ACORDA THERAPEUTICS INC, 10-Q filed on 5/9/2011
Quarterly Report
Document And Entity Information
3 Months Ended
Mar. 31, 2011
Feb. 17, 2011
Jun. 30, 2010
Entity Registrant Name
ACORDA THERAPEUTICS INC 
 
 
Entity Central Index Key
0001008848 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
859,576,238 
Entity Common Stock, Shares Outstanding
 
39,101,223 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
Q1 
 
 
Document Type
10-Q 
 
 
Amendment Flag
FALSE 
 
 
Document Period End Date
2011-03-31 
 
 
Consolidated Balance Sheets (unaudited) (USD $)
In Thousands
3 Months Ended
Mar. 31, 2011
Year Ended
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 78,457 
$ 34,641 
Restricted cash
302 
302 
Short-term investments
146,890 
205,389 
Trade accounts receivable, net
23,795 
22,272 
Prepaid expenses
7,098 
6,413 
Finished goods inventory held by the Company
42,595 
36,232 
Finished goods inventory held by others
2,200 
2,186 
Other current assets
4,343 
3,734 
Total current assets
305,680 
311,169 
Property and equipment, net of accumulated depreciation
3,594 
3,203 
Intangible assets, net of accumulated amortization
20,707 
21,336 
Non-current portion of deferred cost of license revenue
5,917 
6,050 
Other assets
309 
343 
Total assets
336,207 
342,101 
Current liabilities:
 
 
Accounts payable
19,184 
16,961 
Accrued expenses and other current liabilities
25,774 
34,122 
Deferred product revenue-Zanaflex tablets
9,694 
9,526 
Deferred product revenue-Zanaflex Capsules
21,242 
21,770 
Current portion of deferred license revenue
9,057 
9,429 
Current portion of revenue interest liability
1,979 
1,297 
Current portion of convertible notes payable
1,144 
1,144 
Total current liabilities
88,074 
94,249 
Non-current portion of deferred license revenue
84,535 
86,429 
Put/call liability
391 
391 
Non-current portion of revenue interest liability
3,329 
3,586 
Non-current portion of convertible notes payable
5,090 
6,185 
Commitments and contingencies
 
 
Stockholders' equity:
 
 
Common stock, $0.001 par value. Authorized 80,000,000 shares at March 31, 2011 and December 31, 2010; issued and outstanding 38,808,217 and 38,779,370 shares as of March 31, 2011 and December 31, 2010, respectively
39 
39 
Treasury stock at cost (12,420 shares at March 31, 2011 and December 31, 2010)
(329)
(329)
Additional paid-in capital
595,796 
591,650 
Accumulated deficit
(440,758)
(440,086)
Accumulated other comprehensive income
40 
(13)
Total stockholders' equity
154,788 
151,261 
Total liabilities and stockholders' equity
$ 336,207 
$ 342,101 
Consolidated Balance Sheets (unaudited) Parenthetical (USD $)
Mar. 31, 2011
Dec. 31, 2010
Stockholders' equity:
 
 
Common stock, par value (in currency per share)
$ 0.001 
$ 0.001 
Common stock, Authorized shares (in shares)
80,000,000 
80,000,000 
Common stock, issued (in shares)
38,808,217 
38,779,370 
Common stock, outstanding (in shares)
38,808,217 
38,779,370 
Treasury stock at cost (in shares)
12,420 
12,420 
Consolidated Statements Of Operations (unaudited) (USD $)
In Thousands, except Per Share data
3 Months Ended
Mar. 31,
2011
2010
Revenues:
 
 
Gross product sales
$ 65,207 
$ 17,254 
Less: discounts and allowances
(6,282)
(1,864)
Net sales
58,925 
15,390 
License and royalty revenue
2,361 
2,357 
Total net revenues
61,286 
17,747 
Costs and expenses:
 
 
Cost of sales
12,050 
3,076 
Research and development
10,708 
8,062 
Selling, general and administrative
38,087 
26,714 
Total operating expenses
60,845 
37,852 
Operating income (loss)
441 
(20,105)
Other expense (net):
 
