Form 8-K/A Orexigen Therapeutics, For: Aug 01

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K/A

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2016

 

 

OREXIGEN THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware		001-33415		65-1178822
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

3344 N. Torrey Pines Ct., Suite 200, La Jolla, CA		92037
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 875-8600

(Former Name or Former Address, if Changed Since Last Report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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EXPLANATORY NOTE

On August 1, 2016, Orexigen Therapeutics, Inc. (the “Company” or “Orexigen”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) to report that on August 1, 2016, the transition period under that certain Separation Agreement between Orexigen and Takeda Pharmaceutical Company Limited (“Takeda”), dated March 15, 2016 (the “Separation Agreement”), terminated and the Company reacquired all commercial rights to CONTRAVE^® in the United States. The Company is filing this amendment to the Initial Form 8-K to include the financial information required by item 9.01 of Form 8-K and to file the related consent.

Item 9.01 Financial Statements and Exhibits.

 

(a)

Financial Statements of Business Acquired.

The Company believes that according to the guidance of Financial Accounting Standards Board, Accounting Standards Codification 805, “Business Combinations”, and Article 11 of Regulation S-X, the acquisition of the U.S. rights to CONTRAVE meets the definition of a “business,” and exceeds the 40% level, which would require inclusion in the Form 8-K audited financial statements of the CONTRAVE business for two years pursuant to the requirements of Rule 8-04 of Regulation S-X and unaudited financial statements of the CONTRAVE business for the applicable interim periods.

Takeda has advised the Company that is impracticable to prepare complete financial statements related to the CONTRAVE business in order to enable the Company to file financial statements as required by Rule 3-05 of Regulation S-X in connection with the transaction. Specifically, Takeda has informed the Company of the following:

 

•

The CONTRAVE business has never been accounted for as a separate entity, subsidiary or division of Takeda’s business, and stand-alone financial statements of the CONTRAVE business have never been prepared.

 

•

Takeda did not manage the CONTRAVE business as a stand-alone business.

 

•

Takeda is unable to separate cash flows from sale of CONTRAVE from the sales of other of its products as, in many cases, Takeda has issued combined invoices related to multiple products, including CONTRAVE.

 

•

Takeda has never allocated certain indirect corporate expenses to the CONTRAVE business, including income taxes and corporate overhead expenses. Orexigen has been informed that this information is not otherwise readily available and any allocation would be subjective and would not be relevant due to significant differences in corporate structures between Takeda and Orexigen.

As a result, the Company is filing with this Current Report the following financial statements and notes thereto related to the CONTRAVE business for purposes of complying with the requirements of Rule 8-04 of Regulation S-X (collectively, the “Abbreviated Financial Statements”), which are incorporated herein by reference:

 

•

The audited statement of assets acquired and liabilities assumed of Contrave as of March 31, 2016 and 2015, and the related audited statements of revenues and direct expenses for each of the years in the two-year period ended March 31, 2016, and the unaudited statement of assets acquired and liabilities assumed of Contrave as of June 30, 2016 and the related unaudited statements of revenues and direct expenses for the three months ended June 30, 2016 and 2015, and the related notes to the financial statements, which are filed as Exhibit 99.1 to this Current Report.

Pursuant to a letter dated July 7, 2016 from the staff of the Division of Corporate Finance (the “Division”) of the Securities and Exchange Commission, the Division stated that it would permit the Company to file the Abbreviated Financial Statements in lieu of full financial statements required by Regulation S-X.

 

(b)

Pro Forma Financial Information.

The unaudited pro forma condensed combined balance sheet of the Company as of June 30, 2016 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the six months ended June 30, 2016, each reflecting the acquisition of the CONTRAVE business, are filed as Exhibit 99.2 to this Current Report and are incorporated herein by reference.

 

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(d)

Exhibits.

 

Exhibit No.		Description
23.1		Consent of KPMG LLP
99.1		Audited statement of assets acquired and liabilities assumed of Contrave as of March 31, 2016 and 2015, and the related audited statements of revenues and direct expenses for each of the years in the two-year period ended March 31, 2016, and the unaudited statement of assets acquired and liabilities assumed of Contrave as of June 30, 2016 and the related unaudited statements of revenues and direct expenses for the three months ended June 30, 2016 and 2015, and the related notes to the financial statements
99.2		Unaudited Pro Forma Condensed Combined Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				OREXIGEN THERAPEUTICS, INC.
Date: October 17, 2016				By:		/s/ Michael A. Narachi
				Name: Michael A. Narachi
				Title: Chief Executive Officer

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EXHIBIT INDEX

 

Exhibit No.		Description
23.1		Consent of KPMG LLP
99.1		Audited statement of assets acquired and liabilities assumed of Contrave as of March 31, 2016 and 2015, and the related audited statements of revenues and direct expenses for each of the years in the two-year period ended March 31, 2016, and the unaudited statement of assets acquired and liabilities assumed of Contrave as of June 30, 2016 and the related unaudited statements of revenues and direct expenses for the three months ended June 30, 2016 and 2015, and the related notes to the financial statements
99.2		Unaudited Pro Forma Condensed Combined Financial Statements

Exhibit 23.1

 

Consent of Independent Auditors

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-142405, 333-165442, 333-175071, 333-189120, 333-194951 and 333-202763) and Form S-3 (No. 333-210224) of Orexigen Therapeutics, Inc. of our report dated October 11, 2016, with respect to the statements of assets acquired and liabilities assumed of Contrave (a product line of Takeda Pharmaceutical Company Limited) as of March 31, 2016 and 2015, and the related statements of revenues and direct expenses for each of the years in the two-year period ended March 31, 2016, which report appears in the Form 8-K of Orexigen Therapeutics, Inc. dated August 1, 2016.

