate %

 
0.72
%
 
0.59
%
 
0.39
%
 
0.40
%
 
0.21
%


The company’s expected volatility is based on a combination of implied volatilities of similar publicly traded entities. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero coupon rates in effect at the time of valuation. The dividend yield used in the pricing model is zero, because the company has no present intention to pay cash dividends.

The changes in fair value of the warrant liability for the nine months ended September 30, 2013 were as follows (in thousands):
 
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
 
Total
Warrant liability, January 1, 2013
$

 
$
6,954

 
$
3,310

 
$
378

 
$
183

 
$
139

 
$
10,964

Fair value of warrants granted
8,238

 

 

 

 

 

 
8,238

Fair value of warrants exercised

 
(15
)
 
(1,788
)
 
(252
)
 

 

 
(2,055
)
Change in fair value of warrants
1,713

 
3,239

 
1,814

 
182

 
195

 
(23
)
 
7,120

Warrant liability, September 30, 2013
$
9,951

 
$
10,178

 
$
3,336

 
$
308

 
$
378

 
$
116

 
$
24,267



Warrants classified as equity

Equity-classified warrants consist of warrants issued in connection with consulting services provided to us. Additionally, on May 8, 2013 as a part of our Loan financing, we granted Oxford Financial LLC warrants to purchase 182,186 shares of common stock at an exercise price of $2.47, which equaled to the 20-day average market price of our common stock prior to the date of the grant. The warrants were valued using the Black Scholes model as described in Note 9, below. The fair value assumptions for the grant included a volatility of 75.34%, expected term of seven years, risk free rate of 1.20%, and a dividend rate of 0.00%. The fair value of the warrants granted was $1.93 per share. These warrants are recorded in equity at fair value upon issuance, and not as liabilities, and are not subject to adjustment to fair value in subsequent reporting periods.
Stock Based Compensation
Stock Based Compensation
Stock-Based Compensation

Options to Purchase Shares of Common Stock — The company follows the provisions ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

For stock options and warrants granted in consideration for services rendered by non-employees, the company recognizes compensation expense in accordance with the requirements of ASC Topic 505-50. Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, is being re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options and warrants are fully vested.

The company uses the Black-Scholes option-pricing model and the following weighted-average assumptions to determine the fair value of all its stock options granted:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Risk free interest rate

 
0.85
%
 
1.25
%
 
1.06
%
Volatility

 
75.35
%
 
77.66
%
 
75.67
%
Expected lives (years)
0.00

 
6.25

 
6.25

 
6.13

Expected dividend yield

 
0.00
%
 
0.00
%
 
0.00
%


The weighted-average fair value of options granted during the nine months ended September 30, 2013 was $1.28 per share. There were no stock options granted during the three months ended September 30, 2013.

The company’s expected common stock price volatility assumption is based upon the volatility of a basket of comparable companies. The expected life assumptions for employee grants were based upon the simplified method provided for under ASC 718-10, which averages the contractual term of the company’s options of ten years with the average vesting term of four years for an average of six years. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption is zero, because the company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. The company has estimated an annualized forfeiture rate of 15% for options granted to its employees, 8% for options granted to senior management and zero for non-employee directors. The company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.

The company recorded approximately $461,000 and $1,344,000 of stock-based compensation from continuing operations related to employee and non-employee stock options for the three months and nine months ended September 30, 2013, respectively. The company recorded approximately $364,000 and $1,316,000 of stock-based compensation from continuing operations related to employee and non-employee stock options for the three months and nine months ended September 30, 2012, respectively. As of September 30, 2013, there was $2,955,000 of unrecognized compensation cost related to outstanding options that is expected to be recognized as a component of the company’s operating expenses over a weighted-average period of 2.86 years.

As of September 30, 2013, an aggregate of 16,500,000 shares of common stock were reserved for issuance under the company’s 2007 Incentive Plan, including 9,928,000 shares subject to outstanding common stock options granted under the plan and 5,314,000 shares available for future grants. The administrator of the plan determines the times when an option may become exercisable. Vesting periods of options granted to date have not exceeded four years. The options generally will expire, unless previously exercised, no later than ten years from the grant date.

The following table summarizes option activity of the company:
 
 
Total
Number of
Shares
(In Thousands)
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(In Thousands)
Outstanding at January 1, 2013
7,672

 
$
2.54

 
$

Granted
2,783

 
1.88

 
1,203

Exercised
(10
)
 
0.88

 
17

Cancelled
(517
)
 
4.39

 
37

Outstanding at September 30, 2013
9,928

 
$
2.26

 
$
6,867

Options exercisable at September 30, 2013
6,271

 
$
2.65

 
$
4,257



The aggregate intrinsic values of outstanding and exercisable options at September 30, 2013 were calculated based on the closing price of the company’s common stock as reported on The NASDAQ Capital Market on September 30, 2013 of $2.28 per share. The aggregate intrinsic value equals the positive difference between the closing fair market value of the company’s common stock and the exercise price of the underlying options.
Other Income (Expense) (Notes)
Schedule of Other Income (Expense)
Other Income (Expense)

Other income (expense) is summarized as follows (in thousands):
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Change in fair value of warrants potentially settleable in cash
$
(1,614
)
 
$
(262
)
 
$
(7,135
)
 
$
(11,899
)
Realized gain on sale of marketable securities
814

 

 
1,392

 

Change in fair value of the contingent purchase price liability
(172
)
 
(471
)
 
(559
)
 
(2,019
)
Miscellaneous other income
51

 

 
48

 

Total other income (expense)
$
(921
)
 
$
(733
)
 
$
(6,254
)
 
$
(13,918
)
Net Loss Per Share
Net Loss Per Share
Net Loss Per Share

The company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260 “Earnings per Share.” Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants.

The following table sets forth the potentially dilutive common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive (in thousands):
 
 
Three and Nine Months Ended
September 30,
 
2013
 
2012
Warrants to purchase common stock
18,903

 
5,747

Options to purchase common stock
9,928

 
7,540

Total
28,831

 
13,287

License Agreements
License Agreements
License Agreements

As part of its business, the company enters into licensing agreements with third parties that often require milestone and royalty payments based on the progress of the licensed asset through development and commercial stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency, and the company may be required to make royalty payments based upon a percentage of net sales of the product. The expenditures required under these arrangements in any period may be material and are likely to fluctuate from period to period.