 
Interest and amortization of debt discount expense
(1,136)
(1,214)
Interest income
140 
204 
Total other expense (net)
(996)
(1,010)
Loss before taxes
(555)
(21,115)
Provision for taxes
(117)
Net loss
(672)
(21,115)
Net loss per share-basic (in currency per share)
(0.02)
(0.56)
Net loss per share-diluted (in currency per share)
$ (0.02)
$ (0.56)
Weighted average common shares outstanding used in computing net loss per share-basic (in shares)
38,781 
38,021 
Weighted average common shares outstanding used in computing net loss per share-diluted (in shares)
38,781 
38,021 
Consolidated Statements Of Cash Flows (unaudited) (USD $)
In Thousands
3 Months Ended
Mar. 31,
2011
2010
Cash flows from operating activities:
 
 
Net loss
$ (672)
$ (21,115)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Share-based compensation expense
3,755 
3,186 
Amortization of net premiums and discounts on short-term investments
1,863 
1,219 
Amortization of revenue interest issuance cost
36 
30 
Depreciation and amortization expense
1,139 
838 
Changes in assets and liabilities:
 
 
Increase in accounts receivable
(1,523)
(2,205)
Increase in prepaid expenses and other current assets
(1,294)
(2,291)
Increase in inventory held by the Company
(6,363)
(16,808)
(Increase) decrease in inventory held by others
(14)
88 
Decrease in non-current portion of deferred cost of license revenue
133 
165 
(Decrease) increase in accounts payable, accrued expenses, other current liabilities
(7,216)
15,605 
Increase in revenue interest liability interest payable
659 
615 
Decrease in current portion of deferred license revenue
(371)
Decrease in non-current portion of deferred license revenue
(1,893)
(2,357)
Increase (decrease) in deferred product revenue-Zanaflex tablets
168 
(457)
Decrease in deferred product revenue-Zanaflex Capsules
(529)
(540)
Net cash used in operating activities
(12,122)
(24,027)
Cash flows from investing activities:
 
 
Purchases of property and equipment
(743)
(456)
Purchases of intangible assets
(164)
(6,612)
Purchases of short-term investments
(42,812)
(31,113)
Proceeds from maturities of short-term investments
99,500 
96,750 
Net cash provided by investing activities
55,781 
58,569 
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock and option exercises
392 
4,108 
Repayments of revenue interest liability
(235)
(232)
Net cash provided by financing activities
157 
3,876 
Net increase in cash and cash equivalents
43,816 
38,418 
Cash and cash equivalents at beginning of period
34,641 
47,314 
Cash and cash equivalents at end of period
78,457 
85,732 
Supplemental disclosure:
 
 
Cash paid for interest
$ 429 
$ 541 
Organization and Business Activities
Organization and Business Activities
(1) Organization and Business Activities
 
Acorda Therapeutics, Inc. (“Acorda” or the “Company”) is a commercial stage biopharmaceutical company dedicated to the identification, development and commercialization of novel therapies that improve neurological function in people with multiple sclerosis (MS), spinal cord injury (SCI) and other disorders of the central nervous system (CNS).
 
The management of the Company is responsible for the accompanying unaudited interim consolidated financial statements and the related information included in the notes to the consolidated financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, including normal recurring adjustments necessary for the fair presentation of the Company's financial position and results of operations and cash flows for the periods presented. Results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.
 
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2010 included in the Company's Annual Report on Form 10-K for such year, as filed with the Securities and Exchange Commission (the “SEC”).
 
The Company finances its operations through a combination of issuance of equity securities, revenues from Ampyra and Zanaflex Capsules, loans, collaborations, and, to a lesser extent, grants. There are no assurances that the Company will be successful in obtaining an adequate level of financing needed to fund its development and commercialization efforts. To the extent the Company's capital resources are insufficient to meet future operating requirements, the Company will need to raise additional capital, reduce planned expenditures, or incur indebtedness to fund its operations. The Company may be unable to obtain additional debt or equity financing on acceptable terms, if at all. If adequate funds are not available, the Company may be required to curtail its sales and marketing efforts, delay, reduce the scope of or eliminate some of its research and development programs or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain product candidates that it might otherwise seek to develop or commercialize independently.
 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
(2) Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include the results of operations of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include research and development and share-based compensation accounting, which are largely dependent on the fair value of the Company's equity securities. In addition, the Company recognizes Zanaflex revenue based on estimated prescriptions filled. The Company adjusts its Zanaflex inventory value based on an estimate of inventory that may be returned. Actual results could differ from those estimates.
 