Our report dated October 11, 2016, on the abbreviated financial statements, contains an emphasis of matter paragraph that states that we draw attention to Note 2 to the abbreviated financial statements, which describes that the accompanying abbreviated financial statements were prepared to present the Contrave assets acquired and liabilities assumed by Orexigen Therapeutics, Inc. pursuant to a product acquisition agreement, and are not intended to be a complete presentation of Contrave’s assets and liabilities. Our opinion is not modified with respect to this matter.

/s/ KPMG LLP

Chicago, Illinois

October 17, 2016

Exhibit 99.1

 

CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Abbreviated Financial Statements

As of and for the Years Ended March 31, 2016 and 2015

(With Independent Auditors’ Report Thereon)

And

As of June 30, 2016 and for the Fiscal Quarters Ended June 30, 2016 and 2015

(Unaudited)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Table of Contents

 

		Page(s)
Independent Auditors’ Report			1–2
Abbreviated Financial Statements:
Statements of Assets Acquired and Liabilities Assumed			3
Statements of Revenues and Direct Expenses for the years ended March 31, 2016 and 2015			4
Statements of Revenues and Direct Expenses for the three months ended June 30, 2016 and 2015 (Unaudited)			5
Notes to Abbreviated Financial Statements			6–11

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KPMG LLP

Aon Center

Suite 5500

200 East Randolph Drive

Chicago, IL 60601-6436

Independent Auditors’ Report

The Board of Directors

Takeda Pharmaceuticals USA, Inc.:

We have audited the accompanying abbreviated financial statements of Contrave (a product line of Takeda Pharmaceutical Company Limited), which comprise the statements of assets acquired and liabilities assumed as of March 31, 2016 and 2015, the statements of revenues and direct expenses for the years then ended, and the related notes to the abbreviated financial statements.

Management’s Responsibility for the Abbreviated Financial Statements

Management is responsible for the preparation and fair presentation of the abbreviated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the abbreviated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the abbreviated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the abbreviated financial statements referred to above present fairly, in all material respects, the Contrave assets acquired and liabilities assumed as of March 31, 2016 and 2015, and its revenues and direct expenses for the years then ended in accordance with U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.

 

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Emphasis of Matter

We draw attention to Note 2 to the abbreviated financial statements, which describes that the accompanying abbreviated financial statements were prepared to present the Contrave assets acquired and liabilities assumed by Orexigen Therapeutics, Inc. pursuant to a product acquisition agreement, and are not intended to be a complete presentation of Contrave’s assets and liabilities. Our opinion is not modified with respect to this matter.

 

Chicago, Illinois

October 11, 2016

 

2

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Statements of Assets Acquired and Liabilities Assumed

(In thousands)

 

		March 31,				March 31,				June 30,
		2016				2015				2016
										(Unaudited)
Inventories, net		$	5,190				3,237				6,219
Intangible assets – net			45,832				94,750				45,832
Total assets acquired			51,022				97,987				52,051
Product sales allowances and reserves			2,064				366				2,362
Total liabilities assumed			2,064				366				2,362
Net assets acquired		$	48,958				97,621				49,689

See accompanying notes to abbreviated financial statements.

 

3

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Statements of Revenues and Direct Expenses

Years ended March 31, 2016 and 2015

(In thousands)

 

		2016				2015
Net revenues		$	52,581				20,489
Cost of goods sold			28,903				9,126
Gross profit			23,678				11,363
Direct expenses:
Selling, general, and administrative expenses			172,764				115,469
Research and development expenses			9,923				3,532
Amortization expense and impairment of intangible asset			63,918				5,250
Total direct expenses			246,605				124,251
Excess of direct expenses over gross profit		$	(222,927	)			(112,888	)

See accompanying notes to abbreviated financial statements.

 

4

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Statements of Revenues and Direct Expenses

(In thousands)

 

		Three				Three
		months ended				months ended
		June 30,				June 30,
		2016				2015
		(Unaudited)
Net revenues		$	12,855				14,437
Cost of goods sold			5,803				5,911
Gross profit			7,052				8,526
Direct expenses:
Selling, general, and administrative expenses			26,353				54,918
Research and development expenses			2,766				2,357
Amortization expense and impairment of intangible asset			—				2,500
Total direct expenses			29,119				59,775
Excess of direct expenses over gross profit		$	(22,067	)			(51,249	)

See accompanying notes to abbreviated financial statements.

 

5

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

 

(1)

Overview

On September 1, 2010 Takeda Pharmaceutical Company Limited (Takeda) and Orexigen Therapeutics, Inc. (Orexigen) entered into a Collaboration Agreement for the development, manufacture, and commercialization of Contrave (naltrexone HCI/bupropion HCI) pursuant to which the parties agreed to collaborate to continue the conduct of development and commercialization activities for Contrave (the Collaboration Agreement). Under this Collaboration Agreement, Orexigen granted to Takeda an exclusive license to develop and commercialize Contrave in the United States (the U.S.), Canada, and Mexico. On September 26, 2013, Takeda and Orexigen entered into an amendment to the Collaboration Agreement to grant Takeda the sole right and responsibility to perform commercial packaging for Contrave (Amendment No. 1) (Amendment No. 1 and the Collaboration Agreement referred to herein collectively as the “Original Collaboration Agreement”). On September 2, 2014, Takeda and Orexigen entered into a Manufacturing Services Agreement whereby Orexigen agreed to manufacture and supply Contrave (through a third-party manufacturer) to Takeda (the MSA).

