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SEC Filings

10-Q
OREXIGEN THERAPEUTICS, INC. filed this Form 10-Q on 05/12/2017
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Approximately $12.2 million of the net operating loss carryforwards relates to excess tax deductions for stock compensation, the income tax benefit of which will be recorded as additional paid in capital if and when realized.

Additionally, the utilization of the net operating loss and research and development tax credit carryforwards is subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that have occurred previously or that could occur in the future.  These ownership changes limit the amount of the net operating loss and research and development tax credit carryforwards and other deferred tax assets that can be utilized to offset   future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period.  The Company has completed an ownership change analysis in accordance with Section 382 from inception through December 31, 2016. As a result of the analysis, it was determined that the Company experienced several ownership changes during this period with the last one occurring in December 2014.  The analysis to determine the limitation of NOLs and federal credits as a result of the ownership changes has not been finalized. Based on the preliminary analysis of the limitation of our net operating losses and federal credits, deferred tax assets for net operating losses of $189.4 million and $162.5 million for federal and state, respectively, and federal research and development credits of $12.0 million have been removed from the deferred tax asset schedule. A corresponding decrease to the valuation allowance has also been recorded. Due to the existence of the valuation allowance, future changes in the deferred tax assets related to these tax attributes will not impact the effective tax rate.

During 2015, we expanded our operations internationally. We fully funded our Irish subsidiary with equity and debt and transferred the rights to exploit our intellectual property in markets outside of North America to our Irish subsidiary in exchange for a note. We also entered into a cost sharing arrangement, an intercompany services agreement and other related agreements with our Irish subsidiary which enable it to function as our foreign trading company.  During 2015, we recognized a gain on the transfer of intellectual property to our Irish subsidiary in the amount of $69.7 million.  This gain was eliminated in consolidation for financial reporting purposes, but recognized for US federal income tax purposes, and offset by NOL carryforwards for federal income tax purposes.  We incurred federal alternative minimum tax of $1.3 million as a result of the gain and the results of operations in the US, which we recorded to current tax expense for 2015.  We did not incur US federal income tax for 2016 and incurred $133,000 of state income tax expense for 2016.  Our Irish subsidiary generated a tax loss of $26.6 million during 2016 which was fully offset by a valuation allowance.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to accounting for research and development expenses, net product sales and stock-based compensation costs. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

 

There were no significant changes during the three months ended March 31, 2017 to the items that we disclosed as our critical accounting policies and estimates in Note 2 to our audited financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2016.

Results of Operations

Comparison of three months ended March 31, 2017 to three months ended March 31, 2016

Revenues. Revenues for the three months ended March 31, 2017 and 2016 were $19.1 million and $5.0 million, respectively, and primarily represent revenues recognized for the net sales of Contrave. The increase of 14.1 million was due primarily to increased net product sales of approximately $19.0 million of Contrave recorded by the Company in three months ended March 31, 2017. As a result of the separation agreement with Takeda, the Company no longer receives royalties and milestone revenues in 2017 as compared to 2016.

Cost of Sales. Cost of sales was approximately $6.2 million for the three months ended March 31, 2017. There were no product sales for the three months ended March 31, 2016, and therefore, no cost of sales in the same period of 2016.

Research and Development Expenses. Research and development expenses decreased to $8.2 million for the three months ended March 31, 2017 as compared to $11.8 million for the comparable period during 2016. This decrease of approximately $3.6 million

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