Revenue Recognition
 
Ampyra

Ampyra is available only through a network of specialty pharmacy providers that provide the medication to patients by mail, Kaiser Permanente (Kaiser), and the U.S. Department of Veterans Affairs (VA). Ampyra is not available in retail pharmacies. The Company applies the revenue recognition guidance in Staff Accounting Bulletin (SAB) 104 and does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about the sale of the product, the amount of returns can be reasonably estimated and collectability is reasonably assured. The Company recognizes product sales of Ampyra following shipment of product to a network of specialty pharmacy providers, Kaiser and the specialty distributor to the VA. As of March 31, 2011, inventory levels at specialty pharmacy providers that distribute Ampyra (excluding Kaiser and the specialty distributor to the VA) were approximately two weeks of their anticipated usage. The specialty pharmacy providers, Kaiser and the specialty distributor to the VA are contractually obligated to hold no more than 30 days of inventory.

The Company's net revenues represent total revenues less allowances for customer credits, including estimated rebates, discounts and returns. These allowances are recorded for cash consideration given by a vendor to a customer that is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, are characterized as a reduction of revenue. At the time product is shipped to specialty pharmacies, Kaiser and the specialty distributor to the VA, an adjustment is recorded for estimated rebates, discounts and returns. These allowances are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, discounts and returns are established based on the contractual terms with customers, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.  Product shipping and handling costs are included in cost of sales.

Based on the Company's specialty distribution model where it sells to only 12 specialty pharmacies, Kaiser and the VA (through a specialty distributor), the inventory and prescription data it receives from these distributors, and returns experience of other specialty products with similar selling models, the Company has been able to make a reasonable estimate for product returns. At March 31, 2011, inventory levels at the specialty pharmacies (excluding Kaiser and the specialty distributor to the VA) represented approximately two weeks of their anticipated usage. The Company will accept returns of Ampyra for two months prior to and six months after the product expiration date. The Company will provide a credit for such returns to customers with whom we have a direct relationship. Once product is prescribed, it cannot be returned. The Company does not exchange product from inventory for the returned product.
 
Zanaflex
 
The Company applies the revenue recognition guidance in Accounting Standards Codification (ASC) 605-15-25, which among other criteria requires that future returns can be reasonably estimated in order to recognize revenue. The amount of future tablet returns is uncertain due to generic competition and customer conversion to Zanaflex Capsules. The Company has accumulated some sales history with Zanaflex Capsules; however, due to existing and potential generic competition and customer conversion from Zanaflex tablets to Zanaflex Capsules, we do not believe we can reasonably determine a return rate at this time. As a result, the Company accounts for these product shipments using a deferred revenue recognition model. Under the deferred revenue model, the Company does not recognize revenue upon product shipment. For these product shipments, the Company invoices the wholesaler, records deferred revenue at gross invoice sales price, and classifies the cost basis of the product held by the wholesaler as a component of inventory. The Company recognizes revenue when prescribed to the end-user, on a first-in first-out (FIFO) basis. The Company's revenue to be recognized is based on (1) the estimated prescription demand, based on pharmacy sales for its products; and (2) the Company's analysis of third-party information, including third-party market research data. The Company's estimates are subject to the inherent limitations of estimates that rely on third-party data, as certain third-party information was itself in the form of estimates, and reflect other limitations. The Company's sales and revenue recognition reflects the Company's estimates of actual product prescribed to the end-user. The Company expects to be able to apply a more traditional revenue recognition policy such that revenue is recognized following shipment to the customer when it believes it has sufficient data to develop reasonable estimates of expected returns based upon historical returns and greater certainty regarding generic competition.
 
The Company's net revenues represent total revenues less allowances for customer credits, including estimated discounts, rebates, and chargebacks. These allowances are recorded for cash consideration given by a vendor to a customer that is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's statement of operations. Adjustments are recorded for estimated chargebacks, rebates, and discounts. These allowances are established by management as its best estimate based on available information and are adjusted to reflect known changes in the factors that impact such allowances. Allowances for chargebacks, rebates and discounts are established based on the contractual terms with customers, analysis of historical levels of discounts, chargebacks and rebates, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for each product and anticipated introduction of competitive products. In addition, the Company records a charge to cost of goods sold for the cost basis of the estimated product returns the Company believes may ultimately be realized at the time of product shipment to wholesalers. The Company has recognized this charge at the date of shipment since it is probable that it will receive a level of returned products; upon the return of such product it will be unable to resell the product considering its expiration dating; and it can reasonably estimate a range of returns. This charge represents the cost basis for the low end of the range of the Company's estimated returns. Product shipping and handling costs are included in cost of sales.
 