On September 10, 2014, the U.S. Food and Drug Administration (FDA) granted approval for Contrave as a treatment option for chronic weight management in addition to a reduced-calorie diet and physical activity, and required the sponsor to conduct a new cardiovascular outcomes trial (CVOT) as a post-marketing requirement. Contrave is approved for use in adults with a body mass index (BMI) of 30 or greater or adults with a BMI of 27 or greater who have at least one weight-related condition such as high blood pressure, type 2 diabetes, or high cholesterol. Contrave was first sold by Takeda in the U.S. in October of 2014.

On July 31, 2015, Takeda and Orexigen entered into an Amended and Restated Collaboration Agreement (the A&R Collaboration Agreement), which replaced the Original Collaboration Agreement in its entirety. Among other things, the A&R Collaboration Agreement provided for the reallocation of the responsibility for development costs, including for the CVOT, and provided that Takeda would return to Orexigen Contrave rights in Canada and Mexico. Takeda and Orexigen entered into a Mutual Release Agreement, dated July 31, 2015.

On March 15, 2016, Takeda and Orexigen entered into a Separation Agreement whereby the parties agreed to (i) terminate the A&R Collaboration Agreement and certain other agreements at the end of the transition period, (ii) transfer certain Takeda rights and assets to Orexigen (e.g., NDA and IND for Contrave; commercialization rights), and (iii) transition activities under the A&R Collaboration Agreement from Takeda to Orexigen. Pursuant to the terms of the Separation Agreement, Takeda agreed to transfer to Orexigen the full amount of the Product returns reserve recorded on Takeda’s books at the end of the transition period as Takeda’s only and final contribution to returns made subsequent to the end of the transition period. In addition, Orexigen agreed to buy a fixed amount of Contrave inventory from Takeda at an agreed on price pursuant to the Separation Agreement and a side letter between the parties, dated July 20, 2016. Takeda and Orexigen also entered into a Transition Services Agreement whereby Takeda agreed to perform certain services for Orexigen in exchange for fees paid following the end of the transition period. Orexigen agreed to pay all invoices from Takeda related to rebate agreements between Takeda and health plans or PBMs that were in effect during the transition period for Takeda coded product dispensed after the end of the transition period. Orexigen also agreed to pay all invoices from Takeda related to chargebacks for Takeda coded product sold by wholesalers after the end of the transition period. The transition period expired August 1, 2016, so beginning August 1, 2016, Orexigen had all rights (i.e., development, manufacturing, and commercialization) to Contrave in the U.S.

 

6		(Continued)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

 

(2)	Basis of Presentation

The accompanying statements of assets acquired and liabilities assumed and statements of revenue and direct expenses of the Contrave product line have been prepared for inclusion in Orexigen’s filings with the Security and Exchange Commission under Rule 3-05 of Regulation S-X. These abbreviated financial statements and accompanying notes are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). It is impractical to prepare complete financial statements related to the Contrave product line as the product line was not a separate legal entity of Takeda and was never operated as a separate business, division, or subsidiary. The Contrave product line was a fully integrated part of Takeda’s consolidated business and operations and did not represent a substantial portion of Takeda’s operations, assets, or liabilities. Takeda has never prepared standalone or carve-out financial statements for the Contrave product line, and has never maintained the distinct and separate accounts necessary to prepare such financial statements. Since Takeda did not account for the Contrave product line as a separate entity, these statements were derived from the operating activities directly attributed to the Contrave product line from Takeda’s books and records. In addition, the information included in the accompanying statements contains allocations of field selling expense and internal research and development expense directly associated with the Contrave product line on the basis of number of calls by field sales representatives and time spent by research and development personnel on the Contrave product line. Also, the information included in the accompanying statements contains allocations of medical and scientific affairs expenses, which includes activities related to medical research, medical education, and the communication of medical science information needed to advance obesity-related medical care. Allocations of medical and scientific affair expenses were based on marketing expenses directly attributed to the Contrave product line relative to the total direct marketing expenses of Takeda’s products in the U.S. territory. Although management is unable to determine all of the actual costs, expenses and resultant operating results associated with the Contrave product line as a standalone, separate entity, the allocation described in these statements is considered reasonable in all material respects by management. However, the revenues and direct expenses of the Contrave product line may differ from the results that would have been achieved had the Contrave product line operated as a standalone entity. As described in more detail in the following paragraph, the accompanying statements exclude certain costs borne by Takeda to support the Contrave product line. As such, the accompanying statements are not indicative of the results of the Contrave product line going forward due to the omission of various operating expenses that will be incurred to operate the Contrave product line in the future.

Takeda performs certain functions for the Contrave product line including, but not limited to, corporate management and communications, business development, government affairs, certain legal services, administration of insurance, regulatory, treasury, information systems, supply chain activities, commercial quality assurance, nonproduct specific marketing, corporate income tax administration, employee compensation and benefit management, facilities, and other corporate expenses. The costs of these functions historically have not been allocated to its products, are not directly attributable or specifically identifiable to the Contrave product line, and therefore, are not included in the accompanying statements. Income taxes and interest expense have not been included in the accompanying statements as these expenses are not specifically identifiable to the Contrave product line.

 

7		(Continued)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

The Contrave product line’s financing needs were supported by Takeda and cash generated by the Contrave product line was transferred to Takeda. As the Contrave product line has been managed as part of the operations of Takeda and has not operated as a standalone entity, it is impractical to prepare historical cash flow information regarding the Contrave product line’s operating, investing, and financing cash flows. As such, statements of cash flows for the Contrave product line have not been prepared.

The Takeda transaction systems, including payroll, employee benefits, accounts receivable, and accounts payable, which are used to record and account for cash transactions are not designed to identify asset and liability receipts and payments on a product specific basis. Given these constraints, statements of financial position for the Contrave product line have not been prepared.

