Document And Entity Information - USD ($)	12 Months Ended
Document And Entity Information - USD ($)	Dec. 31, 2018	Feb. 25, 2019	Jun. 28, 2018
Entity Information [Line Items]
Entity Shell Company	false
Entity Registrant Name	PDL BIOPHARMA, INC.
Document Type	10-K
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		128,108,466
Entity Public Float			$ 332,399,179
Amendment Flag	false
Entity Central Index Key	0000882104
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	Yes
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Entity Small Business	false
Entity Emerging Growth Company	false

CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenues
Interest revenue	$ 2,337	$ 17,744	$ 30,404
Revenues	198,110	320,060	244,301
Cost of Revenue	48,460	30,537	4,065
Cost, Amortization	15,831	24,689	12,028
Operating expenses
General and administrative	45,420	45,641	39,790
Selling and marketing	17,139	17,683	538
Research and development	2,955	7,381	3,820
Impairment of Intangible Assets, Finite-lived	152,330	0	0
Change in fair value of anniversary payment and contingent consideration	(41,631)	349	(3,716)
Asset Impairment Charges	8,200	0	3,735
Acquisition-related costs	0	0	3,564
Loss on extinguishment of notes receivable	0	0	51,075
Total operating expenses	248,704	126,280	114,899
Operating income	(50,594)	193,780	129,402
Non-operating expense, net
Interest and other income, net	6,065	1,659	588
Interest expense	(12,157)	(20,221)	(18,267)
Business Combination, Bargain Purchase, Gain Recognized, Amount	0	9,309	0
Gain (Loss) on Investments	764	0	0
Gain (loss) on extinguishment of debt	0	0	(2,353)
Total non-operating expense, net	(5,328)	(9,253)	(20,032)
Income before income taxes	(55,922)	184,527	109,370
Income tax expense	12,937	73,826	45,711
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	(68,859)	110,701	63,659
Net Income (Loss) Attributable to Noncontrolling Interest	0	(47)	53
Net income attributable to noncontrolling interests	$ (68,859)	$ 110,748	$ 63,606
Net income per share
Basic (in Dollars per Share)	$ (0.47)	$ 0.71	$ 0.39
Diluted (in Dollars per Share)	$ (0.47)	$ 0.71	$ 0.39
Weighted average shares outstanding
Basic (in Shares)	145,669	155,394	163,805
Diluted (in Shares)	145,669	156,257	164,192
Cash dividends declared per common share (in Dollars per Share)	$ 0.00	$ 0.00	$ 0.10
Queen et al. patents [Member]
Revenues
Revenues	$ 4,536	$ 36,415	$ 166,158
Acquired rights [Member]
Revenues
Revenues	85,256	162,327	16,196
Product Revenue [Member]
Revenues
Revenue from Contract with Customer, Including Assessed Tax	105,448	84,123	31,669
License and other [Member]
Revenues
Revenues	$ 533	$ 19,451	$ (126)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands

12 Months Ended

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2016

Statement of Comprehensive Income [Abstract]

Net Income (Loss), Including Portion Attributable to Noncontrolling Interest

$ (68,859)

$ 110,701

$ 63,659

Other comprehensive income (loss), net of tax

Change in unrealized gains on investments in available-for-sale securities

(578)

1,181

122

Adjustment for net (gains) losses realized and included in net income, net of tax

(603)

(557)

Total change in unrealized gains on investments in available-for-sale securities, net of tax

^[1]

(1,181)

1,181

(435)

Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Net of Tax

(1,821)

Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax

^[2]

(1,821)

Total other comprehensive income (loss), net of tax

(1,181)

1,181

(2,256)

Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest

(70,040)

111,882

61,403

Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Noncontrolling Interest

(47)

Comprehensive income

$ (70,040)