Milestones and royalties

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

Collaborations
 
The Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it shall be accounted for as a separate element or single unit of accounting. If an element shall be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue shall be recognized. If an element shall not be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue shall be recognized. Payments received in excess of revenues recognized are recorded as deferred revenue until such time as the revenue recognition criteria have been met.
 
Ampyra Inventory
 
Prior to regulatory approval of Ampyra in the three-month period ended March 31, 2010, the Company incurred expenses for the manufacture of bulk, unpackaged product of Ampyra that ultimately became available to support the commercial launch of this drug candidate. Until the necessary initial regulatory approval was received, we charged all such amounts to research and development expenses as there was no alternative future use prior to regulatory approval. As a result, our initial sales of Ampyra resulted in higher gross margins than if the inventory costs had not previously been expensed. Upon regulatory approval of Ampyra, the Company began capitalizing the commercial inventory costs associated with manufacturing with Elan and its second manufacturer, Patheon.
 
Concentration of Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments in cash and cash equivalents, restricted cash and accounts receivable. The Company maintains cash and cash equivalents and restricted cash with approved financial institutions. The Company is exposed to credit risks and liquidity risks in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution.
 
Segment Information
 
The Company is managed and operated as one business. The entire business is managed by a single management team that reports to the chief executive officer. The Company does not operate separate lines of business with respect to any of its product candidates. Accordingly, the Company does not prepare discrete financial information with respect to separate product candidates or by location and does not have separately reportable segments.
 
Recent Accounting Pronouncements

In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-17, Revenue Recognition - Milestone Method (ASU 2010-17). ASU 2010-17 provides guidance in applying the milestone method of revenue recognition to research or development arrangements. Under this guidance management may recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This ASU is effective on a prospective basis for research and development milestones achieved in fiscal years, beginning on or after June 15, 2010. Early adoption is permitted; however, the Company has elected to implement ASU 2010-17 prospectively, and as a result, the effect of this guidance will be limited to future milestones. Adoption of this standard may have a material impact on the Company's financial position or results of operations with regards to future milestones or arrangements.

In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition - Multiple-Deliverable Revenue Arrangements (ASU 2010-13). This new standard impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. The Company adopted this new standard in the first quarter of 2011. It did not have an impact on its consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-27, Fees Paid to the Federal Government by Pharmaceutical Manufacturers (ASU 2010-27). ASU 2010-27 provides guidance concerning the recognition and classification of the new annual fee payable by branded prescription drug manufacturers and importers on branded prescription drugs which was mandated under the health care reform legislation enacted in the U.S. in March 2010. Under this new accounting standard, the annual fee would be presented as a component of operating expenses and recognized over the calendar year such fees are payable using a straight-line method of allocation unless another method better allocates the fee over the calendar year. This ASU is effective for calendar years beginning on or after December 31, 2010, when the fee initially becomes effective.  The Company adopted this new standard in the first quarter of 2011. It did not have an impact its consolidated financial statements.

Share-based Compensation
Share-based Compensation
(3) Share-based Compensation
 
During the three-month periods ended March 31, 2011 and 2010, the Company recognized share-based compensation expense of $3.8 million and $3.2 million, respectively. Activity in options and restricted stock during the three-month period ended March 31, 2011 and related balances outstanding as of that date are reflected below. The weighted average fair value per share of options granted to employees for the three-month periods ended March 31, 2011 and 2010 were approximately $12.41 and $19.43, respectively.
 
The following table summarizes share-based compensation expense included within the consolidated statements of operations:
 
 
For the three-month
 
 
period ended March 31,
 
(In thousands)
2011
 
2010
 
        
Research and development
 $1,103  $790 
Selling, general and administrative
  2,652   2,396 
 Total
 $3,755  $3,186 
 
A summary of share-based compensation activity for the three-month period ended March 31, 2011 is presented below:
 
Stock Option Activity
 
   
Number of Shares
(In thousands)
  
Weighted Average
Exercise Price
  
Weighted Average
Remaining
Contractual
Term
  
Intrinsic Value
(In thousands)
 
Balance at January 1, 2011
  4,084  $20.13       
Granted
  904   22.38       
Cancelled
  (33)  24.58       
Exercised
  (29)  13.59       
Balance at March 31, 2011
  4,926  $20.55   7.3  $24,415 
Vested and expected to vest at March 31, 2011
  4,786  $20.40   7.2  $24,306 
Vested and exercisable at March 31, 2011
  2,669  $16.01   5.8  $22,345 
 