 

(3)	Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates about future events and assumptions that may affect the following: (i) the reported amounts of assets acquired and liabilities assumed and (ii) the reported amounts of revenues, including product sales allowances and reserves, and certain direct expenses and related disclosures at the date of the abbreviated financial statements during each reporting period. Takeda’s management believes the accompanying statements and notes thereto contain all necessary adjustments to fairly present the assets acquired, liabilities assumed, and revenue and direct expenses related to Contrave in accordance with U.S. GAAP. These statements are not intended to be a complete presentation of the financial position or results of operations for the acquired assets or assumed liabilities.

Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences could be material.

 

(4)	Summary of Significant Accounting Policies

 

(a)

Product Revenue Recognition

Revenue from product sales is recognized when persuasive evidence of an arrangement exists, delivery has occurred, our price to the customer is fixed and determinable, and collectibility is reasonably assured. At the time of sale, Takeda records estimates for certain sales deductions, such as sales rebates, chargebacks, product returns, prompt pay discounts as well as a fee to our wholesalers for inventory management services. Takeda also offers a co-pay card and coupon program. Shipping and other transportation costs charged to buyers are recorded as both sales and cost of sales. The following describes the nature of each provision and how such provisions are estimated.

Rebates

Takeda records provisions for pharmaceutical Medicaid, Medicare and performance-based contract rebates at the time of sale based upon our estimated rebate claims attributable to a sale. Takeda determines its estimate of the rebates primarily based on actual historical experience, as well as anticipated expansion on a prospective basis of its participation in federal and state government programs, and any new information regarding changes in the programs’ regulations and guidelines that would impact the amount of the rebates. For performance-based contract rebates, we also consider

 

8		(Continued)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

current contract terms, such as changes in formulary status, price protection clauses as well as agreed to discount rates. Takeda considers outstanding rebate claims, rebate payments, forecasted sales, and levels of inventory in the distribution channel and adjusts estimates each period to reflect actual experience. There is a significant time lag between recording estimates and actual payments. Liabilities for performance based payments related to Contrave inventory in the wholesale and retail pipelines are included in the Product sales allowances and reserves line in the Statements of Assets Acquired and Liabilities Assumed.

Chargebacks

Takeda has arrangements with certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Estimates are made based on the inventory levels at the wholesaler using actual historical experience and product growth rates. Liabilities for chargeback payments related to Contrave inventory held by wholesalers are included in the Product sales allowances and reserves line in the Statements of Assets Acquired and Liabilities Assumed.

Cash Discounts

Takeda offers its wholesalers a cash discount as an incentive for prompt payment. Takeda accounts for cash discounts at the time of sale as a reduction to gross trade sales. Takeda considers historical payment performance and adjusts estimates to reflect actual experience.

Fee for Service Agreements

The Company has fee-for-service agreements with wholesalers that aid the Company by providing inventory management and administrative services to fulfill product orders from retail pharmacies, hospitals and other alternate-site customers. Estimates for these services are recorded at time of sale based upon service agreements and performance levels and are periodically adjusted to reflect actual experiences.

Co-Pay Cards and Coupons

The Company offers certain discount programs to patients under which the patient receives a discount on his or her prescription. The Company reimburses pharmacies for this discount through a third-party vendor. The discounts, which are recorded as a reduction of sales, include estimated amounts for coupon, co-pay programs, and e-vouchers. Provisions for these estimated costs are recorded at the time of redemption based on details provided by third party program administrators.

Sales Returns

Takeda accounts for expected product returns, primarily related to product expiration, at the time of sale by establishing an accrual and recognizing a corresponding reduction to gross trade sales. Takeda determines its estimate of the sales return accrual primarily based on actual historical experience with the product, or similar products when actual returns have not yet occurred, and also considers other factors that could impact sales returns. These factors include levels of inventory in the distribution

 

9		(Continued)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

channel, estimated shelf life, product recalls, price changes of competitive products, and introductions of competitive products. Takeda considers all of these factors and adjusts the accrual periodically to reflect actual experience. Liabilities for sales returns are included in the Product sales allowances and reserves line in the Statements of Assets Acquired and Liabilities Assumed.

 

(b)

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventory is written down for expiration and probable quality assurance or quality control issues identified during the manufacturing process. Inventory identified as excess of future demand is written down to the net realizable value.

 

(c)

Cost of Goods Sold

The cost of goods sold includes the direct costs of manufacturing and production of Contrave, including write-offs of excess quantities. Cost of goods sold for year ended March 31, 2016 includes a write-off of excess inventory of $5,378 thousand related to quantities that will not be acquired by Orexigen as part of Takeda’s agreement with Orexigen to reacquire the rights to Contrave in the U.S., and will not be sold to the U.S. market prior to the expiration of the transition period on August 1, 2016 of that agreement.

Cost of goods sold also includes royalties owed to Orexigen under the A&R Collaboration Agreement. Royalty expense was $10,402 thousand and $3,957 thousand for the years ended March 31, 2016 and 2015, respectively, and $2,548 thousand and $2,856 thousand for the quarters ended June 30, 2016 and 2015, respectively (unaudited).

 

(d)

Direct Expenses

Direct expenses primarily consist of selling, general, and administrative expenses and research and development expenses.

Selling, general, and administrative expenditures are recognized in respect of goods and services received when supplied in accordance with contractual terms, as well as compensation expenses of internal employees when service is rendered. Estimates are made when an obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated. Advertising and promotion expenditure is charged to the income statement as incurred over the period of the corresponding activity. Field selling expenses have been allocated for each of the periods, based on the number of calls spent promoting the Contrave product line relative to the total number of calls for promotion of products within the specific field selling teams. Additionally, expenditures associated with Takeda’s medical and scientific affairs have been allocated to the Contrave product, based on the ratio of direct marketing expense incurred for the Contrave product line relative to the total direct marketing expense incurred for all of Takeda’s products promoted in the United States territory.