These arrangements sometimes permit the company to unilaterally terminate development of the product and thereby avoid future contingent payments; however, the company is unlikely to cease development if the compound successfully achieves clinical testing objectives.

In conjunction with the acquisition of NeuVaxTM, the company acquired rights and assumed obligations under a license agreement among Apthera and The University of Texas M. D. Anderson Cancer Center (“MDACC”) and The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. (“HJF”) which grants exclusive worldwide rights to a U.S. patent covering the nelipepimut-S peptide and several U.S. and foreign patents and patent applications covering methods of using the peptide as a vaccine. Under the terms of this license, we are required to pay an annual maintenance fee of $200,000, a milestone payment of $200,000 upon commencing the Phase 3 PRESENT trial of NeuVax and other clinical milestone payments, as well as royalty payments based on sales of NeuVax or other therapeutic products developed from the licensed technologies.

Effective December 3, 2012, we entered into a license and supply agreement with ABIC Marketing Limited, a subsidiary of Teva Pharmaceuticals (“ABIC”), under which we granted ABIC exclusive rights to seek marketing approval in Israel for our NeuVax product candidate for intradermal injection for the treatment of breast cancer following its approval by the FDA or the European Medicines Agency, and to market, sell and distribute NeuVax in Israel assuming such approval is obtained. ABIC’s rights also include a right of first refusal in Israel for all future indications for which NeuVax may be approved. Under the license and supply agreement, ABIC will assume responsibility for regulatory registration of NeuVax in Israel, provide financial support for local development, and commercialize the product in the region in exchange for making royalty payments to us based on future sales of NeuVax. ABIC also agrees in the license and supply agreement to purchase from us all supplies of NeuVax at a price determined according to a specified formula.

On March 18, 2013, we acquired Abstral® (fentanyl) sublingual tablets for sale and distribution in the United States from Orexo AB (ORX.ST), an emerging specialty pharmaceutical company based in Sweden. Abstral has been approved by the U.S. Food and Drug Administration (FDA) and is a transmucosal immediate-release fentanyl (TIRF) product.

Under our agreement with Orexo, we assumed responsibility for the U.S. commercialization of Abstral and for all regulatory and reporting matters in the U.S. We also agreed to establish and maintain through 2015 a specified minimum commercial field force to market, sell and distribute Abstral and to use commercially reasonable efforts to reach the specified sales milestones. Orexo is entitled to reacquire the U.S. rights to Abstral from us for no consideration if we breach our obligations to establish and maintain the requisite sales force throughout the marketing period. We recently launched U.S. commercial sales of Abstral.

In exchange for the U.S. rights to Abstral, (1) we paid Orexo $10 million, and (2) we agreed to pay to Orexo: (a) $5 million in cash upon the earlier of the approval by the FDA of a specified U.S. manufacturer of Abstral and the first anniversary of the closing; (b) three one-time future cash milestone payments based on our net sales of Abstral; and (c) a low double-digit royalty on future net sales. No further milestone or royalty payments will be due after the date on which all claims of the last remaining licensed patents expire (currently 2019) or become invalidated by a governmental agency.

The $5 million milestone payment, which is included in intangible assets and accrued expenses and other current liabilities at September 30, 2013, was paid on October 3, 2013.
Significant Customers and Concentration of Credit Risk (Notes)
Significant Customer and Concentration of Credit Risk
Significant Customers and Concentration of Credit Risk

The company is engaged in the business of developing and commercializing pharmaceutical products. The company has one commercial product, Abstral, available in six dosing strengths, and all sales reported are in the United States.

The company had product sales to two customers that represented more than 10% of revenue for the three months ended September 30, 2013. Product shipments to two customers accounted for 63% and 19% of sales for the three months ended September 30, 2013, respectively. No revenue was recognized prior to the three months ended September 30, 2013.

Accounts receivable from one customer accounted for 81% of accounts receivable balance as of September 30, 2013. There was no accounts receivable balance as of December 31, 2012.
Subsequent Events
Subsequent Events
Subsequent Events

The company evaluated all events or transactions that occurred after September 30, 2013 up through the date these financial statements were issued. Other than as disclosed elsewhere in the notes to the condensed consolidated financial statements, the company did not have any material recognizable or unrecognizable subsequent events.
Business and Basis of Presentation (Policies)
Uses of Estimates in Preparation of Financial Statements — The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Principles of Consolidation — The consolidated financial statements include the accounts of Galena and its wholly owned subsidiary. All material intercompany accounts have been eliminated in consolidation.

Reclassifications — Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on net loss per share.
Cash and Cash Equivalents — The company considers all highly liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and demand deposits.
Restricted Cash — Restricted cash consists of certificates of deposit on hand with the company’s financial institutions as collateral for its corporate credit cards
Marketable Securities — Marketable securities consist of shares of common stock of our former subsidiary, RXi Pharmaceuticals Corporation, a publicly traded company, and are classified as available-for-sale and carried at fair value on the balance sheet. Changes in the fair value of marketable securities are recorded as other comprehensive income (loss).
Fair Value of Financial Instruments — The carrying amounts reported in the balance sheet for cash equivalents, marketable securities, accounts receivable, accounts payable, and capital leases approximate their fair values due to their short-term nature and market rates of interest.
Inventories — Inventories are stated at the lower of cost or market value and are determined using the first-in, first-out ("FIFO") method. Inventories consist of Abstral work-in-process and finished goods. The company has entered into manufacturing and supply agreements for the manufacture and packing of Abstral finished goods. As of September 30, 2013, the company had inventories of $425,000, consisting of $270,000 of work-in-process and $155,000 of finished goods. The company had no inventory as of December 31, 2012.
Equipment and Furnishings — Equipment and furnishings are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally three to five years for equipment and furniture) of the related assets.
Goodwill and Intangible Assets — Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level, or more frequently if events and circumstances indicate impairment may have occurred. Factors the company considers important that could trigger an interim review for impairment include, but are not limited to, the following:
Significant changes in the manner of its use of acquired assets or the strategy for its overall business;
Significant negative industry or economic trends;
Significant decline in stock price for a sustained period; and
Significant decline in market capitalization relative to net book value.

Goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment. If it is determined that impairment is more likely than not, the company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.

Intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

The company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of September 30, 2013.
Goodwill and Intangible Assets — Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level, or more frequently if events and circumstances indicate impairment may have occurred. Factors the company considers important that could trigger an interim review for impairment include, but are not limited to, the following:
Significant changes in the manner of its use of acquired assets or the strategy for its overall business;
Significant negative industry or economic trends;
Significant decline in stock price for a sustained period; and
Significant decline in market capitalization relative to net book value.

Goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment. If it is determined that impairment is more likely than not, the company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.

Intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

The company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets, and has determined that there has been no impairment to these assets as of September 30, 2013.
Acquisitions and In-Licensing — For all in-licensed products and technologies, we perform an analysis to determine whether we hold a variable interest or a controlling financial interest in a variable interest entity. On the basis of our interpretations and conclusions, we determine whether the acquisition falls under the purview of variable interest entity accounting and if so, consider the necessity to consolidate the acquisition. As of September 30, 2013, we determined there were no variable interest entities required to be consolidated.

We also perform an analysis to determine if the assets and liabilities acquired in an acquisition qualify as a "business." The excess of the purchase price over the fair value of the net assets acquired can only be recognized as goodwill in a business combination.

The acquisition of the Abstral U.S. rights has been accounted for as an asset acquisition and not a business combination. The purchase price, including transaction costs, was recorded as an intangible asset related to the license and distribution rights acquired in the transaction. No other significant assets or liabilities were acquired or assumed in the transaction. The license and distribution rights will be amortized over ten years in a pattern based on our Abstral sales projections. Amortization expense, related to the Abstral rights, of $43 was recorded in cost of revenue for the three months ended September 30, 2013. There was no amortization recorded prior to the three months ended September 30, 2013. Refer to Note 12 for further information regarding the acquisition of Abstral U.S. rights.
Revenue Recognition - The company recognizes revenue from the sale of Abstral. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

We sell Abstral product in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively, our "customers," subject to rights of return. During the three months ended September 30, 2013, we began recognizing Abstral product sales at the time title transfers to our customer, and providing for an estimate of future product returns. Revenue from product sales is recorded net of provisions for estimated returns, prompt pay discounts, wholesaler discounts, rebates, chargebacks, patient assistance program rebates and other deductions as needed.

Product Sales Discounts and Allowances - The company recognizes revenue at the point of sale to its wholesale pharmaceutical distributors and retail pharmacies and the allowances for product returns, rebates and allowances are recognized at the point of sale. The company is required to make significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the company will be required to make adjustments to these allowances in the future.

Prompt Pay Discounts - As an incentive for prompt payment, the company offers a cash discount to customers, generally 2% of gross sales. The company expects that all customers will comply with the contractual terms to earn the discount. The company records the discount as an allowance against accounts receivable and a reduction of revenue.

Wholesaler Discounts - The company offers discounts to certain wholesalers and distributors based on contractually determined rates. The company accrues the discount as a reduction of receivables due from the wholesalers upon shipment to the respective wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Rebates - The company participates in certain rebate programs, which provide discounted prescriptions to members of group purchasing organization and specialty pharmacies. Under these rebate programs, the company pays a rebate to the third-party administrator of the program, generally two to the three months after the quarter in which prescriptions subject to the rebate are filled. The company estimates and accrues these rebates based on current contract prices, historical and estimated future percentages of product sold to qualifying member pharmacies and estimated levels of inventory in the distribution channel. Rebates are recognized as a reduction in the period that the related revenue is recognized.

Chargebacks - The company provides discounts primarily to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid or Medicare contracts and regulations. These entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the company the difference between the current retail price and the price the entity paid for the product. The company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historic chargeback activity. Chargebacks are recognized as a reduction of revenue in the period the related revenue is recognized.

Patient Assistance Programs - The company offers discount card programs to patients for Abstral in which patients receive discounts on their Abstral prescriptions that are reimbursed by the company. The company estimates the total amount that will be recognized based on a percentage of actual redemption applied to inventory in the distribution and retail channel and recognizes the discount as a reduction of revenue and as an other current liability (see Note 5) in the same period the related revenue is recognized.
Contingent Purchase Price Consideration — Contingent consideration is recorded at the estimated fair value as of the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period with any adjustments in fair value included in our consolidated statement of comprehensive loss.
Patents and Patent Application Costs — Although the company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.
Share-based Compensation — The company follows the provisions of the FASB ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including stock options and warrants. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

For stock options and warrants granted as consideration for services rendered by non-employees, the company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50 (“ASC 505-50”), “ Equity Based Payments to Non- Employees.” Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
Derivative Financial Instruments — Historically, the company has from time to time granted warrants to vendors as consideration for their services. We may also issue warrants as part of a debt or equity financing. The company does not enter into any derivative contracts for speculative purposes.

The company recognizes all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. In accordance with FASB ASC Topic 815-40, “ Derivatives and Hedging — Contracts in Entity’s Own Stock,” the value of warrants that are deemed to meet the definition of derivatives are required to be recorded as a liability, as the holders have an option to put the warrants back to the company upon the occurrence of certain events described in the warrants.
Research and Development Expenses — Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead related to our research and development departments, as well as costs to acquire technology licenses and clinical trial expenses.

Clinical trial expenses include direct costs associated with contract research organizations ("CROs"), as well as well as patient-related costs from the sites at which our trial is being conducted.

Direct costs associated with our CROs are generally payable on a time and materials basis, or when certain enrollment and monitoring milestones are achieved. Expense related to milestones is recognized in the period in which the milestone is achieved or in which we determine that it is more likely than not that the milestone will be achieved.