$ 111,929

$ 61,350

[1]	Net of tax of ($314), $314 and ($234) for the years ended December 31, 2018, 2017 and 2016, respectively.
[2]	Net of tax of ($981) for the year ended December 31, 2016.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parentheticals) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement of Comprehensive Income [Abstract]
Unrealized gains (losses) on available-for-sale securities, tax	$ (314)	$ 314	$ (234)
Unrealized gains (losses) on cash flow hedges, tax			$ (981)

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 394,590	$ 527,266
Short-term investments	0	4,848
Receivables from licensees	21,648	31,183
Notes receivable	63,042	53,613
Inventory, net	18,942	9,147
Prepaid and other current assets	18,995	14,386
Total current assets	517,217	640,443
Property, Plant and Equipment, Net	7,387	7,222
Royalty rights - at fair value	376,510	349,223
Notes and other receivables, long-term	771	17,124
Long-term deferred tax assets	1,539	2,432
Intangible assets, net	51,319	215,823
Other assets	8,993	10,856
Total assets	963,736	1,243,123
Current liabilities:
Accounts payable	13,142	19,785
Accrued liabilities	39,312	45,881
Accrued Income Taxes, Current	16	1,377
Convertible Notes Payable, Current	0	126,066
Total current liabilities	52,470	193,109
Convertible notes payable	124,644	117,415
Contingent consideration	0	42,000
Other long-term liabilities	56,843	44,709
Total liabilities	233,957	397,233
Commitments and Contingencies
Stockholders' equity (deficit):
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding	0	0
Common stock, par value $0.01 per share, 350,000 shares authorized; 136,513 and 153,775 shares issued and outstanding at December 31, 2018 and 2017, respectively	1,365	1,538
Additional paid-in capital	(98,030)	(102,443)
Treasury Stock, Value	(2,103)	0
Accumulated other comprehensive income	0	1,181
Retained earnings	828,547	945,614
Total stockholders' equity	729,779	845,890
Noncontrolling Interest in Variable Interest Entity	0	0
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	729,779	845,890
Total liabilities and stockholders' equity	$ 963,736	$ 1,243,123

CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares shares in Thousands	Dec. 31, 2018	Dec. 31, 2017
Preferred stock par value (in Dollars per Share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in Shares)	10,000	10,000
Preferred stock, shares issued (in Shares)	0	0
Preferred stock, shares outstanding (in Shares)	0	0
Common stock par value (in Dollars per Share)	$ 0.01	$ 0.01
Common stock, shares authorized (in Shares)	350,000	350,000
Common stock, shares issued (in Shares)	136,513	153,775
Common stock, shares outstanding (in Shares)	136,513	153,775

