ACORDA THERAPEUTICS INC, 10-Q filed on 11/9/2010
Quarterly Report
Consolidated Balance Sheets (unaudited) (USD $)
9 Months Ended
Sep. 30, 2010
Year Ended
Dec. 31, 2009
Current assets:
 
 
Cash and cash equivalents
$ 82,404,827 
$ 47,314,412 
Restricted cash
301,848 
301,160 
Short-term investments
163,412,360 
224,778,023 
Trade accounts receivable, net
18,228,831 
5,739,013 
Prepaid expenses
5,722,357 
4,274,625 
Finished goods inventory held by the Company
24,079,937 
4,497,533 
Finished goods inventory held by others
2,101,926 
2,394,980 
Other current assets
3,260,669 
3,980,601 
Total current assets
299,512,755 
293,280,347 
Property and equipment, net of accumulated depreciation
3,320,957 
1,891,321 
Intangible assets, net of accumulated amortization
22,013,430 
17,148,631 
Non-current portion of deferred cost of license revenue
6,215,001 
6,710,001 
Other assets
359,045 
440,318 
Total assets
331,421,188 
319,470,618 
Current liabilities:
 
 
Accounts payable
17,363,236 
11,613,434 
Accrued expenses and other current liabilities
25,803,985 
14,975,794 
Deferred product revenue-Zanaflex tablets
8,709,065 
9,214,742 
Deferred product revenue-Zanaflex Capsules
20,617,977 
21,489,081 
Current portion of deferred license revenue
9,428,571 
9,428,571 
Current portion of revenue interest liability
6,381,187 
6,178,697 
Current portion of convertible notes payable
1,144,275 
0 
Total current liabilities
89,448,296 
72,900,319 
Non-current portion of deferred license revenue
88,785,714 
95,857,142 
Put/call liability
318,500 
637,500 
Non-current portion of revenue interest liability
4,374,627 
5,630,862 
Non-current portion of convertible notes payable
6,132,134 
7,112,027 
Commitments and contingencies
 
 
Stockholders' equity:
 
 
Common stock, $0.001 par value. Authorized 80,000,000 shares at September 30, 2010 and December 31, 2009; issued and outstanding 38,568,369 and 37,935,075 shares as of September 30, 2010 and December 31, 2009, respectively
38,569 
37,935 
Additional paid-in capital
586,058,355 
565,503,101 
Accumulated deficit
(443,757,145)
(428,316,881)
Accumulated other comprehensive income
22,138 
108,613 
Total stockholders' equity
142,361,917 
137,332,768 
Total liabilities and stockholders' equity
$ 331,421,188 
$ 319,470,618 
Consolidated Balance Sheets (unaudited) (parenthetical) (USD $)
Sep. 30, 2010
Dec. 31, 2009
Stockholders' equity:
 
 
Common stock, par value (In dollars per share)
$ 0.001 
$ 0.001 
Common stock, Authorized shares (In shares)
80,000,000 
80,000,000 
Common stock, issued (In shares)
38,568,369 
37,935,075 
Common stock, outstanding (In shares)
38,568,369 
37,935,075 
Consolidated Statements Of Operations (unaudited) (USD $)
3 Months Ended
Sep. 30,		 9 Months Ended
Sep. 30,
2010
2009
2010
2009
Revenues:
 
 
 
 
Gross product sales
$ 66,188,194 
$ 14,463,303 
$ 126,884,766 
$ 43,834,948 
Less: discounts and allowances
(4,923,295)
(1,606,126)
(9,751,194)
(5,959,234)
Net sales
61,264,899 
12,857,177 
117,133,572 
37,875,714 
License revenue
2,357,143 
2,357,144 
7,071,428 
2,357,144 
Total net revenues
63,622,042 
15,214,321 
124,205,000 
40,232,858 
Costs and expenses:
 
 
 
 
Cost of sales
11,666,020 
2,602,064 
22,573,938 
8,112,490 
Research and development
7,970,073 
8,197,789 
22,627,938 
23,982,123 
Selling, general and administrative
30,723,444 
23,415,132 
91,548,951 
67,362,421 
Total operating expenses
50,359,537 
34,214,985 
136,750,827 
99,457,034 
Operating income (loss)
13,262,505 
(19,000,664)
(12,545,827)
(59,224,176)
Other expense (net):
 