The invoicing from clinical trial sites can lag several months. We accrue these site costs based on our estimate of upfront set-up costs upon the screening of the first patient at each site, and the patient related costs based on our knowledge of patient enrollment status at each site.
Income Taxes — The company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. ASC 740-10 requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. The company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the company’s income tax provision or benefit. The recognition and measurement of benefits related to the company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and the company’s assumptions or changes in the company’s assumptions in future periods are recorded in the period they become known.
Concentrations of Credit Risk — Financial instruments that potentially subject the company to significant concentrations of credit risk consist principally of cash and cash equivalents. The company maintains cash balances in several accounts with two banks, which at times are in excess of federally insured limits. As of September 30, 2013, the company’s cash equivalents were invested in money market mutual funds. The company’s investment policy does not allow investment in any debt securities rated less than “investment grade” by national ratings services. The company has not experienced any losses on its deposits of cash and cash equivalents.
Comprehensive Loss — Comprehensive loss consists of our net loss and other comprehensive income related to the unrealized gain (loss), net of tax, on our marketable securities, which are classified as available-for-sale.
Fair Value Measurements

The company follows ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) for the company’s financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are as defined as follows:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The company categorized its cash equivalents and marketable securities as Level 1 inputs. The valuations for Level 1 were determined based on a “market approach” using quoted prices in active markets for identical assets. Valuation of these assets does not require a significant degree of judgment. The company categorized its warrants potentially settleable in cash as Level 2 inputs. The warrants are measured at market value on a recurring basis and are being marked to market each quarter-end until they are completely settled. The warrants are valued using an appropriate pricing model, using assumptions consistent with our application of ASC 718. The contingent purchase price consideration is categorized as Level 3 inputs and is measured at its estimated fair value on a recurring basis and is adjusted at each quarter-end until it is completely settled. The contingent price consideration is valued based on the expected timing of milestones, the expected probability of success for each milestone and discount rates based on a corporate debt interest rate index publicly issued.
Net Loss Per Share

The company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260 “Earnings per Share.” Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants.
Business and Basis of Presentation (Tables)
Schedule of Other Income (Expense)
Other Income (Expense)

Other income (expense) is summarized as follows (in thousands):
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Change in fair value of warrants potentially settleable in cash
$
(1,614
)
 
$
(262
)
 
$
(7,135
)
 
$
(11,899
)
Realized gain on sale of marketable securities
814

 

 
1,392

 

Change in fair value of the contingent purchase price liability
(172
)
 
(471
)
 
(559
)
 
(2,019
)
Miscellaneous other income
51

 

 
48

 

Total other income (expense)
$
(921
)
 
$
(733
)
 
$
(6,254
)
 
$
(13,918
)
Fair Value Measurements (Tables)
Description
September 30, 2013
 
Quoted Prices In    
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable 
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
49,431

 
$
49,431

 
$

 
$

Marketable securities
2,837

 
2,837

 

 

Total assets measured and recorded at fair value
$
52,268

 
$
52,268

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Warrants potentially settleable in cash
$
24,267

 
$

 
$
24,267

 
$

Contingent purchase price consideration
6,701

 

 

 
6,701

Total liabilities measured and recorded at fair value
$
30,968

 
$

 
$
24,267

 
$
6,701


Description
December 31, 2012
 
Quoted Prices In    
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable 
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
32,431

 
$
32,431

 
$

 
$

Marketable securities
2,678

 
2,678

 

 

Total assets measured and recorded at fair value
$
35,109

 
$
35,109

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Warrants potentially settleable in cash
$
10,964

 
$

 
$
10,964

 
$

Contingent purchase price consideration
7,142

 

 

 
7,142

Total liabilities measured and recorded at fair value
$
18,106

 
$

 
$
10,964

 
$
7,142

A reconciliation of the beginning and ending Level 3 liabilities for the nine months ended September 30, 2013 is as follows (in thousands):
 
 
Fair Value
Measurements
Using Significant
Unobservable
Inputs
(Level 3)
Balance, January 1, 2013
$
7,142

Milestone payment
(1,000
)
Change in the estimated fair value of the contingent purchase price consideration
559

Balance at September 30, 2013
$
6,701

Accrued Expenses and Other Current Liabilities (Tables)
Schedule of Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):

 
September 30, 2013
 
December 31, 2012
Abstral milestone payment
$
5,000

 
$

Contract research organizations
1,559

 
1,705

Compensation and related benefits
1,161

 
217

Patient assistance programs
808

 

Professional fees
150

 
116

Royalties
141

 

Interest expense
70

 

Accrued expenses and other current liabilities
$
8,889

 
$
2,038

Stockholders' Equity (Tables)
Common Stock are Reserved for Future Issuance
Shares of common stock are reserved as follows (in thousands):

September 2013 Underwritten Public Offering - On September 18, 2013 the company closed an underwritten public offering of 17,500,000 units at a price to the public of $2.00 per unit for gross proceeds of $35 million (the "September 2013 Offering"). Each unit consists of one share of common stock, and a warrant to purchase 0.35 of a share of common stock at an exercise price of $2.50 per share. The offering included an over-allotment option for the underwriters to purchase an additional 2,625,000 shares of common stock and/or warrants up to 918,750 share of common stock. On September 23, 2013, the underwriters exercised their over-allotment option in full. The additional gross proceeds to the company as a result of the full exercise of the over-allotment option were approximately $5.2 million. The total net proceeds of the September 2013 offering, including the exercise of the over-allotment option, were $37.5 million, after deducting underwriting discounts and commissions and offering expenses payable by the company.
 
 
As of September 30, 2013
Warrants outstanding
18,903

Stock options outstanding
9,928

Options reserved for future issuance under the Company’s 2007 Incentive Plan
5,304

Shares reserved for future issuance under the Employee Stock Purchase Plan
756

Total reserved for future issuance
34,891

Warrants (Tables)
The following is a summary of warrant activity for the nine months ended September 30, 2013 (in thousands):
 
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
 
Consultant
and Oxford Warrants
 
Total
Outstanding, January 1, 2013

 
7,578

 
2,846

 
361

 
360

 
978

 
1,093

 
13,216

Granted
7,044

 

 

 

 

 

 
182

 
7,226

Exercised

 
(8
)
 
(998
)
 
(183
)
 

 

 
(160
)
 
(1,349
)
Expired

 

 

 

 

 

 
(190
)
 
(190
)
Outstanding, September 30, 2013
7,044

 
7,570

 
1,848

 
178

 
360

 
978

 
925

 
18,903

Expiration
September 2018
 
December 2017
 
April 2017
 
March 2016
 
March 2016
 
August 2014
 
Varies 2013-2020
 
 
The fair value of the warrants is estimated using an appropriate pricing model with the following inputs:
 
