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SEC Filings

10-Q
OREXIGEN THERAPEUTICS, INC. filed this Form 10-Q on 05/12/2017
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occurring. Scenarios and probabilities were based on Company management estimates and were incorporated into the determination of the fair values of the principal amount and the conversion feature of the convertible note.

A Black-Scholes option pricing model is also utilized to measure the fair value of the warrant coverage component of the 2016 Note offering. The Black-Scholes option-pricing model utilizes the following assumptions: (i) expected term; (ii) common stock price; (iii) risk-free interest rate; and (iv) expected volatility. Assumptions used in the estimates represent what market participants would use in pricing the component, including volatilities and risk-free rates, which are defined as Level 2 observable inputs. The estimated volatilities and the risk-free rates are incorporated into the Black-Scholes option pricing models for the warrants by scenario and are weighted based on the probability of each scenario occurring. Scenarios and probabilities are based on Company management estimates and are incorporated into the determination of the fair value of the warrant coverage.

The fair values of the principal amount of the 2016 Note, the conversion feature of the convertible note and the warrant coverage are impacted by certain unobservable inputs, most significantly with regards to the discount rates, probabilities of certain scenarios occurring, expected volatility, share price performance, and expected scenario timing. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

 

As part of the Separation Agreement between the Company and Takeda, the Company recorded a current contingent consideration liability and a long-term contingent consideration liability that have been classified as Level 3 inputs in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments due to Takeda based on: (i) Orexigen achieving annual net sales targets in certain years and (ii) Takeda performing certain obligations, as outlined in the Separation Agreement. The initial fair value of the long-term portion of the contingent consideration based on net sales was estimated through the use of a Monte Carlo simulation model. The Monte Carlo simulation model utilized the following assumptions: (i) expected term; (ii) risk-adjusted net sales; (iii) risk-free interest rate; and (iv) expected volatility. The initial fair value of the current portion of the contingent consideration based on Takeda performing certain obligations was estimated using a probability weighted approach. The probability was applied to the contingent consideration based on Takeda performing certain obligations and discounted to present value.  The fair value of the Company’s contingent consideration liability is revalued to fair value each period and any increase or decrease is recorded into earnings. The fair value of the contingent consideration was impacted by certain unobservable inputs, most significantly with regards to the discount rates, probability of scenario occurrence, expected volatility, historical and projected net sales performance, and expected scenario timing. Significant changes to these inputs in isolation could result in a significantly different fair value measurement. The potential contingent consideration payments required upon achievement of sales-based milestones related to the Company’s acquisition of Contrave range from zero if none of the milestones are achieved to a maximum of $110.0 million (undiscounted)(see Note 5).

 

 

7. Inventory

Inventory consists of the following (in thousands):

 

 

 

March 31, 2017

 

 

December 31,

2016

 

Raw materials

 

$

8,258

 

 

$

6,678

 

Work in process

 

 

881

 

 

 

1,036

 

Finished goods

 

 

11,524

 

 

 

15,479

 

 

 

$

20,663

 

 

$

23,193

 

 

 

8. Property and Equipment

Property and equipment consist of the following (in thousands):

 

 

 

Useful Life

In Years

 

 

March 31, 2017

 

 

December 31,

2016

 

Furniture and fixtures

 

 

5

 

 

$

1,209

 

 

$

1,209

 

Computer equipment and software

 

3 to 5

 

 

 

1,157

 

 

 

1,157

 

Leasehold improvements

 

 

5

 

 

 

644

 

 

 

644

 

Manufacturing equipment

 

 

5

 

 

 

664

 

 

 

664

 

 

 

 

 

 

 

 

3,674

 

 

 

3,674

 

Less accumulated depreciation and amortization

 

 

 

 

 

 

(2,747

)

 

 

(2,630

)

 

 

 

 

 

 

$

927

 

 

$

1,044

 

 

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