Restricted Stock Activity
 
(In thousands)
Restricted Stock
 
 
Number of Shares
 
Nonvested at January 1, 2011
  323 
Granted
  277 
Vested
  - 
Forfeited
  (3)
Nonvested at March 31, 2011
  597 
 
As of March 31, 2011, there was $44.1 million of total unrecognized compensation costs related to unvested options and restricted stock awards that the Company expects to recognize over a weighted average period of approximately 2.8 years.
 
Earnings Per Share
Earnings Per Share
(4) Earnings Per Share
 
The following table sets forth the computation of basic and diluted earnings per share for the three-month periods ended March 31, 2011 and 2010:
 
(In thousands, except per share data)
 
Three-month
period ended
March 31,
2011
  
Three-month
period ended
March 31,
2010
 
Basic and diluted
      
Net loss
 $(672) $(21,115)
Weighted average common shares outstanding used in computing net loss per share-basic
  38,781   38,021 
Plus: net effect of dilutive stock options and restricted common shares
  -   - 
Weighted average common shares outstanding used in computing net loss per share-diluted
  38,781   38,021 
Net loss per share-basic
 $(0.02) $(0.56)
Net loss per share-diluted
 $(0.02) $(0.56)
 
The difference between basic and diluted shares is that diluted shares include the dilutive effect of the assumed exercise of outstanding securities. The Company's stock options and unvested shares of restricted common stock could have the most significant impact on diluted shares.
 
Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the average closing price of the Company's common stock during the period, because their inclusion would result in an anti-dilutive effect on per share amounts.
 
For the three months ended March 31, 2011 and 2010, options to purchase 4,925,996 shares and 4,202,638 shares, respectively, of common stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive.
 
For the three months ended March 31, 2011 and 2010, 597,137 and 468,979 shares, respectively, of unvested restricted stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per common share as their effect would have been anti-dilutive.
 
Income Taxes
Income Taxes
(5) Income Taxes
 
The Company had available federal net operating loss (NOL) carry-forwards of approximately $273.9 million and $266.9 million and state NOL carry-forwards of approximately $251.6 million and $261.0 million as of March 31, 2011 and December 31, 2010 respectively which may be available to offset future taxable income, if any. The federal losses are expected to expire between 2019 and 2031 while the state losses are expected to expire between 2012 and 2031. The Company also has research and development tax credit carry-forwards of approximately $4.0 million as of March 31, 2011, for federal income tax reporting purposes that may be available to reduce federal income taxes, if any, and expire in future years beginning in 2019.  The Company is no longer subject to federal or state income tax audits for tax years prior to 2006 however, such taxing authorities can review any net operating losses utilized by the Company in years subsequent to 1999. The Company also has Alternative Minimum Tax credit carry-forwards of $0.2 million as of March 31, 2011, respectively.  Such credits can be carried forward indefinitely and have no expiration date.
 
At March 31, 2011 and December 31, 2010, the Company had a deferred tax asset of $153.7 million and $153.8 million, respectively, offset by a full valuation allowance. Since inception, the Company has incurred substantial losses and expects to incur substantial losses in future periods. The Tax Reform Act of 1986 (the “Act”) provides for a limitation of the annual use of NOL and research and development tax credit carryforwards (following certain ownership changes, as defined by the Act) that could significantly limit the Company's ability to utilize these carryforwards. The Company has experienced various ownership changes as a result of past financings. Accordingly, the Company's ability to utilize the aforementioned carryforwards may be limited. Additionally, because U.S. tax laws limit the time during which these carryforwards may be applied against future taxes, the Company may not be able to take full advantage of these attributes for federal income tax purposes. Because of the above mentioned factors, the Company has not recognized its gross deferred tax assets as of and for all periods presented. As of March 31, 2011, management believes that it is more likely than not that the gross deferred tax assets will not be realized based on future operations and reversal of deferred tax liabilities. Accordingly, the Company has provided a full valuation allowance against its gross deferred tax assets and no tax benefit has been recognized relative to its pretax losses.
 