 
As of September 30, 2013
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
Strike price
$
2.50

 
$
1.90

 
$
0.65

 
$
0.65

 
$
2.15

 
$
4.50

Expected term (years)
4.97

 
4.23

 
3.56

 
2.43

 
2.49

 
0.84

Volatility %
79.43
%
 
71.45
%
 
72.36
%
 
74.21
%
 
73.96
%
 
65.21
%
Risk-free rate %
1.38
%
 
1.11
%
 
0.86
%
 
0.47
%
 
0.49
%
 
0.08
%
 
 
As of December 31, 2012
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
Strike price

 
$
1.90

 
$
0.65

 
$
0.65

 
$
2.18

 
$
4.50

Expected term (years)

 
4.98

 
4.30

 
3.18

 
3.24

 
1.59

Volatility %

 
80.93
%
 
82.48
%
 
69.90
%
 
69.79
%
 
74.13
%
Risk-free rate %

 
0.72
%
 
0.59
%
 
0.39
%
 
0.40
%
 
0.21
%
The changes in fair value of the warrant liability for the nine months ended September 30, 2013 were as follows (in thousands):
 
 
September
2013
Warrants
 
December
2012
Warrants
 
April 2011
Warrants
 
March
2011
Warrants
 
March
2010
Warrants
 
August
2009
Warrants
 
Total
Warrant liability, January 1, 2013
$

 
$
6,954

 
$
3,310

 
$
378

 
$
183

 
$
139

 
$
10,964

Fair value of warrants granted
8,238

 

 

 

 

 

 
8,238

Fair value of warrants exercised

 
(15
)
 
(1,788
)
 
(252
)
 

 

 
(2,055
)
Change in fair value of warrants
1,713

 
3,239

 
1,814

 
182

 
195

 
(23
)
 
7,120

Warrant liability, September 30, 2013
$
9,951

 
$
10,178

 
$
3,336

 
$
308

 
$
378

 
$
116

 
$
24,267

Stock Based Compensation (Tables)
The company uses the Black-Scholes option-pricing model and the following weighted-average assumptions to determine the fair value of all its stock options granted:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Risk free interest rate

 
0.85
%
 
1.25
%
 
1.06
%
Volatility

 
75.35
%
 
77.66
%
 
75.67
%
Expected lives (years)
0.00

 
6.25

 
6.25

 
6.13

Expected dividend yield

 
0.00
%
 
0.00
%
 
0.00
%
The following table summarizes option activity of the company:
 
 
Total
Number of
Shares
(In Thousands)
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(In Thousands)
Outstanding at January 1, 2013
7,672

 
$
2.54

 
$

Granted
2,783

 
1.88

 
1,203

Exercised
(10
)
 
0.88

 
17

Cancelled
(517
)
 
4.39

 
37

Outstanding at September 30, 2013
9,928

 
$
2.26

 
$
6,867

Options exercisable at September 30, 2013
6,271

 
$
2.65

 
$
4,257

Net Loss Per Share (Tables)
Common Shares Excluded from Net Loss
The following table sets forth the potentially dilutive common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive (in thousands):
 
 
Three and Nine Months Ended
September 30,
 
2013
 
2012
Warrants to purchase common stock
18,903

 
5,747

Options to purchase common stock
9,928

 
7,540

Total
28,831

 
13,287

Business and Basis of Presentation (Additional Information) (Detail) (USD $)
3 Months Ended 9 Months Ended 123 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Mar. 31, 2013
Dec. 31, 2012
Schedule Of Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
Prompyt pay discount, percent of gross sales
 
 
$ 0 
 
 
 
Cash paid for acquisition of Abstral rights
10,000,000 
 
10,075,000 
   
10,086,000 
 
Highly-liquid debt instruments maturity days
90 days 
 
 
 
 
 
Inventories
425,000 
 
425,000 
 
 
Inventories, work-in-process
270,000 
 
270,000 
 
 
 
Inventories, finished goods
155,000 
 
155,000 
 
 
 
Amortization period of license and distribution rights
10 years 
 
 
 
 
 
Amortization of Abstral rights
43 
 
 
 
 
 
Income tax expense (benefit)
1,159,000 
   
(62,000)
   
 
 
Interest bearing accounts
 
 
 
 
50,877,000 
 
Orexo [Member]
 
 
 
 
 
 
Schedule Of Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
Remaining cash held of Abstral rights
 
 
 
 
$ 5,000,000 
 
Estimated year of licensed patents expiration
2019 
 
 
 
 
 
Minimum [Member] |
Equipment and Furnishings [Member]
 
 
 
 
 
 
Schedule Of Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
Estimated useful lives
3 years 
 
 
 
 
 
Maximum [Member] |
Equipment and Furnishings [Member]
 
 
 
 
 
 
Schedule Of Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
Estimated useful lives
5 years 
 
 
 
 
 
Recently Adopted Accounting Pronouncements (Additional Information) (Detail)
9 Months Ended
Sep. 30, 2013
Accounting Changes and Error Corrections [Abstract]
 
Minimum likely hood for more-likely-than-not threshold
50.00% 
RXi Spin-off (Additional Information) (Detail) (USD $)
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Sep. 24, 2011
Sep. 30, 2013
RXi [Member]
Sep. 30, 2013
RXi [Member]
Apr. 30, 2012
RXi [Member]
Related Party Transaction [Line Items]
 
 
 
 
 
 
Cash contribution in capital
 
 
$ 1,500,000 
 
 
 
Proceeds from technology revenue
 
45,000,000 
 
 
 
 
Proceeds from technology revenue under condition one
 
15,000,000 
 
 
 
 
Proceeds from technology revenue under condition two
 
30,000,000 
 
 
 
 
Minimum estimated sales
 
 
 
 
500,000,000 
 
Estimated sales
 
 
 
 
1,000,000,000 
 
Number of shares distributed to surrenders under spin-off
 
 
 
 
 
66,959,894 
Number of shares retained by company under spin-off
 
 
 
 
 
33,476,595 
Lock up period of shares under spin-off
 
 
 
 
1 year 
 
Expiration date of shares under spin-off
 
 
 