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ (68,859)	$ 110,701	$ 63,659
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of convertible notes and term loan offering costs	7,609	11,038	10,009
Amortization of Intangible Assets	15,831	24,689	12,028
Impairment of Intangible Assets, Finite-lived	152,330	0	0
Asset Impairment Charges	8,200	0	3,735
Change in fair value of acquired royalty rights	(85,256)	(162,327)	(16,196)
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Change in Unrealized Gain (Loss)	(33)	49	906
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	(41,631)	349	(3,716)
Other amortization, depreciation and accretion of embedded derivative	3,696	2,366	18
Inventory Write-down	(1,203)	2,012	342
Provision for Doubtful Accounts	8	76	0
Loss on extinguishment of notes receivable	0	0	51,075
Gains (Losses) on Extinguishment of Debt	0	0	2,353
Gain (Loss) on Sale of Investments	(764)	(108)	(882)
Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property	66	0	0
Increase (Decrease) in Other Receivables	0	(1,400)	0
Business Combination, Bargain Purchase, Gain Recognized, Amount	0	(9,309)	0
Stock-based compensation expense	4,758	3,138	3,742
Deferred taxes	13,846	39,172	(10,676)
Changes in assets and liabilities:
Receivables from licensees	9,341	5,877	(34,120)
Increase (Decrease) in Accounts and Other Receivables	0	(5,055)	6,000
Prepaid and other current assets	(5,025)	(9,100)	(1,526)
Accrued interest on notes receivable	0	1,475	(2,764)
Increase (Decrease) in Inventories	(8,305)	(1,120)	(3,227)
Other assets	(2,120)	(1,400)	(757)
Accounts payable	(6,642)	10,840	6,621
Accrued liabilities	(7,449)	13,120	22,729
Increase (Decrease) in Income Taxes Payable	(1,361)	(3,346)	1,352
Increase (Decrease) in Other Deferred Liability	0	0	(787)
Other long-term liabilities	(462)	(1,223)	3,800
Net cash provided by operating activities	(13,425)	40,624	101,718
Cash flows from investing activities
Purchase consideration paid in advance	0	0	(109,938)
Purchases of investments	0	(23,213)	(22,952)
Payments to Acquire Other Investments	0	0	(75,000)
Proceeds from Sale and Maturity of Other Investments	0	75,000	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Settlements	(858)	0	0
Maturities of investments	4,116	39,956	4,680
Purchase of royalty rights	(20,000)	0	(59,500)
Payments for (Proceeds from) Productive Assets	77,969	107,253	72,582
Proceeds from Sale of Productive Assets	0	108,169	0
Issuance of notes receivable	0	0	(9,010)
Proceeds from Sale and Collection of Notes Receivable	0	144,829	54,653
Repayment of notes receivable	0	8,190	0
Acquisition of property and equipment	(4,523)	(1,297)	(25)
Net cash provided by/(used in) investing activities	56,704	458,887	(144,510)
Cash flows from financing activities
Repayments of Unsecured Debt	0	0	25,000
Payments for Repurchase of Convertible Preferred Stock	0	0	(120,000)
Repayments of Notes Payable	(126,447)	0	0
Payment of debt issuance costs	0	0	(3,204)
Net proceeds from the issuance of convertible notes	0	0	150,000
Purchased call options cost	0	0	(14,400)
Other Payments to Acquire Businesses	0	(87,007)	0
Proceeds from Noncontrolling Interests	0	0	250
Cash paid for purchase of noncontrolling interest	0	(2,170)	0
Payments for Repurchase of Common Stock	(49,109)	(30,000)	0
Cash dividends paid	(48)	(222)	(16,583)
Excess Tax Benefit from Share-based Compensation, Financing Activities	(351)	0	0
Net cash used in financing activities	(175,955)	(119,399)	(28,937)
Net increase/(decrease) in cash and cash equivalents	(132,676)	380,112	(71,729)
Cash and cash equivalents at beginning of the period	527,266	147,154	218,883
Cash and cash equivalents at end of period	394,590	527,266	147,154
Supplemental cash flow information
Cash paid for income taxes	3,805	43,366	50,000
Interest Paid, Including Capitalized Interest, Operating and Investing Activities	6,654	9,286	11,410
Supplemental disclosures of non-cash financing activities
Assets held for sale reclassified from other assets to intangibles	1,811	0	0
Noncash or Part Noncash Acquisition, Value of Assets Acquired	0	0	2,342
Noncash or Part Noncash Acquisition, Other Liabilities Assumed	0	0	87,007
Noncash or Part Noncash Acquisition, Value of Liabilities Assumed	0	0	47,360
Asset held for sale reclassified from notes receivable to other assets	0	10,000	0
Extinguishment of Debt, Amount	$ 0	$ 43,909	$ 0

Consolidated Statements of Stockholders' Equity (Deficit) Statement - USD ($)
$ in Thousands

Total

Common Stock [Member]

Additional Paid-in Capital [Member]

Retained Earnings (Accumulated Deficit) [Member]

Accumulated Other Comprehensive Income (Loss) [Member]

February 2018 Notes [Member]

Additional Paid-in Capital [Member]

Noncontrolling Interest in Variable Interest Entity

$ 0

Beginning Balance (in shares) at Dec. 31, 2015

164,286,615

Beginning Balance at Dec. 31, 2015

$ 695,952

$ 1,643

$ (117,983)