Fair Value Measurements
Fair Value Measurements
(6) Fair Value Measurements
 
The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. The Company's Level 1 assets consist of time deposits and investments in a Treasury money market fund and high-quality government bonds. The Company's Level 3 liability represents our put/call liability related to the Paul Royalty Fund (PRF) transaction. No changes in valuation techniques or inputs occurred during the three months ended March 31, 2011. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three-month period ended March 31, 2011.
 
(In thousands)
 
Level 1
  
Level 2
  
Level 3
 
Assets Carried at Fair Value:
         
Cash equivalents
 $78,457  $-  $- 
Short-term investments
  146,890   -   - 
Liabilities Carried at Fair Value:
            
Put/call liability
  -   -   391 
 
The following table presents additional information about assets and/or liabilities measured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.
 
(In thousands)
 
Balance as of
December 31, 2010
  
Realized (gains)
losses included
in net loss
  
Unrealized
(gains) losses included
in other
comprehensive
loss
  
Balance as of
March 31, 2011
 
Liabilities Carried at Fair Value:
            
Put/call liability
 $391  $(-) $-  $391 
 
The Company estimates the fair value of our put/call liability using a discounted cash flow valuation technique. Using this approach, expected future cash flows are calculated over the expected life of the PRF agreement, are discounted to a single present value and then exercise scenario probabilities are applied. Some of the more significant assumptions made in the present value calculations include (i) the estimated Zanaflex revenue forecast and (ii) the likelihood of put/call exercise trigger events. Realized gain and losses are included in sales, general and administrative expenses.
 
The put/call liability has been classified as a Level 3 asset as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the security. If different assumptions were used for the various inputs to the valuation approach including, but not limited to, assumptions involving the estimated Zanaflex revenue forecast and the likelihood of trigger events, the estimated fair value of these investments could be significantly higher or lower than the fair value we determined. The Company may be required to record losses in future periods.
 
Short-Term Investments
Short-Term Investments
(7) Short-Term Investments
 
The Company has determined that all of its short-term investments are classified as available-for-sale. Available-for-sale securities are carried at fair value with interest on these securities included in interest income and are recorded based primarily on quoted market prices. Available-for-sale securities consisted of the following:
 
(In thousands)
 
Amortized
Cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair
value
 
March 31, 2011
            
US Treasury bonds
 $146,850  $40  $-  $146,890 
December 31, 2010
                
US Treasury bonds
  205,401   5   (18)  205,388 
 
The contractual maturities of available-for-sale debt securities at March 31, 2011 and December 31, 2010 are within one year. The Company has determined that there were no other-than-temporary declines in the fair values of its short term investments as of March 31, 2011. Short-term investments with maturity of three months or less from date of purchase have been classified as cash equivalents, and amounted to $67.0 million and $23.5 million as of March 31, 2011 and December 31, 2010, respectively.
 
Biogen Collaboration Agreement
Biogen Collaboration Agreement
(8) Biogen Collaboration Agreement
 
On June 30, 2009, the Company entered into an exclusive collaboration and license agreement with Biogen Idec International GmbH (Biogen Idec) to develop and commercialize Ampyra (known as fampridine outside the U.S.) in markets outside the United States (the “Collaboration Agreement”). Under the Collaboration Agreement, Biogen Idec was granted the exclusive right to commercialize Ampyra and other products containing aminopyridines developed under that agreement in all countries outside of the United States, which grant includes a sublicense of the Company's rights under an existing license agreement between the Company and Elan Pharma International Limited, a subsidiary of Elan Corporation plc (Elan). Biogen Idec has responsibility for regulatory activities and future clinical development of Ampyra in ex-U.S. markets worldwide. The Company also entered into a related supply agreement with Biogen Idec (the “Supply Agreement”), pursuant to which the Company will supply Biogen Idec with its requirements for the licensed products through the Company's existing supply agreement with Elan.
 
Under the Collaboration Agreement, the Company was entitled to an upfront payment of $110.0 million as of June 30, 2009, which was received on July 1, 2009, and will be entitled to receive additional payments of up to approximately $400 million based on the successful achievement of future regulatory and sales milestones. Due to the uncertainty surrounding the achievement of the future regulatory and sales milestones, these payments will not be recognized as revenue unless and until they are earned. The Company is not able to reasonably predict if and when the milestones will be achieved. Under the Collaboration Agreement, Biogen Idec will be required to make double-digit tiered royalty payments to the Company on ex-U.S. sales. In addition, the consideration that Biogen Idec will pay for licensed products under the Supply Agreement will reflect the price owed to the Company's suppliers under its supply arrangements with Elan or other suppliers for ex-U.S. sales, including manufacturing costs and royalties owed. The Company and Biogen Idec may also carry out future joint development activities regarding licensed product under a cost-sharing arrangement. Under the terms of the Collaboration Agreement, the Company, in part through its participation in joint committees with Biogen Idec, will participate in overseeing the development and commercialization of Ampyra and other licensed products in markets outside the United States pursuant to that agreement. Acorda will continue to develop and commercialize Ampyra independently in the United States.
 