 
Apr. 27, 2013 
 
Number of shares sold by company after spin-off
 
 
 
204,623 
305,359 
 
Proceeds from sale of shares after spin-off
814,000 
1,392,000 
 
 
 
 
Retained price per shares under spin-off
 
 
 
$ 3.50 
$ 3.50 
 
Retained value of shares under spin-off
 
 
 
$ 2,837,000 
$ 2,837,000 
 
Fair Value Measurements (Contingent Purchase Price Consideration, Measured at Estimated Fair Value on Recurring Basis) (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Assets:
 
 
 
Cash equivalents
 
$ 50,877 
 
Marketable securities
2,837 
 
2,678 
Liabilities:
 
 
 
Warrants potentially settleable in cash
24,267 
 
10,964 
Unobservable Inputs (Level 3) [Member]
 
 
 
Liabilities:
 
 
 
Contingent purchase price consideration
6,701 
 
7,142 
Fair Value, Measurements, Recurring [Member]
 
 
 
Assets:
 
 
 
Cash equivalents
49,431 
 
32,431 
Marketable securities
2,837 
 
2,678 
Total assets
52,268 
 
35,109 
Liabilities:
 
 
 
Warrants potentially settleable in cash
24,267 
 
10,964 
Contingent purchase price consideration
6,701 
 
7,142 
Total liabilities
30,968 
 
18,106 
Fair Value, Measurements, Recurring [Member] |
Quoted Prices in Active Markets (Level 1) [Member]
 
 
 
Assets:
 
 
 
Cash equivalents
49,431 
 
32,431 
Marketable securities
2,837 
 
2,678 
Total assets
52,268 
 
35,109 
Liabilities:
 
 
 
Warrants potentially settleable in cash
 
Contingent purchase price consideration
 
Total liabilities
 
Fair Value, Measurements, Recurring [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
 
Assets:
 
 
 
Cash equivalents
 
Marketable securities
 
Total assets
 
Liabilities:
 
 
 
Warrants potentially settleable in cash
24,267 
 
10,964 
Contingent purchase price consideration
 
Total liabilities
24,267 
 
10,964 
Fair Value, Measurements, Recurring [Member] |
Unobservable Inputs (Level 3) [Member]
 
 
 
Assets:
 
 
 
Cash equivalents
 
Marketable securities
 
Total assets
 
Liabilities:
 
 
 
Warrants potentially settleable in cash
 
Contingent purchase price consideration
6,701 
 
7,142 
Total liabilities
$ 6,701 
 
$ 7,142 
Fair Value Measurements (Reconciliation of Level 3 Liabilities) (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
 
 
 
 
Change in the estimated fair value of the contingent purchase price consideration
$ (172)
$ (471)
$ (559)
$ (2,019)
Unobservable Inputs (Level 3) [Member]
 
 
 
 
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
 
 
 
 
Beginning Balance Liabilities
 
 
7,142 
 
MIlestone Payment
 
 
(1,000)
 
Change in the estimated fair value of the contingent purchase price consideration
 
 
(559)
 
Ending Balance Liabilities
$ 6,701 
 
$ 6,701 
 
Accrued Expenses and Other Current Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Payables and Accruals [Abstract]
 
 
Abstral milestone payment
$ 5,000 
$ 0 
Contract research organizations
1,559 
1,705 
Compensation and related benefits
1,161 
217 
Patient assistance programs
808 
Professional fees
150 
116 
Accrued Royalties, Current
141 
Interest expense
70 
Accrued expense and other current liabilities
$ 8,889 
$ 2,038 
Long-term Debt (Details) (USD $)
In Millions, except Share data, unless otherwise specified
0 Months Ended
May 8, 2013
Sep. 18, 2013
Debt Instrument [Line Items]
 
 
Loan, amount
$ 15 
 
Term for interest only payments
12 months 
 
Interest payments at the fixed coupon rate
8.45% 
 
Term for principal and interest payments
30 months 
 
Cash facility fee percentage
1.00% 
 
Cash final payment percentage
5.50% 
 
Warrant term
7 years 
 
Number of shares availabe from warrants
 
0.35 
Exercise price (usd per share)
2.47 
2.50 
Duration of average market price used for warrant exercise price
20 days 
 
Maximum [Member]
 
 
Debt Instrument [Line Items]
 
 
Number of shares availabe from warrants
182,186 
 
First Tranche [Member]
 
 
Debt Instrument [Line Items]
 
 
Loan, amount
10 
 
Second Tranche [Member]
 
 
Debt Instrument [Line Items]
 
 
Loan, amount
$ 5 
 
Stockholders' Equity (Additional Information) (Detail) (USD $)
In Millions, except Share data, unless otherwise specified
0 Months Ended 1 Months Ended
Sep. 23, 2013
Sep. 18, 2013
Sep. 30, 2013
May 8, 2013
Dec. 31, 2012
Class of Stock [Line Items]
 
 
 
 
 
Preferred stock, shares authorized
 
 
5,000,000 
 
5,000,000 
Preferred stock, par value (usd per share)
 
 
$ 0.0001 
 
$ 0.0001 
Common stock, shares authorized
 
 
200,000,000 
 
125,000,000 
Common stock, par value (usd per share)
 
 
$ 0.0001 
 
$ 0.0001 
Issuance of common stock, shares
 
17,500,000 
 
 
 
Share Price
 
$ 2.00 
 
 
 
Proceeds from Issuance or Sale of Equity
$ 5.2 
$ 35.0 
 
 
 
Number of Shares Per Unit
 
 
 
 
Number of shares availabe from warrants
 
0.35 
 
 
 
Class of Warrant or Right, Exercise Price of Warrants or Rights
 
2.50 
 
2.47 
 
Proceeds From Issuance or Sale of Equity, Net Underwriting Discounts, Commissions and Offering Expenses
 
 
$ 37.5 
 
 
Common Stock [Member]
 
 
 
 
 
Class of Stock [Line Items]
 
 
 
 
 
Stock Issued During Period, Shares, Overallotment Option
 
2,625,000 
 
 
 
Warrants to purchase common stock [Member]
 
 
 
 
 
Class of Stock [Line Items]
 
 
 
 
 
Stock Issued During Period, Shares, Overallotment Option
 
918,750 
 
 
 