$ 810,036

$ 2,256

Issuance of common stock under employee benefit plans (in Shares)

1,251,832

Issuance of common stock under employee benefit plans

$ 0

(12)

Issuance of convertible debt

$ 25,465

Purchase of purchased call options, net of tax

14,400

Adjustments to Additional Paid in Capital, Other

(3,977)

Stock-based compensation expense

3,741

Adjustments to Additional Paid in Capital, Income Tax Deficiency from Share-based Compensation

(462)

Dividends declared, Retained Earnings adjustment

(16,526)

Proceeds from Divestiture of Interest in Subsidiaries and Affiliates

250

Noncontrolling Interest, Increase from Subsidiary Equity Issuance

4,227

Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest

61,403

Statement of Comprehensive Income [Abstract]

Net Income (Loss) Attributable to Parent

63,606

Net Income (Loss) Attributable to Nonredeemable Noncontrolling Interest

Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest

63,659

Other Comprehensive Income (Loss), Securities, Available-for-sale, Adjustment, before Tax

(435)

^[1]

(435)

Total comprehensive income

61,350

Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax

$ (1,821)

^[2]

(1,821)

Ending Balance (in shares) at Dec. 31, 2016

165,538,447

Ending Balance at Dec. 31, 2016

1,655

(107,628)

857,116

Noncontrolling Interest in Variable Interest Entity

$ 4,280

Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest

$ 755,423

Issuance of common stock under employee benefit plans (in Shares)

1,582,698

Issuance of common stock under employee benefit plans

(16)

Adjustments to Additional Paid in Capital, Other

$ 2,063

Other Noncontrolling Interests

(4,233)

Stock-based compensation expense

$ 3,138

Stock Repurchased During Period, Shares

(13,346,389)

Treasury Stock, Retired, Par Value Method, Amount

$ (133)

Treasury Stock, Retired, Cost Method, Amount

(29,867)

Stock Repurchased and Retired During Period, Value

(30,000)

Payments to Acquire Additional Interest in Subsidiaries

(2,170)

Cumulative Effect on Retained Earnings, Net of Tax

7,617

Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest

111,882

Statement of Comprehensive Income [Abstract]

Net Income (Loss) Attributable to Parent

110,748

Net Income (Loss) Attributable to Nonredeemable Noncontrolling Interest

(47)

Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest

110,701

Other Comprehensive Income (Loss), Securities, Available-for-sale, Adjustment, before Tax

1,181

^[1]

1,181

Total comprehensive income

111,929

Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax

^[2]

$ 0

Ending Balance (in shares) at Dec. 31, 2017

153,774,756

Ending Balance at Dec. 31, 2017

$ 845,890

1,538

(102,443)

945,614

1,181

Treasury Stock, Value

Noncontrolling Interest in Variable Interest Entity

Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest

$ 845,890

Issuance of common stock under employee benefit plans (in Shares)

(601,668)

Issuance of common stock under employee benefit plans

$ (58)

Stock-based compensation expense

$ 4,407

Stock Repurchased During Period, Shares

(16,660,566)

Treasury Stock, Retired, Par Value Method, Amount

$ (167)

Treasury Stock, Value, Acquired, Cost Method

(2,103)

Treasury Stock, Retired, Cost Method, Amount

(48,266)

Stock Repurchased and Retired During Period, Value

(50,536)

Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest

(70,040)

Statement of Comprehensive Income [Abstract]

Net Income (Loss) Attributable to Parent

(68,859)

Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest

(68,859)

Other Comprehensive Income (Loss), Securities, Available-for-sale, Adjustment, before Tax

(1,181)

^[1]

(1,181)

Total comprehensive income

(70,040)

Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax

^[2]

$ 0

Ending Balance (in shares) at Dec. 31, 2018

136,512,522

Ending Balance at Dec. 31, 2018

$ 729,779

$ 1,365

$ (98,030)

$ 828,547

$ 0

Treasury Stock, Value

(2,103)

Noncontrolling Interest in Variable Interest Entity

Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest

$ 729,779

[1]	Net of tax of ($314), $314 and ($234) for the years ended December 31, 2018, 2017 and 2016, respectively.
[2]	Net of tax of ($981) for the year ended December 31, 2016.