 
 
 
Interest and amortization of debt discount expense
(943,975)
(704,229)
(3,352,305)
(3,703,552)
Interest income
110,528 
314,000 
449,736 
1,478,996 
Other income
8,132 
0 
8,132 
5,365 
Loss on disposal of property and equipment
0 
(38,914)
0 
(23,514)
Total other expense (net)
(825,315)
(429,143)
(2,894,437)
(2,242,705)
Net income (loss)
12,437,190 
(19,429,807)
(15,440,264)
(61,466,881)
Net income (loss) per share-basic (In dollars per share)
0.32 
(0.51)
(0.40)
(1.63)
Net income (loss) per share-diluted (In dollars per share)
$ 0.31 
$ (0.51)
$ (0.40)
$ (1.63)
Weighted average common shares outstanding used in computing net income (loss) per share-basic (In shares)
38,449,917 
37,749,920 
38,260,608 
37,700,747 
Weighted average common shares outstanding used in computing net income (loss) per share-diluted (In shares)
39,987,644 
37,749,920 
38,260,608 
37,700,747 
Consolidated Statements Of Cash Flows (unaudited) (USD $)
9 Months Ended
Sep. 30,
2010
2009
Cash flows from operating activities:
 
 
Net loss
$ (15,440,264)
$ (61,466,881)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Share-based compensation expense
12,557,768 
8,885,986 
Amortization of net premiums and discounts on short-term investments
2,891,356 
3,399,860 
Amortization of revenue interest issuance cost
80,693 
78,242 
Depreciation and amortization expense
2,818,092 
2,074,183 
(Gain) loss on put/call liability
(319,000)
75,000 
Loss on disposal of property and equipment
0 
23,514 
Changes in assets and liabilities:
 
 
(Increase) decrease in accounts receivable
(12,489,818)
376,637 
Increase in prepaid expenses and other current assets
(727,800)
(3,648,754)
(Increase) decrease in inventory held by the Company
(19,582,404)
823,951 
Decrease in inventory held by others
293,054 
111,871 
Decrease (increase) in non-current portion of deferred cost of license revenue
495,000 
(6,875,001)
Decrease in other assets
580 
6,279 
Increase (decrease) in accounts payable, accrued expenses, other current liabilities
16,731,204 
(2,826,805)
Increase in revenue interest liability interest payable
337,487 
48,675 
(Decrease) increase in non-current portion of deferred license revenue
(7,071,428)
107,642,856 
(Decrease) increase in deferred product revenue-Zanaflex tablets
(505,677)
335,887 
(Decrease) increase in deferred product revenue-Zanaflex Capsules
(871,104)
2,486,481 
Restricted cash
(688)
(2,860)
Net cash (used in) provided by operating activities
(20,802,949)
51,549,121 
Cash flows from investing activities:
 
 
Purchases of property and equipment
(2,207,442)
(1,903,764)
Purchases of intangible assets
(6,893,914)
0 
Purchases of short-term investments
(217,862,168)
(278,897,068)
Proceeds from maturities of short-term investments
276,250,000 
224,650,000 
Net cash provided by (used in) investing activities
49,286,476 
(56,150,832)
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock and option exercises
7,998,120 
2,277,073 
Repayments of revenue interest liability
(1,391,232)
(1,580,300)
Net cash provided by financing activities
6,606,888 
696,773 
Net increase (decrease) in cash and cash equivalents
35,090,415 
(3,904,938)
Cash and cash equivalents at beginning of period
47,314,412 
29,612,916 
Cash and cash equivalents at end of period
82,404,827 
25,707,978 
Supplemental disclosure:
 
 
Cash paid for interest
$ 2,850,437 
$ 3,158,931 
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, 2009 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 Zanaflex Capsules and Ampyra, 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
 
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.
 
Ampyra
 
Ampyra is available only through a network of specialty pharmacy providers that provide the medication to patients by mail and Kaiser Permanente (“Kaiser”). Ampyra will not be 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 and Kaiser. As of September 30, 2010, inventory levels at specialty pharmacy providers that distribute Ampyra (excluding Kaiser) represented approximately two weeks of their anticipated usage. The specialty pharmacy providers and Kaiser 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 and Kaiser, 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 and Kaiser, 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 September 30, 2010, inventory levels at the specialty pharmacies (excluding Kaiser) represented approximately two weeks of their anticipated usage. The specialty pharmacy providers and Kaiser have contractually agreed to hold no more than 30 days inventory. 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.