Stockholders' Equity (Common Stock are Reserved for Future Issuance) (Detail)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Equity [Abstract]
 
 
Warrants outstanding
18,903 
13,216 
Stock options outstanding
9,928 
7,672 
Options reserved for future issuance under the Company's 2007 Incentive Plan
5,304 
 
Shares reserved for future issuance under the Employee Stock Purchase Plan
756 
 
Total reserved for future issuance
34,891 
 
Warrants (Schedule of Warrant Activity) (Detail)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
13,216 
Granted
 
7,226 
Exercised
 
(1,349)
Expired
 
(190)
Warrants outstanding , Ending balance
18,903 
18,903 
September Two Thousand Thirteen Warrant [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
Granted
 
7,044 
Exercised
 
Warrants outstanding , Ending balance
7,044 
7,044 
Expiration
Sep. 18, 2018 
 
December 2012 Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
7,578 
Granted
 
Exercised
 
(8)
Warrants outstanding , Ending balance
7,570 
7,570 
Expiration
Dec. 31, 2017 
 
April 2011 Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
2,846 
Granted
 
Exercised
 
(998)
Warrants outstanding , Ending balance
1,848 
1,848 
Expiration
Apr. 30, 2017 
 
March 2011 Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
361 
Granted
 
Exercised
 
(183)
Warrants outstanding , Ending balance
178 
178 
Expiration
Mar. 31, 2016 
 
March 2010 Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
360 
Granted
 
Exercised
 
Warrants outstanding , Ending balance
360 
360 
Expiration
Mar. 31, 2016 
 
August 2009 Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
978 
Granted
 
Exercised
 
Warrants outstanding , Ending balance
978 
978 
Expiration
Aug. 31, 2014 
 
Consultant Warrants [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Warrants outstanding , Beginning balance
 
1,093 
Granted
 
182 
Exercised
 
(160)
Expired
 
(190)
Warrants outstanding , Ending balance
925 
925 
Consultant Warrants [Member] |
Minimum [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Expiration
Dec. 31, 2013 
 
Consultant Warrants [Member] |
Maximum [Member]
 
 
Class of Warrant or Right, Outstanding [Roll Forward]
 
 
Expiration
Dec. 31, 2020 
 
Warrants (Fair Value of Warrants is Estimated Using Black-Scholes Option Pricing Model) (Detail)
9 Months Ended 12 Months Ended
Sep. 30, 2013
Dec. 31, 2012
December 2012 Warrants [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 1.90 
$ 1.90 
Expected term (years)
4 years 2 months 23 days 
4 years 11 months 23 days 
Volatility %
71.45% 
80.93% 
Risk-free rate %
1.11% 
0.72% 
April 2011 Warrants [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 0.65 
$ 0.65 
Expected term (years)
3 years 6 months 22 days 
4 years 3 months 18 days 
Volatility %
72.36% 
82.48% 
Risk-free rate %
0.86% 
0.59% 
March 2011 Warrants [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 0.65 
$ 0.65 
Expected term (years)
2 years 5 months 5 days 
3 years 2 months 5 days 
Volatility %
74.21% 
69.90% 
Risk-free rate %
0.47% 
0.39% 
March 2010 Warrants [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 2.15 
$ 2.18 
Expected term (years)
2 years 5 months 27 days 
3 years 2 months 27 days 
Volatility %
73.96% 
69.79% 
Risk-free rate %
0.49% 
0.40% 
August 2009 Warrants [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 4.50 
$ 4.50 
Expected term (years)
10 months 2 days 
1 year 7 months 2 days 
Volatility %
65.21% 
74.13% 
Risk-free rate %
0.08% 
0.21% 
September Two Thousand Thirteen Warrant [Member]
 
 
Class of Warrant or Right [Line Items]
 
 
Strike price
$ 2.50 
 
Expected term (years)
4 years 11 months 19 days 
 
Volatility %
79.43% 
 
Risk-free rate %
1.38% 
 
Warrants (Changes in Fair Value of Warrant Liability) (Detail) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
$ 10,964 
Fair Value of Warrants Granted
8,238 
Fair value of warrants exercised
2,055 
Change in fair value of warrants
7,120 
Warrant liability, Ending balance
24,267 
December 2012 Warrants [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
6,954 
Fair value of warrants exercised
15 
Change in fair value of warrants
3,239 
Warrant liability, Ending balance
10,178 
April 2011 Warrants [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
3,310 
Fair value of warrants exercised
1,788 
Change in fair value of warrants
1,814 
Warrant liability, Ending balance
3,336 
March 2011 Warrants [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
378 
Fair value of warrants exercised
252 
Change in fair value of warrants
182 
Warrant liability, Ending balance
308 
March 2010 Warrants [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
183 
Fair value of warrants exercised
Change in fair value of warrants
195 
Warrant liability, Ending balance
378 
August 2009 Warrants [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
139 
Fair value of warrants exercised
Change in fair value of warrants
(23)
Warrant liability, Ending balance
116 
September Two Thousand Thirteen Warrant [Member]
 
Class of Warrant or Right, Fair Value [Roll Forward]
 
Warrant liability, Beginning balance
Fair Value of Warrants Granted
8,238 
Fair value of warrants exercised
Change in fair value of warrants
1,713 
Warrant liability, Ending balance
$ 9,951 
Warrants (Warrants Classified as Equity) (Details) (USD $)
0 Months Ended
May 8, 2013
Sep. 18, 2013
Class of Warrant or Right [Line Items]
 
 
Warrants Granted, Number of Shares
182,186 
 
Class of Warrant or Right, Exercise Price of Warrants or Rights
2.47 
2.50 
Number of Days Averaged for Exercise Price
20 days 
 
Fair Value Assumptions, Expected Volatility Rate
75.34% 
 
Fair Value Assumptions, Expected Term
7 years 
 
Fair Value Assumptions, Risk Free Interest Rate
1.20% 
 
Fair Value Assumptions, Expected Dividend Rate
0.00% 
 
Fair Value of Warrants Granted, per Share
$ 1.93 
 
Stock Based Compensation (Assumptions for Option Grants Issued) (Detail)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Mar. 31, 2012
Sep. 30, 2013
Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
 