As of June 30, 2009, the Company recorded a license receivable and deferred revenue of $110.0 million for the upfront payment due to the Company from Biogen Idec under the Collaboration Agreement. Also, as a result of such payment to Acorda, a payment of $7.7 million became payable by Acorda to Elan and was recorded as a cost of license payable and deferred expense. The payment of $110.0 million was received from Biogen Idec on July 1, 2009 and the payment of $7.7 million was made to Elan on July 7, 2009.
 
The Company considered the following deliverables with respect to the revenue recognition of the $110.0 million upfront payment:  (1) the license to use the Company's technology, (2) the Collaboration Agreement to develop and commercialize licensed product in all countries outside the U.S., and (3) the Supply Agreement. The Supply Agreement is a contingent deliverable at the onset of the agreement.  The Company has determined that the identified non-contingent deliverables (deliverables 1 and 2 immediately preceding) would have no value on a standalone basis if they were sold separately by a vendor and the customer could not resell the delivered items on a standalone basis, nor does the Company have objective and reliable evidence of fair value for the deliverables. Accordingly, the non-contingent deliverables are treated as one unit of accounting.  As a result, the Company will recognize the non-refundable upfront payment from Biogen Idec as revenue and the associated payment to Elan as expense ratably over the estimated term of regulatory exclusivity for the licensed products under the Collaboration Agreement as we had determined this was the most probable expected benefit period. The Company recognized $2.3 million in license revenue, a portion of the $110.0 million received from Biogen Idec and $159,000 in cost of license revenue, a portion of the $7.7 million paid to Elan during the three-month period ended March 31, 2011.
 
On January 21, 2011 Biogen Idec announced that the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) decided against approval of fampridine to improve walking ability in adult patients with multiple sclerosis.  Biogen Idec has appealed this opinion and requested a re-examination of the decision by the CHMP.  The Company changed the amortization period on a prospective basis during the three-month period ended March 31, 2011 by five months and currently estimates the recognition period to be approximately 12 years from the date of the Collaboration Agreement.
 
Commitments and Contingencies
Commitments and Contingencies
(9) Commitments and Contingencies
 
A summary of the Company's commitments and contingencies was included in the Company's Annual Report on Form 10-K for the twelve-month period ended December 31, 2010. The Company's long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business.
 
The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company accrues for loss contingencies when information available indicates that it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition or liquidity. However, adjustments, if any, to the Company's estimates could be material to operating results for the periods in which adjustments to the liability are recorded.
 
Intangible Assets
Intangible Assets
(10) Intangible Assets
 
The Company acquired all of Elan's U.S. sales, marketing and distribution rights to Zanaflex Capsules and Zanaflex tablets in July 2004 for $2.0 million plus $675,000 for finished goods inventory. The Company was also responsible for up to $19.5 million in future contingent milestone payments based on cumulative gross sales of Zanaflex tablets and Zanaflex Capsules. As of December 31, 2009, the Company made $19.5 million of these milestone payments which were recorded as intangible assets in the consolidated financial statements.
 
In connection with this transaction, the Company acquired the rights to the trade name "Zanaflex®", one issued U.S. patent and two patent applications related to Zanaflex Capsules, and the remaining tablet inventory on hand with Elan. Additionally, the Company assumed Elan's existing contract with Novartis to manufacture Zanaflex tablets and entered into a separate contract with Elan to manufacture Zanaflex Capsules. The Company separately launched Zanaflex Capsules in April 2005. The Company did not acquire any receivables, employees, facilities or fixed assets. The Company allocated, on a relative fair value basis, the initial and milestone payments made to Elan to the assets acquired, principally the Zanaflex trade name and the capsulation patent. There is no expected residual value of these intangible assets. The Company amortizes the allocated fair value of the trade name and patent over their estimated future economic benefit to be achieved. The Zanaflex trade name was fully amortized as of December 31, 2008.
 