Research and development expenditures are recognized in the period in which they are incurred. Salary and other compensation costs associated with research and development personnel are allocated to the Contrave product, based on the ratio of time spent on specific research and development programs attributable to Contrave relative to the total time available for research and development of products within the organization.

 

10		(Continued)

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CONTRAVE

(A Product Line of Takeda Pharmaceutical Company Limited)

Notes to Abbreviated Financial Statements

March 31, 2016 and 2015

A portion of research and development expenses were reimbursed by Orexigen under the A&R Collaboration Agreement. Also, Orexigen engaged in research and development activities in support of Contrave that resulted in the invoicing of additional costs to Takeda. Such reimbursements by Orexigen, net of additional invoicing by Orexigen, were reflected as offsets to research and development expense in the Statements of Revenues and Direct Expenses. Net reimbursement of research and development expenses by Orexigen was $26,533 thousand and $12,339 thousand for the years ended March 31, 2016 and 2015, respectively, and $6,300 thousand and $11,172 thousand for the quarters ended June 30, 2016 and 2015, respectively (unaudited).

 

(e)

Intangible Asset

An intangible asset representing the Contrave product license was recognized at cost, based on the consideration paid to Orexigen to acquire the product license. Such consideration paid to Orexigen included regulatory and multiple commercial-related milestones. The intangible asset is reviewed for impairment whenever changes in circumstance indicate the carrying amount may not be recoverable. In performing such review for recoverability, the expected undiscounted future cash flows are compared to the carrying value of the intangible asset. If the intangible asset is considered to be impaired, the impairment recognized is measured by the amount the carrying value exceeds the estimated fair value of the asset.

The intangible asset was being amortized over its estimated useful life of 10 years up until March 15, 2016, the date on which Takeda and Orexigen entered into the Separation Agreement. At this time, an impairment loss of $53,918 thousand was recognized based on the intangible asset’s estimated fair value. The estimated fair value was based on discounted cash flow projections related to Contrave. From this point forward, no amortization was recorded as the Contrave intangible asset was considered held for sale.

 

(5)	Concentration of Credit Risk

Sales of the Contrave product are primarily made to three U.S. pharmaceutical wholesalers. These three wholesalers accounted for approximately 95.7% and 94.0% of the Contrave product line’s total sales during the years ended March 31, 2016 and 2015, respectively. Individually, each of these wholesalers account for 25% – 40% of sales.

 

(6)	Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Contrave financial position or results of operations.

 

(7)	Subsequent Events

The Company has evaluated subsequent events through October 11, 2016, the date at which the abbreviated financial statements were available to be issued, and determined there are no other items to disclose.

 

11

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed combined financial statements of Orexigen Therapeutics, Inc. (“Orexigen” “OREX” or the “Company”) are presented to illustrate the estimated effects of the acquisition of the rights to the pharmaceutical product, Contrave, which closed on August 1, 2016 (the “acquisition” or the “transaction”) on the historical financial position and results of operations of the Company.

The unaudited pro forma condensed combined financial statements are based upon and derived from and should be read in conjunction with the historical audited financial statements for the year ended December 31, 2015 and historical unaudited financial statements for the six months ended June 30, 2016 of the Company, and the audited historical statements of assets acquired and liabilities assumed as of the March 31, 2016, historical audited statement of revenues and direct expenses for the year ended March 31, 2016 and historical unaudited statement of revenues and direct expenses for the six months ended June 30, 2016 of the Contrave product line.

The unaudited pro forma condensed combined balance sheet as of June 30, 2016 assumes that the acquisition was completed on June 30, 2016. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and six months ended June 30, 2016 assumes that the acquisition was completed on January 1, 2015.

The Company has determined that the acquisition of the rights to Contrave constitutes a business combination as defined by Accounting Standards Codification 805, Business Combinations (“ASC 805”). Under ASC 805, the assets acquired and liabilities assumed are recorded at their acquisition date fair values as described in the accompanying notes to the statement of assets acquired and liabilities assumed of the Contrave product as of August 1, 2016 included elsewhere in this Form 8-K. Any excess of the purchase price over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Fair values of assets acquired and liabilities assumed are determined based on the requirements of ASC 820, Fair Value Measurements and Disclosures. The fair values of assets acquired and liabilities assumed are based on the preliminary estimates of fair values as of the acquisition date.

The pro forma adjustments are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma combined financial information that management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma combined financial information. Management believes the fair values recognized for the assets acquired and liabilities assumed are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available. There can be no assurance that the final determination will not result in material changes from these preliminary amounts.

As of the effective time of the acquisition, identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of these unaudited pro forma combined financial statements, it is assumed that all assets will be used in a manner that represents the highest and best of those assets, but it is not assumed that any market synergies will be achieved. The consideration of synergies has been excluded because they are not considered to be factually supportable, which is a required condition for these pro forma adjustments.

The fair value of identifiable assets is determined primarily using the “income method,” which starts with a forecast of all expected future cash flows. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including net revenue, cost of product sales, research and development costs, sales and marketing expenses, capital expenditures and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors.

The unaudited pro forma condensed combined financial statements include estimated identifiable intangible assets representing intellectual property intangibles valued at $75.0 million and a tradename valued at $4.4 million. The intellectual property intangible assets represent developed technology of products approved for sales in the market, which we refer to as marketed products, and have a finite useful lives. The identifiable intangible assets and the tradename will be amortized on a straight line basis over a weighted average of 10 years. These estimates will be adjusted accordingly if the final identifiable intangible asset valuation generates results, including corresponding useful lives and related amortization methods, that differ from the pro forma estimates, or if the above scope of intangible assets is modified. The final valuation is expected to be completed within 12 months from the completion of the acquisition.