Milestones and royalties

Revenue from milestones is recognized when earned, as evidenced by written acknowledgement from the other party to a contract, provided that (i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has no further performance obligations relating to that event, and (ii) collectability is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining period of our performance obligations under the arrangement. 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, 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 will result 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.
Share-based Compensation
Share-based Compensation
(3) Share-based Compensation
 
During the three-month periods ended September 30, 2010 and 2009, the Company recognized share-based compensation expense of $4.8 million and $3.2 million, respectively. During the nine-month periods ended September 30, 2010 and 2009, the Company recognized share-based compensation expense of $12.6 million and $8.9 million, respectively. Activity in options and restricted stock during the nine-month period ended September 30, 2010 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 September 30, 2010 and 2009 were approximately $19.75 and $16.75, respectively.  The weighted average fair value per share of options granted to employees for the nine-month periods ended September 30, 2010 and 2009 were approximately $19.37 and $17.59, respectively.
 
The following table summarizes share-based compensation expense included within our consolidated statements of operations:
 
 
For the three-month
 
For the nine-month
 
 
period ended September 30,
 
period ended September 30,
 
(In millions)
2010
 
2009
 
2010
 
2009
 
              
Research and development
 $1.4  $0.9  $3.6  $2.5 
Selling, general and administrative
  3.4   2.3   9.0   6.4 
 Total
 $4.8  $3.2  $12.6  $8.9 

 
A summary of share-based compensation activity for the nine-month period ended September 30, 2010 is presented below:
 
Stock Option Activity
 
 
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual
Term
Intrinsic Value
Balance at January 1, 2010
3,711,778
$15.25
   
Granted
1,098,169
32.61
   
Cancelled
(88,289)
24.89
   
Exercised
(623,294)
 
12.92
 
   
Balance at September 30, 2010
4,098,364
 
$20.05
 
7.1
 
$53,896,144
 
Vested and expected to vest at September 30, 2010
4,008,207
 
$19.83
 
7.1
 
$53,588,108
 
Vested and exercisable at September 30, 2010
2,278,343
 
$14.12
 
5.9
 
$43,143,212
 
 
Restricted Stock Activity
 
Restricted Stock
Number of Shares
Nonvested at January 1, 2010
203,776
Granted
334,178
Vested
(10,000)
Forfeited
(12,185)
Nonvested at September 30, 2010
515,769
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 and nine-month periods ended September 30, 2010 and 2009:
 
 
Three-month
period ended
September 30,
2010
 
Three-month
period ended
September 30,
2009
 
Nine-month
period ended
September 30,
2010
 
Nine-month
period ended
September 30,
2009
 
Basic and diluted
       
Net income (loss)
$12,437,191
$(19,429,807)
$(15,440,264)
$(61,466,881)
Weighted average common shares outstanding used in computing net income (loss) per share—basic
38,449,917
37,749,920
38,260,608
37,700,747
Plus: net effect of dilutive stock options and restricted common shares
1,537,727
—
—
—
Weighted average common shares outstanding used in computing net income (loss) per share—diluted
39,987,644
 
37,749,920
 
38,260,608
 
37,700,747
 
Net income (loss) per share—basic
$0.32
 
$(0.51)
 
$(0.40)
 
$(1.63)
 
Net income (loss) per share—diluted
$0.31
 
$(0.51)
 
$(0.40)
 
$(1.63)
 

 
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 September 30, 2010 and 2009, options to purchase 2,841,156 shares and 3,720,272 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 because their exercise price was in excess of the average closing price of the common stock during the period. For the nine months ended September 30, 2010 and 2009, options to purchase 4,080,052 shares and 3,562,639 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 September 30, 2010 and 2009, 371,945 and 332,074 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. For the nine months ended September 30, 2010 and 2009, 406,847 and 287,803 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 net operating loss carryforwards (NOL) of approximately $270.1 million and $249.5 million as of September 30, 2010 and December 31, 2009, respectively, for federal and state income tax purposes, which are available to offset future federal and state taxable income, if any, and expire between 2019 and 2030. The Company also has research and development tax credit carryforwards of approximately $1.6 million as of both September 30, 2010 and December 31, 2009, for federal income tax reporting purposes that are available to reduce federal income taxes, if any, and expire in future years beginning in 2020.
 