Organization and Business	12 Months Ended
Organization and Business	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]	1. Organization and Business PDL BioPharma, Inc. and its subsidiaries (collectively, the “Company”) seeks to provide a significant return for its stockholders by acquiring commercial stage pharmaceutical assets with multiple year revenue growth potential as well as late clinical stage pharmaceutical products. Historically, the Company generated a substantial portion of its revenues through the license agreements related to patents covering the humanization of antibodies, which it refers to as the Queen et al. patents. In 2012, the Company began providing alternative sources of capital through royalty monetizations and debt facilities, and, in 2016, the Company began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. To date, the Company has consummated seventeen such transactions, ten of which are active and outstanding. Based on the composition of its existing investment portfolio, the Company currently operates in three segments designated as Pharmaceutical, Medical Devices and Income Generating Assets. The Company’s Pharmaceutical segment consists of revenue derived from branded prescription medicine product sold under the name Tekturna^® and Tekturna HCT^® in the United States and Rasilez^® and Rasilez HCT^® in the rest of the world (collectively, the “Noden Products”). The Company’s Medical Devices segment consists of revenue derived from the LENSAR^® Laser System sales. The Company’s Income Generating Assets segment consists of revenue derived from (i) notes and other long-term receivables, (ii) royalty rights - at fair value, (iii) equity investments and (iv) royalties from the Queen et al. patents.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or remove the majority of the members of the board of directors; to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the stockholders or equity holders.

The Company applies the guidance codified in Accounting Standard Codification (“ASC”) 810, Consolidations, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity in which it has a controlling financial interest. The Company identifies an entity as a variable interest entity if either: (1) the entity does not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the entity’s equity investors lack the essential characteristics of a controlling financial interest. The Company performs ongoing qualitative assessments of its variable interest entities to determine whether the Company has a controlling financial interest in any variable interest entity and therefore is the primary beneficiary, and if it has the power to direct activities that impact the activities of the entity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements. The accounting estimates that require management’s most significant, difficult and subjective judgments include the valuation of royalty rights - at fair value, revenue recognition and allowance for customer credits, the valuation of notes receivable and inventory, the assessment of recoverability of intangible assets and their estimated useful lives, the valuation and recognition of share-based compensation, the recognition and measurement of current and deferred income tax assets and liabilities, and contingent consideration estimates. Actual results could differ from those estimates.

Segment Reporting

Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the entity’s chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Company has evaluated its operating segments in accordance with ASC 280 as of December 31, 2018, and has identified three reportable segments: Pharmaceutical, Medical Devices and Income Generating Assets.

Cash Equivalents

The Company considers all highly liquid investments with initial maturities of three months or less at the date of purchase to be cash equivalents. The Company places its cash and cash equivalents with high credit quality financial institutions and, by policy, limits the amount of credit exposure in any one financial instrument.

Accounts Receivable

As of December 31, 2018 and 2017, the Company had $78,000 and $76,000 in its allowance for doubtful accounts, respectively. The Company provides an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when the Company determines that recovery is unlikely and the Company ceases collection efforts.

Investments

As of December 31, 2018, the Company’s investments comprised an investment in a privately-held company. As of December 31, 2017, the Company’s investments also included available-for-sale investments.

All marketable securities were classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The Company classifies marketable securities that are available for use in current operations as current assets in the Consolidated Balance Sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in “Interest and other income, net.” The cost of securities sold is based on the specific identification method.