On January 22, 2010, the Company received marketing approval from the FDA for Ampyra triggering two milestone payments of $2.5 million to Elan and $750,000 to Rush-Presbyterian St. Luke's Medical Center (Rush).  The Company made these milestone payments totaling $3.25 million and they were recorded as intangible assets in the consolidated financial statements during the three-month period ended March 31, 2010.
 
In 1990, Elan licensed from Rush know-how relating to dalfampridine (4-aminopyridine, 4-AP, the formulation used in Ampyra), for the treatment of MS. The Company subsequently licensed this know-how from Elan. In September 2003, the Company entered into an agreement with Rush and Elan terminating the Rush license to Elan and providing for mutual releases. The Company also entered into a license agreement with Rush in 2003 in which Rush granted the Company an exclusive worldwide license to its know-how relating to dalfampridine for the treatment of MS. Rush has also assigned to the Company its Orphan Drug Designation for dalfampridine for the relief of symptoms of MS.
 
The Company agreed to pay Rush a license fee, milestone payments of up to $850,000 and royalties based on net sales of the product for neurological indications. The FDA approval of Ampyra triggered the final milestone of $750,000 which was paid during the three-months ended March 31, 2010.  As of December 31, 2010, the Company had made an aggregate of $850,000 in milestone payments under this agreement.  As of March 31, 2011, the Company made or accrued royalty payments totaling $3.6 million.
 
In August 2003, the Company entered into an Amended and Restated License Agreement with the Canadian Spinal Research Organization (CSRO). Under this agreement, the Company was granted an exclusive and worldwide license under certain patent assets and know-how of CSRO relating to the use of dalfampridine in the reduction of chronic pain and spasticity in a spinal cord injured subject.  The agreement required the Company to pay to CSRO royalties based on a percentage of net sales of any product incorporating the licensed rights, including royalties on the sale of Ampyra and on the sale of dalfampridine for any other indication. During the three-month period ended March 31, 2010, the Company purchased CSRO's rights to all royalty payments under the agreement with CSRO for $3.0 million.  This payment was recorded as an intangible asset in the consolidated financial statements.
 
Intangible assets also include certain website development costs which have been capitalized. The Company has developed several websites, each with its own purpose, including the general corporate website, product information websites and websites focused on the MS community.
 
The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its intangible assets may warrant revision or that the carrying value of these assets may be impaired. As of March 31, 2011, the Company does not believe that there are any facts or circumstances that would indicate a need for changing the estimated remaining useful life of the Company's intangible assets.
 
Intangible assets consisted of the following:
 
(In thousands)
 
March 31, 2011
  
December 31,
2010
 
Estimated
remaining
useful lives as of
March 31, 2011
 
Zanaflex Capsule patents
 $19,350  $19,350 
11 years
Zanaflex trade name
  2,150   2,150 
0 years
Ampyra milestones
  3,250   3,250 
6 years (1)
CSRO royalty buyout
  3,000   3,000 
 6 years (1)
Website development costs 
  2,983   2,975 
0-3 years
Website development costs-in process 
  157   - 
0-3 years
    30,890   30,725  
Less accumulated amortization
  10,183   9,389  
   $20,707  $21,336  
(1) See Note 11 regarding subsequent event.
 
The Company recorded $794,000 and $581,000 in amortization expense related to these intangible assets in the three-month periods ended March 31, 2011 and 2010, respectively.
 
Estimated future amortization expense for intangible assets subsequent to December 31, 2010 for the next five years is as follows (in thousands):
 
2011
 $3,184 
2012
  2,871 
2013
  2,532 
2014
  2,183 
2015
  2,183 
   $12,953 

Subsequent Event
Subsequent Event
(11) Subsequent Event
 
 On April 19, 2011 the Company announced the United States Patent and Trademark Office (USPTO) has allowed U.S. Patent Application  No. 11/010,828 entitled “Sustained Release Aminopyridine Composition.”  The claims of the patent application relate to methods to improve walking in patients with multiple sclerosis (MS) by administering 10 mg of sustained release 4-aminopyridine (dalfampridine) twice daily. The patent that issues from this application, which will be eligible for listing in the U.S. Food and Drug Administration Orange Book, is set to expire in early February 2026, based on the USPTO's calculated patent term adjustment of 413 days, which the Company is currently evaluating. The Company is currently evaluating the impact on the period for the amortization of the Ampyra intangible assets.