At September 30, 2010 and December 31, 2009, the Company had a deferred tax asset of $160.7 million and $147.2 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 September 30, 2010, 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 our assets and liabilities measured at fair value on a recurring basis as of September 30, 2010 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 September 30, 2010. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the nine-month period ended September 30, 2010.
 
 
Level 1
 
Level 2
 
Level 3
 
Assets Carried at Fair Value:
     
Cash equivalents
$76,104,201
$—
$—
Short-term investments
163,412,360
—
—
Liabilities Carried at Fair Value:
     
Put/call liability
—
—
318,500
 
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.
 
 
Balance as of
December 31, 2009
 
Realized (gains)
losses included
in net loss
 
Unrealized
(gains) losses included
in other
comprehensive
loss
 
Balance as of
September 30,
2010
 
Liabilities Carried at Fair Value:
       
Put/call liability
$637,500
($319,000)
$—
$318,500

 
We estimate 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.
 
Our 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. We 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. Available-for-sale securities consisted of the following:
 
 
Amortized
Cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
 
September 30, 2010
       
US Treasury bonds
$163,390,222
$24,182
$(2,044)
$163,412,360
December 31, 2009
       
US Treasury bonds
224,669,409
126,169
(17,556)
224,778,023
 
The contractual maturities of available-for-sale debt securities at September 30, 2010 and December 31, 2009 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 September 30, 2010. Short-term investments with maturity of three months or less from date of purchase have been classified as cash equivalents, and amounted to $76,104,201 and $43,471,757 as of September 30, 2010 and December 31, 2009, respectively.
Collaboration Agreement
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 will have 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 Company has determined that the identified deliverables 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 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 $7.1 million in license revenue, a portion of the $110.0 million received from Biogen Idec and $495,000 in cost of license revenue, a portion of the $7.7 million paid to Elan during the nine-month period ended September 30, 2010. The Company 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, 2009. 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 capsules 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).  As of September 30, 2010, the Company made or accrued these milestone payments totaling $3.25 million and they were recorded as intangible assets in the consolidated financial statements. The payment to Elan was made during the three-months ended June 30, 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. As of December 31, 2009, the Company had made an aggregate of $100,000 in payments under this agreement.  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 September 30, 2010, the Company made or accrued royalty payments totaling $1.6 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. No royalty payments have been made to date. 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. The Company evaluates the realizability of its intangible assets based on profitability and cash flow expectations for the related assets. As of September 30, 2010, the Company does not believe that there are any facts or circumstances that would indicate a need for changing the estimated useful life of the Zanaflex or Ampyra patents.
 
Intangible assets consisted of the following:
 
 
September 30,
2010
 
December 31,
2009
 
Estimated
remaining
useful lives as of
September 30, 2010
 
Zanaflex patents
$19,350,000
$19,350,000
11 years
Zanaflex trade name
2,150,000
2,150,000
0 years
Ampyra milestones
3,250,000
—
7 years
CSRO Royalty Buyout
3,000,000
—
 7 years
Website development costs(1)
2,871,195
1,444,749
3 years
Website development costs – in process websites (2)
—
 
782,531
 
3 years
 
 
30,621,195
23,727,280
 
Less accumulated amortization
8,607,764
 
6,578,649
 
 
 
$22,013,431
 
$17,148,631
 
 

 
(1)  Represents capitalized website development costs for fully developed and launched websites.
 
 
(2)  Represents websites in development which had not been completed and therefore had not been launched as of December 31, 2009.
 
The Company recorded $2,029,115 and $794,513 in amortization expense related to these intangible assets in the nine-month periods ended September 30, 2010 and 2009, respectively.
 
Estimated future amortization expense for these intangible assets subsequent to December 31, 2009 for the next five years is as follows:
 
2010
$2,700,347
2011
3,127,212
2012
2,801,439
2013
2,410,262
2014
2,182,817
 
 
$13,222,077
 

Document Information
9 Months Ended
Sep. 30, 2010
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
2010-09-30 
Entity Information
9 Months Ended
Sep. 30, 2010
Oct. 31, 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 Common Stock, Shares Outstanding
 
39,079,688 
Document Fiscal Year Focus
2010 
 
Document Fiscal Period Focus
Q3