On July 1, 2016, Noden Pharma DAC entered into an asset purchase agreement (“Noden Purchase Agreement”) whereby it purchased from Novartis Pharma AG (“Novartis”) the exclusive worldwide rights to manufacture, market, and sell the Noden Products and certain related assets and assumed certain related liabilities (the “Noden Transaction”). Upon the consummation of the Noden Transaction, a noncontrolling interest holder acquired a 6% equity interest in Noden. The equity interest of the noncontrolling interest holder was subject to vesting and repurchase rights over a four-year period. In May 2017, the Company repurchased this equity interest for $2.2 million in cash. The Company accounted for the repurchase in accordance with ASC 810 and recognized the difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted for in equity attributable to the Company. The Company consolidates Noden under the voting interest model as of December 31, 2018 and 2017. For additional information about the consolidation of Noden, see Note 23, Business Combinations.

Fair Value Measurements

The fair value of the Company’s financial instruments are estimates of the amounts that would be received if the Company were to sell an asset or the Company paid to transfer a liability in an orderly transaction between market participants at the measurement date or exit price. The assets and liabilities are categorized and disclosed in one of the following three categories:

Level 1 – based on quoted market prices in active markets for identical assets and liabilities;

Level 2 – based on quoted market prices for similar assets and liabilities, using observable market based inputs or unobservable market based inputs corroborated by market data, and

Level 3 – based on unobservable inputs using management’s best estimate and assumptions when inputs are unavailable.

Notes Receivable and Other Long-Term Receivables

The Company accounts for its notes receivable at amortized cost, net of unamortized origination fees, if any, and adjusted for any impairment losses. Interest is accreted or accrued to “Interest revenue” using the effective interest method. When and if supplemental payments are received from certain of these notes and other long-term receivables, an adjustment to the estimated effective interest rate is affected prospectively.

The Company evaluates the collectability of both interest and principal for each note receivable and loan to determine whether it is impaired. A note receivable or loan is considered to be impaired when, based on current information and events, the Company determines it is probable that it will be unable to collect amounts due according to the existing contractual terms. When a note receivable or loan is considered to be impaired, the amount of loss is calculated by comparing the carrying value of the financial asset to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the estimated fair value of the underlying collateral, less costs to sell, if the loan is collateralized and the Company expects repayment to be provided solely by the collateral. Impairment assessments require significant judgments and are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

The Company records interest on an accrual basis and recognizes it as earned in accordance with the contractual terms of the credit agreement, to the extent that such amounts are expected to be collected. When a note receivable or loan becomes past due, or if management otherwise does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the note receivable or loan on an impaired status and cease recognizing interest income on that note receivable or loan on an accrual basis until all principal and interest due has been paid or until such time that the Company believes the borrower has demonstrated the ability to repay its current and future contractual obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. Any interest payments received for notes receivable or loans on an impaired status are recognized as interest income on a cash basis.

For the years ended December 31, 2018 and 2017, the Company recognized $2.3 million and $3.1 million, respectively, of interest revenue for the CareView note receivable while on impaired status as a result of cash interest payments made during these years. For the year ended December 31, 2016, the Company did not recognize any interest income for notes receivable or loans which were impaired.

As of December 31, 2018, the Company had three notes receivable investments which were determined to be impaired with a cumulative investment cost and fair value of approximately $62.8 million and $70.0 million, respectively, compared to three note receivable investments which were determined to be impaired as of December 31, 2017 with a cumulative investment cost and fair value of approximately $70.7 million and $71.3 million, respectively. During the years ended December 31, 2018 and 2017, the Company did not recognize any losses on extinguishment of notes receivable. During the year ended December 31, 2016, the Company recognized a loss on extinguishment of notes receivable of $51.1 million.

During the year ended December 31, 2018 the Company recorded an impairment loss of $8.2 million related to the CareView note receivable. There were no impairment losses on notes receivable for the years ended December 31, 2017 and 2016. For additional information about the impairment loss recorded on the CareView note receivable, see Note 9, Notes and Other Long-Term Receivables.