 
Risk free interest rate
0.00% 
0.85% 
1.25% 
1.06% 
Volatility
0.00% 
75.35% 
77.66% 
75.67% 
Expected lives (years)
0 years 
6 years 3 months 
6 years 3 months 
6 years 1 month 17 days 
Expected dividend yield
0.00% 
0.00% 
0.00% 
0.00% 
Stock Based Compensation (Additional Information) (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Minimum [Member]
Sep. 30, 2013
Maximum [Member]
Sep. 30, 2013
2007 Incentive Plan [Member]
Jun. 28, 2013
2007 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
 
 
 
Weighted average exercise price, granted
 
 
$ 1.28 
 
 
 
 
 
Averages contractual term
 
 
10 years 
 
 
 
 
 
Average vesting term
 
 
 
 
4 years 
6 years 
 
 
Estimated annualized forfeiture rate for options granted to employees
 
 
15.00% 
 
 
 
 
 
Estimated annualized forfeiture rate for options granted to senior management
 
 
8.00% 
 
 
 
 
 
Allocated share based compensation expense
$ 461,000 
$ 364,000 
$ 1,344,000 
$ 1,316,000 
 
 
 
 
Unrecognized compensation cost
 
 
$ 2,955,000 
 
 
 
 
 
Operating expenses weighted average period
 
 
2 years 10 months 10 days 
 
 
 
 
 
Shares of common stock reserved for issuance
 
 
 
 
 
 
16,500,000 
 
Shares subject to outstanding common stock options granted
 
 
2,783,000 
 
 
 
9,928,000 
 
Shares available for future grants
 
 
 
 
 
 
5,314,000 
 
Vesting periods of options granted
 
 
 
 
 
 
4 years 
 
Options expire from date of grant
 
 
 
 
 
 
10 years 
 
Closing price of the Company's common stock
 
 
 
 
 
 
 
$ 2.28 
Stock Based Compensation (Stock Option Activity) (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
Total Number of Shares, outstanding Beginning Balance
7,672 
Stock options activity, Total Number of Shares, Granted
2,783 
Stock options activity, Total Number of Shares, Exercised
(10)
Stock options activity, Total Number of Shares, Cancelled
(517)
Total Number of Shares, outstanding Ending Balance
9,928 
Total Number of Shares, exercisable
6,271 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
 
Stock options activity, Weighted Average Exercise Price, Beginning balance
$ 2.54 
Stock options activity, Weighted Average Exercise Price, Granted
$ 1.88 
Stock options activity, Weighted Average Exercise Price, Exercised
$ 0.88 
Stock options activity, Weighted Average Exercise Price, Cancelled
$ 4.39 
Stock options activity, Weighted Average Exercise Price, Ending balance
$ 2.26 
Stock options activity, Weighted Average Exercise Price, exercisable
$ 2.65 
Stock options activity, Aggregate Intrinsic Value, Beginning balance
$ 0 
Stock options activity, Aggregate Intrinsic Value, Granted
1,203 
Stock options activity, Aggregate Intrinsic Value, Exercised
17 
Stock options activity, Aggregate Intrinsic Value, Cancelled
37 
Stock options activity, Aggregate Intrinsic Value, Ending balance
6,867 
Stock options activity, Aggregate Intrinsic Value, exercisable
$ 4,257 
Other Income (Expense) Table (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Component of Other Expense, Nonoperating [Line Items]
 
 
 
 
Change in fair value of warrants potentially settleable in cash
$ (1,614)
$ (262)
$ (7,135)
$ (11,899)
Realized gain on sale of marketable securities
814 
1,392 
Change in fair value of the contingent purchase price liability
(172)
(471)
(559)
(2,019)
Miscellaneous other income
51 
48 
Total other income (expense)
$ (921)
$ (733)
$ (6,254)
$ (13,918)
Net Loss Per Share (Common Shares Excluded from Net Loss) (Detail)
In Thousands, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Shares of common stock issuable upon the exercise which were excluded from the computation of diluted earnings per share
28,831 
13,287 
Warrants to purchase common stock [Member]
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Shares of common stock issuable upon the exercise which were excluded from the computation of diluted earnings per share
18,903 
5,747 
Options to purchase common stock [Member]
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Shares of common stock issuable upon the exercise which were excluded from the computation of diluted earnings per share
9,928 
7,540 
License Agreements (Additional Information) (Detail) (USD $)
3 Months Ended 9 Months Ended 123 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Sep. 30, 2012
Mar. 31, 2013
Dec. 31, 2012
License And Collaboration Agreements [Line Items]
 
 
 
 
 
Milestone payment for Phase 3
$ 5,000,000 
$ 5,000,000 
 
 
$ 0 
Cash paid for acquisition of Abstral rights
10,000,000 
10,075,000 
   
10,086,000 
 
Orexo [Member]
 
 
 
 
 
License And Collaboration Agreements [Line Items]
 
 
 
 
 
Remaining cash held of Abstral rights
 
 
 
5,000,000 
 
Estimated year of licensed patents expiration
2019 
 
 
 
 
M D Anderson Cancer Center [Member]
 
 
 
 
 
License And Collaboration Agreements [Line Items]
 
 
 
 
 
Annual maintenance fee
200,000 
200,000 
 
 
 
Milestone payment for Phase 3
$ 200,000 
$ 200,000 
 
 
 
Significant Customers and Concentration of Credit Risk (Details)
3 Months Ended
Sep. 30, 2013
customers
Concentration Risk [Line Items]
 
Number of Commerical Products
Number of Dosing Strengths
Sales Revenue, Product Line [Member]
 
Concentration Risk [Line Items]
 
Concentration Risk, Number of Customers
Concentration Risk, Percentage
10.00% 
Product Shipments [Member]
 
Concentration Risk [Line Items]
 
Concentration Risk, Number of Customers
Product Shipments [Member] |
Customer One [Member]
 
Concentration Risk [Line Items]
 
Concentration Risk, Percentage
63.00% 
Product Shipments [Member] |
Customer Two [Member]
 
Concentration Risk [Line Items]
 
Concentration Risk, Percentage
19.00% 
Accounts Receivable [Member]
 
Concentration Risk [Line Items]
 
Concentration Risk, Number of Customers
Concentration Risk, Percentage
81.00%