Deerfield Obligation |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deerfield Obligation |
8. Deerfield Obligation
In relation to the Company's acquisition of the Avadel pediatric products on February 16, 2018, the Company assumed an obligation that Avadel had to Deerfield CSF, (the "Deerfield Obligation"). The payment obligation assumed consists of the two components described below.
Deerfield Debt Obligation
Beginning in July 2018 through October 2020, the Company will pay a quarterly payment of $262,500 to Deerfield. In January 2021, a balloon payment of $15,250,000 is due. On the acquisition date, the Company determined the fair value of these payments to be $15,272,303 using its estimated cost of debt. Management performed a credit risk analysis that determined the Company's credit rating to be B to BB plus the yield on a ten-year treasury security. The difference between the gross value and fair value of these payments will be recorded as interest expense in the Company's condensed consolidated statements of operations through January 2021 using the effective interest method. Interest expense for the three months ended March 31, 2018 was $105,451. The amounts due within the next year are included in Current portion of long-term debt on the Company's condensed consolidated balance sheets. The amounts due in greater than one year are included in Long-term debt on the Company's condensed consolidated balance sheets.
Deerfield Contingent Consideration
The Deerfield Contingent Consideration represents potential future royalty payments that are contingent upon the achievement of net sales volumes. Management estimated the amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows and determined the fair value of the Deerfield Contingent Consideration on the acquisition date was $7,875,165. Subsequent to the acquisition date, at each reporting period, the Deerfield Contingent Consideration liability will be remeasured at its current fair value with changes recorded in the Company’s condensed consolidated statements of operations. At March 31, 2018, the fair value of the Deerfield Contingent Consideration was $7,920,356 which resulted in a charge of $45,191 to change in fair value on the statement of operations.
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