Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Volcano Corp (1354217) 10-Q published on Nov 07, 2014 at 2:09 pm
Reporting Period: Sep 29, 2014
Furthermore, we may be required to make payments upon reaching certain sales milestones. We estimate the contingent sales milestone payments to be approximately $39.4 million and the fair value of this contingent consideration was preliminarily estimated to be $29.0 million at acquisition. We determined the fair value of the contingent consideration relative to the milestone payments based on commercial sales of AtheroMed products using various estimates, including revenue projections, discount rates and amount of time until the conditions of the milestone payments are met. This fair value measurement is based on significant inputs not observable in the market, representing a Level 3 measurement within the fair value hierarchy. At September 30, 2014, for the fair value relative to the milestone payments based on the commercial sales of AtheroMed products, the key assumptions in applying the income approach include an 11% discount rate and probability-weighted expected milestone payment ranges from $32.8 million to $49.2 million based on estimated commercial sales of AtheroMed products ranging from $59.9 million to $89.9 million from 2015 to 2017. Using different valuation assumptions could result in significant differences in the fair value of the contingent consideration and accretion expense in the current or future periods.
The assets acquired, consisting primarily of developed technology valued at $61.9 million and IPR&D valued at $9.0 million, were recorded at their estimated fair values as of the acquisition date. The estimated fair value of the IPR&D was determined using the multi-period excess earnings method, a variation of the income approach. The multi-period excess earnings method estimates the value of an intangible asset equal to the present value of the incremental after tax cash flows attributable to that intangible asset. The fair value using the multi-period excess earnings method was dependent on an estimated weighted average cost of capital for AtheroMed of 11%, which represents a rate of return that a market participant would expect for these assets.
We may also be a party to various other claims in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred and were not material in any period reported. Additionally, we assess, in conjunction with our legal counsel, the need to record a liability for litigation and contingencies. Reserve estimates are recorded when and if it is determined that a loss related matter is both probable and reasonably estimable. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information and events pertinent to a particular matter. Based on its experience, the Company also believes that the damage amounts claimed in the lawsuits disclosed above are not a meaningful indicator of the Company's potential liability. At this time, we are not able to predict or estimate the ultimate outcome or range of possible losses relating to the lawsuits, claims or counterclaims described above. However, we believe that the ultimate disposition of these matters, individually and in the aggregate, including the matters discussed above, will not have a material impact on our consolidated results of operations, financial position or cash flows. Our evaluation of the likely impact of these matters could change in the future, as litigation is inherently unpredictable, and unfavorable outcomes and/or defense costs, depending upon the amount and timing, could have a material adverse effect on our results of operations, financial position, or cash flows in future periods.
Regarding our iFR modality, the ADVISE II (Adenosine Vasodilator Independent Stenosis Evaluation) registry, sponsored by us, undertook to assess the clinical value of iFR to characterize, without concomitant administration of hyperemic agents such as adenosine and outside a specified range of iFR values, coronary stenosis severity as determined with FFR. The final ADVISE II data reported that the hybrid iFR/FFR approach correctly matched an FFR-only approach in 94.2 percent of coronary stenosis and successfully avoided use of adenosine in 65.1 percent of patients. These data suggest the clinical value of the hybrid iFR/FFR approach in helping to improve patient outcomes.
Restructuring Charges. Restructuring charges during the nine months ended September 30, 2014 consisted primarily of $818,000 of tangible and intangible asset impairments related to the discontinuation of research and development programs offset by a favorable settlement of a previously accrued contract termination cost of approximately $1.0 million. Restructuring charges during the nine months ended September 30, 2013 consisted of $4.6 million for the impairment of certain intangible assets (in process research and development and developed technology) relating to the discontinuation of an in-process research and development project and termination of a product line, and $258,000 of employee termination costs related to the restructuring activities during the second quarter of 2013.