The unaudited pro forma condensed combined financial statements have been prepared by management in accordance with the Article 11 of Regulation S-X, and are not necessarily indicative of the combined financial position or results of operations that would have been realized had the acquisition occurred as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the Company will experience after the acquisition. In addition, the accompanying unaudited pro forma combined statement of operations does not include any pro forma adjustments to reflect operational efficiencies, expected cost savings or economies of scale which may be achievable or the impact of any non-recurring charges and one-time transaction related costs that result directly from the transaction. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisitions, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statement of operations, expected to have continuing impact on the combined results of operations.

---

This unaudited pro forma condensed combined financial information should be read in conjunction with:

 

•

the Company’s historical audited financial statements and accompanying notes as of and for the year ended December 31, 2015 included in the Company’s annual report on Form 10-K, filed with the Securities Exchange Commission (SEC) on February 26, 2016;

 

•

the Company’s historical unaudited financial statements and accompanying notes as of and for the six months ended June 30, 2016 included in the Company’s quarterly report on Form 10-Q, filed with the SEC on August 5, 2016;

 

•

the Statement of revenues and direct expenses of the Contrave product line and the accompanying notes for the year ended March 31, 2016 (audited) and for the six-month period June 30, 2016 (unaudited), included as Exhibit 99.1 to this Form 8-K;

 

•

the audited Statement of assets acquired and liabilities assumed of the Contrave product line and accompanying notes as of March 31, 2016, included as Exhibit 99.1 to this Form 8-K.

The Contrave product was not a separate legal entity of Takeda and was never operated as a stand-alone business, division or subsidiary. Takeda has never prepared full stand-alone or full carve-out financial statements for the Contrave product, and has never maintained the distinct and separate accounts necessary to prepare such financial statements. Accordingly, Takeda concluded that it was impractical to prepare the statement of financial position or the statement of assets acquired on the basis of the Takeda’s historical GAAP carrying value related to the Contrave product. Therefore, in accordance with the SEC rules, the Company has presented an audited statement of assets acquired prepared on the basis of the allocation of the purchase price as of the acquisition date in Form 8-K.

Description of Transaction and Select Financial Information

Description of the Transaction

In September 2010, the Company entered into a collaboration agreement with Takeda to develop and commercialize Contrave (formerly referred to as NB32) in the United States, Canada and Mexico. Effective in September 2013, the Company and Takeda entered into an amendment to the collaboration agreement pursuant to which Takeda assumed from the Company the responsibility to package Contrave for commercial sale in the United States, Canada and Mexico. Under the terms of the original collaboration agreement, the Company received from Takeda a nonrefundable upfront cash payment of $50.0 million and additional payments totaling $100.0 million that were achieved between the execution of the collaboration agreement and the first commercial sale of Contrave in the United States. The Company was eligible to receive additional payments of over $1.0 billion upon achieving certain anniversary, regulatory/development and sales-based milestones. The Company was also eligible to receive tiered royalty payments ranging from a minimum of 20% to a maximum of 35%, subject to customary reductions, on increasing levels of net sales in the United States.

In July 2015, the Company entered into an amended and restated collaboration agreement with Takeda (the “Restated Collaboration Agreement”) which amended and restated the original agreement that the parties entered into in September 2010. The Restated Collaboration Agreement was substantially the same as the prior agreement subject to the following key changes:

(a) The territory covered by the collaboration was revised to only include the United States, returning all rights for the countries of Mexico and Canada to the Company.

(b) The responsibilities for the costs of development activities for Contrave from and after August 1, 2015 were restructured.

(c) The Company became eligible to receive up to an additional $105 million of potential milestone payments upon achievement of a combination of factors related to superiority claims reflected in approved labeling for Contrave, a lack of generic competition and net sales.

The upfront payment of $50.0 million was determined not to have standalone value and was deferred and was being recognized over the estimated term of the agreement of 14.5 years. In addition to the upfront payment, the Company earned milestones of $30.0 million for the FDA approval of Contrave and for delivery of launch supplies to Takeda in 2014. This milestone payment was determined to meet the definition of a substantive milestone and was recognized at the time the milestone was earned. Also, in October 2014, the Company earned and was paid a $70.0 million milestone for the shipment of Contrave, by Takeda, to pharmacy wholesalers in preparation for the commercial launch. This milestone payment was determined to not meet the definition of a substantive milestone. As a result, the Company recognized $20.8 million in 2014 and deferred $49.2 million which was to be recognized over the remaining estimated life of the agreement.

In March 2016, the Company entered into a separation agreement with Takeda (the “Separation Agreement”), which terminated the Restated Collaboration Agreement between the Company and Takeda effective August 1, 2016, and the manufacturing services

---

agreement between the Company and Takeda in September 2016. The Separation Agreement provides for the transfer of certain rights and assets to the Company and provided for the transition of activities under the collaboration agreement from Takeda to the Company during the transition period.

On August 1, 2016, the transition period under the Separation Agreement between the Company and Takeda terminated and the Company reacquired all commercial rights to Contrave in the United States. The Company made an initial payment of $60 million (the “Initial Payment”) to Takeda in March 2016 and will pay an additional $15 million to Takeda in January 2017 (the “January 2017 Payment”) provided that Takeda substantially performs its obligations under the Separation Agreement and related agreements, including certain specified activities. The source of funds for the Initial Payment and the January 2017 Payment was, and will be, from the Company’s cash on hand. The Company may also be obligated to pay Takeda milestone payments of $10 million, $20 million, $30 million and $50 million, based on the achievement of annual Contrave net sales milestones of $200 million, $300 million $400 million and $600 million, respectively, in any future year.

