Deferred Rent
Rent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense accrued and
amounts paid under the lease agreement is recorded as deferred rent in the accompanying consolidated balance sheets.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available
evidence, it is more likely than not that the deferred tax assets will be realized.
Revenue Recognition
DIFICID is available through three major wholesalers and regional wholesalers that provide the DIFICID to hospital and
retail pharmacies, and long-term care facilities. The Company recognizes revenue from product sales until there is persuasive evidence
of an arrangement, delivery has occurred, title has passed to the customer, 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 DIFICID upon delivery of product to the
wholesalers.
The Company’s net product revenues represent total product revenues less allowances for customer credits, including
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 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.
Product Sales Allowances. The Company establishes reserves for prompt payment discounts, government rebates, product
returns and other applicable allowances.
Allowances against receivable balances primarily relate to prompt payment discounts and distribution fee for service
arrangements with our contracted wholesalers and are recorded at the time of sale, resulting in a reduction in product sales
revenue. Accruals related to government rebates, product returns and other applicable allowances are recognized at the time of sale,
resulting in a reduction in product sales revenue and the recording of an increase in accrued expenses.
Prompt Payment Discounts. The Company offers a prompt payment discount to its contracted wholesalers. Since the
Company expects its customers will take advantage of this discount, the Company accrues 100% of the prompt payment discount that
is based on the gross amount of each invoice, at the time of sale. The accrual is adjusted quarterly to reflect actual earned discounts.
Government Rebates and Chargebacks. The Company estimates government mandated rebates and discounts relating to
federal and state programs such as Medicaid, Veterans’ Administration (“VA”) and Department of Defense programs, the Medicare
Part D Coverage Discount Program, as well as certain other qualifying federal and state government programs. The Company
estimates the amount of these reductions based on DIFICID patient data, actual sales data and market research data related to payor
mix. These allowances are adjusted each period based on actual experience.
Medicaid rebate reserves relate to the Company’s estimated obligations to states under statutory “best price” obligations
which may also include supplemental rebate agreements with certain states. Rebate accruals are recorded during the same period in
which the related product sales are recognized. Actual rebate amounts are determined at the time of claim by the state, and the
Company will generally make cash payments for such amounts after receiving billings from the state.
VA rebates or chargeback reserves represent the Company’s estimated obligations resulting from contractual commitments to
sell DIFICID to qualified healthcare providers at a price lower than the list price charged to the Company’s distributor. The
distributor will charge the Company for the difference between what the distributor pays for the product and the ultimate selling price
to the qualified healthcare provider. Rebate accruals are established during the same period in which the related product sales are
recognized. Actual chargeback amounts for Public Health Service are determined at the time of resale to the qualified healthcare
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