Select Financial Information

As of June 30, 2016, the Company accounted for the purchase consideration of $60.0 million as a prepaid noncurrent asset.

For the six months ended June 30, 2016, the Company recognized revenues under The Restated Collaboration Agreement of approximately $9.7 million, including approximately $5.1 million in royalties earned for the sale of Contrave by Takeda and approximately $4.6 million in continued recognition of the up front and non-substantive milestone payments. At June 30, 2016, deferred revenue under this agreement totaled $81.0 million.

For the year ended December 31, 2015, the Company recognized revenues under this agreement of approximately $24.3 million, including approximately $10.6 million in royalties earned for the sale of Contrave by Takeda and approximately $13.7 million in continued recognition of the up front and non-substantive milestone payments. At December 31, 2015, deferred revenue under this agreement totaled $85.6 million.

---

OREXIGEN THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2016

(in thousands)

 

		A				B												OREXIGEN
										Pro Forma								Pro Forma
		OREXIGEN				CONTRAVE				Adjustments								Combined
ASSETS
Current assets
Cash and cash equivalents		$	78,173				—				—								78,173
Accounts receivable			2,922				—				1,667				D				4,589
Investment securities, available for sale			20,983				—				—								20,983
Restricted cash and investments			165,203				—				—								165,203
Inventory			11,458				6,219				13,971				E
											(6,219	)			C				25,429
Prepaid expenses and other assets			3,965				—				—								3,965
Total current assets			282,704				6,219				9,419								298,342
Property and equipment, net			1,377				—				—								1,377
Prepaid purchase price - Contrave			60,000				—				(60,000	)			D				—
Intangible assets			—				45,832				79,439				E
											(45,832	)			C				79,439
Other long-term assets			1,210				—				—								1,210
Restricted cash			138				—				—								138
Total assets			345,429				52,051				(16,974	)							380,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	4,105				—				—								4,105
Accrued clinical trial expenses			10,516				—				—								10,516
Accrued expenses			10,551				2,362				(2,362	)			C
											18,800				D
											7,544				D
											823				D
											5,687				E
											2,223				E				45,628
Deferred revenue, current portion			9,600				—				(9,257	)			F				343
Total current liabilities			34,772				2,362				23,458								60,592
Long-term convertible debt			90,142				—				—								90,142
Long-term convertible debt, at fair value			116,300				—				—								116,300
Warrant liability, at fair value			33,100				—				—								33,100
Deferred revenue, less current portion			77,737				—				(71,743	)			F				5,994
Other long-term liabilities			37				—				—								37
Total liabilities			352,088				2,362				(48,285	)							306,165
Commitments and contingencies
Series Z preferred stock, $.001 par value			3,343				—				—								3,343
Stockholders’ equity
Convertible Preferred stock, $.001 par value			—				—				—								—
Common Stock, $.001 par value			15				—				—								15
Additional paid-in-capital			659,129				—				—								659,129
Accumulated other comprehensive loss			(881	)			—												(881	)
Accumulated deficit			(668,265	)			—				9,257				F
											71,743				F
																			(587,265	)
Total stockholders’ equity			(10,002	)			—				81,000								70,998
Total liabilities and stockholders’ equity		$	345,429				2,362				32,715								380,506

Notes to the Unaudited Condensed Combined Pro forma Balance Sheet

 

A	Derived from the unaudited balance sheet of Orexigen as of June 30, 2016

B	Derived from the unaudited balance sheet of Contrave as of June 30, 2016

C	Elimination of Contrave in purchase accounting

D	Record Purchase Consideration

 

Prepaid purchase price payment to Takeda in March 2016		$	60,000
Fair value of contingent consideration due to Takeda			18,800
Payment due to Takeda for Contrave inventory			7,544
Estimated payment due to Takeda for charge-backs and rebates			823
Receivable from Takeda for estimated returns as of August 1, 2016			(1,667	)
Total Purchase price			85,500

 

E	Record Fair Value of Assets Acquired and Liabilities Assumed

 

Developed technology intangible		$	75,039
Tradename			4,400
Inventory			13,971
Assumption of accrued expenses (savings card program)			(5,687	)
Assumption of accrued expenses (returns reserve)			(2,223	)
Total Fair Value of Assets Acquired and Liabilities Assumed			85,500

 

F	Write-off of Existing Contrave Deferred Revenue

 

		Debit Deferred Revenue				Credit Accumulated Deficit
Write-off of existing deferred revenue related to Contrave (current portion)		$	9,257			$	(9,257	)
Write-off of existing deferred revenue related to Contrave (long-term portion)			71,743				(71,743	)
Total reversal of deferred revenue through income			81,000				(81,000	)

---

OREXIGEN THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT

OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(in thousands, except per share amounts)

 

		G				H												OREXIGEN Pro Forma Combined
		OREXIGEN				CONTRAVE				Pro Forma Adjustments
Revenues:
Collaborative agreement		$	4,794				—				(4,629	)			I				165
Royalties			5,095				—				(5,095	)			J				—
Net product sales			2,935				25,967				—								28,902
Total revenues			12,824				25,967				(9,724	)							29,067
Cost of product sales			1,784				17,195				(5,095	)			J				—
											(5,378	)			L				8,506
Research and development			26,050				4,405				—								30,455
Amortization expense and impairment of intangible assets			—				55,863				3,972				K
											(55,863	)			K				3,972
Selling, general and administrative			41,542				62,297				—								103,839
			69,376				139,760				(62,364	)							146,772
Operating Loss (income)			(56,552	)			(113,793	)			52,640								(117,705	)
Other income (expenses):
Interest income			286				—				—								286
Interest expense			(3,890	)			—				—								(3,890	)
Change in fair value of financial instruments			11,600				—				—								11,600
Foreign currency gain (loss), net			978				—				—								978
Total other income (expense), net			8,974				—				—								8,974
Income before income taxes			(47,578	)			(113,793	)			52,640								(108,731	)
Income tax expense			—				—				—								—
Net income (loss) to common stockholders		$	(47,578	)			(113,793	)			52,640								(108,731	)
Net loss per common share:
Basic		$	(3.27	)															(7.47	)
Diluted		$	(3.27	)															(7.47	)
Weighted average common shares outstanding:
Basic			14,561																14,561
Diluted			14,561																14,561

Notes to the Unaudited Condensed Combined Pro forma Statement of Operations

 

G	Derived from the unaudited statement operations of Orexigen for the six months ended June 30, 2016

H	Derived from the unaudited statement operations of Contrave for the three months ended June 30, 2016 and the audited statement operations of Contrave for the year ended March 31, 2016

I	Write-off of Existing Contrave Deferred Revenue

 

		Debit Collaborative Agreement
Reversal of collaborative revenue amortization six months ended 6/30/16		$	4,629

 

J	Elimination of Intercompany transactions

 

		Debit Royalty Revenue				Credit Cost of Product Sales
Eliminate Orexigen’ s royalty revenue related to Contrave		$	5,095			$	5,095

 

K	Record Intangible Asset Amortization and Reversal of Contrave Impairment

 

		Debit Amortization Expense and Impairment of Intangible Assets
The developed technology intangible asset and tradename are recognized in the acquisition and is amortized over the remaining useful life of 10 years.		$	3,972
		Credit Amortization Expense and Impairment of Intangible Assets
Represents elimination of historical amortization and impairment expense on intangible assets		$	55,863

 

L	Cost of Product Sales Adjustment

 

		Credit Cost of Product Sales
Cost of goods sold for six months ended June 30, 2016 includes a write-off of $5,378 thousand related to Takeda’s agreement with Orexigen to reacquire the rights to Contrave in the U.S. and having quantities on hand that were in excess of sales to the U.S. market and amounts to be acquired by Orexigen.		$	5,378

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OREXIGEN THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT

OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share amounts)

 

		M				N										OREXIGEN
										Pro Forma						Pro Forma
		OREXIGEN				CONTRAVE				Adjustments						Combined
Revenues:
Collaborative agreement		$	13,865				—				(13,700	)		O			165
Royalties			10,594				—				(10,594	)		P			—
Net product sales			—				52,581				—						52,581
Total revenues			24,459				52,581				(24,294	)					52,746
Cost of product sales			—				28,903				(10,594	)		P
											(5,378	)		R			12,931
Research and development			40,750				9,923				—						50,673
Pre-existing settlement gain			—				—				(85,629	)		O			(85,629	)
Amortization expense and impairment of intangible assets			—				63,918				7,944			Q
											(63,918	)		Q			7,944
Selling, general and administrative			43,762				172,764				—						216,526
			84,512				275,508				(157,575	)					202,445
Operating Loss (income)			(60,053	)			(222,927	)			133,281						(149,699	)
Other income (expenses):
Interest income			227				—				—						227
Interest expense			(7,446	)			—				—						(7,446	)
Foreign currency loss, net			(39	)			—				—						(39	)
Total other income (expense), net			(7,258	)			—				—						(7,258	)
Income before income taxes			(67,311	)			(222,927	)			133,281						(156,957	)
Income tax expense			(1,376	)			—				—						(1,376	)
Net income (loss) to common stockholders		$	(68,687	)			(222,927	)			133,281						(158,333	)
Net loss per common share:
Basic		$	(0.52	)													(1.21	)
Diluted		$	(0.52	)													(1.21	)
Weighted average common shares outstanding:
Basic			131,129														131,129
Diluted			131,129														131,129

Notes to the Unaudited Condensed Combined Pro forma Statement of Operations

 

M	Derived from the audited statement operations of Orexigen for the year ended December 31, 2015

N	Derived from the audited statement operations of Contrave for the year ended March 31, 2016

O	Write-off of Existing Contrave Deferred Revenue

 

						Credit
		Debit				Pre-existing
		Collaborative				Settlement
		Agreement				Gain
Reversal of collaborative revenue amortization		$	13,700			$	(13,700	)
Write-off of existing deferred revenue related to Contrave			—				(71,929	)
Total reversal of deferred revenue through income			13,700				(85,629	)

 

P	Elimination of Intercompany transactions

 

		Debit				Credit
		Royalty				Cost of
		Revenue				Product Sales
Eliminate Contrave Royalty revenue and expense		$	10,594			$	10,594

 

Q	Record Intangible Asset Amortization and Reversal of Contrave Impairment

 

		Debit
		Amortization Expense and
		Impairment of Intangible Assets
The developed technology intangible asset and tradename are recognized in the acquisition and is amortized over the remaining useful life of 10 years.		$	7,944

 

		Credit
		Amortization Expense and
		Impairment of Intangible Assets
Represents elimination of historical amortization and impairment expense on intangible assets		$	63,918

 

R	Cost of Product Sales Adjustment

 

		Credit
		Cost of
		Product Sales
Cost of goods sold for year ended March 31, 2016 includes a write-off of $5,378 thousand related to Takeda’s agreement with Orexigen to reacquire the rights to Contrave in the U.S. and having quantities on hand that were in excess of sales to the U.S. market and amounts to be acquired by Orexigen.		$	5,378

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