Inventory

Inventory, which consists of raw material, work-in-process and finished goods, is stated at the lower of cost or market value. The Company determines cost using the first-in, first-out method. Inventory levels are analyzed periodically and written down to their net realizable value if they have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of expected requirements. The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. The Company classifies inventory as current on the Consolidated Balance Sheets when the Company expects inventory to be consumed for commercial use within the next twelve months.

Intangible Assets

Intangible assets with finite useful lives consist primarily of acquired product rights and acquired technology and are amortized on a straight-line basis over their estimated useful lives, over eight years to 15 years. The estimated useful lives associated with finite-lived intangible assets are consistent with the estimated lives of the associated products and may be modified when circumstances warrant. Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset.

Goodwill

Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed. The annual test for goodwill impairment is a two-step process. The first step is a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then, in the second step, the loss is measured as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. The Company tests goodwill for impairment annually in December and when events or changes in circumstances indicate that the carrying value may not be recoverable. After completing the Company’s impairment review for the Noden reporting unit during the fourth quarter of 2016, the Company concluded that the goodwill of the Noden reporting unit was impaired. The Company recognized a goodwill impairment loss of $3.7 million as of December 31, 2016. There is no remaining goodwill recorded on the Consolidated Balance Sheets as of December 31, 2018 or 2017.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:



Leasehold improvements		Lesser of useful life or term of lease
Manufacturing equipment		3-5 years
Computer and office equipment		3 years
Transportation equipment		3 years
Furniture and fixtures		7 years
Equipment under lease		Greater of lease term or 5-10 years

Convertible Notes

The Company issued the December 2021 Notes with a settlement feature that allows the Company to settle the notes by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of our common stock, at the Company’s election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, the Company separated the principal balance between the fair value of the liability component and the common stock conversion feature using a market interest rate for a similar nonconvertible instrument at the date of issuance.

Financing Costs Related to Long-term Debt

Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method. Such costs are presented as reductions from the carrying amount of the long-term debt liability, consistent with debt discounts, on the Company’s Consolidated Balance Sheets.

Revenue Recognition

Adoption of New Revenue Recognition Standard

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers that supersedes Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”). Subsequently, the FASB issued several updates to ASU No. 2014-09, codified in ASC Topic 606 (“ASC 606”). ASC 606 also includes new guidance on costs related to a contract, which is codified in ASC Subtopic 340-40. The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not substantially completed as of the date of adoption. The cumulative impact of the adoption of ASC 606 was not material to the Company; therefore, the Company did not record any adjustments to retained earnings. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, which is also referred to herein as “legacy GAAP” or the “previous guidance”.

Policy Elections and Practical Expedients Taken

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product revenue.

Sales commissions and other incremental costs of obtaining contracts are expensed as incurred as the amortization periods are less than one year.

General

In accordance with ASC 606, revenue is recognized from the sale of products when a customer obtains control of promised products and services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these products and services. A five-step model is utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract’s performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the performance obligations are satisfied.

The following is a description of principal activities - separated by reportable segments - from which the Company generates its revenue. For more detailed information about reportable segments, see Note 24, Segment Information.

Pharmaceutical

The Pharmaceutical segment of the Company principally generates revenue from products sold to wholesalers and distributors. Customer orders are generally fulfilled within a few days of receipt resulting in minimal order backlog. Contractual performance obligations are usually limited to transfer of the product to the customer. The transfer occurs either upon shipment or upon receipt of the product in certain countries outside the United States after considering when the customer obtains control of the product. In addition, for some non-U.S. countries, the Company sells product on a consignment basis where control is not transferred until the customer resells the product to an end user. At these points, customers are able to direct the use of and obtain substantially all of the remaining benefits of the product.

Sales to customers are initially invoiced at contractual list prices. Payment terms are typically 30 to 90 days based on customary practice in each country. Revenue is reduced from the list price at the time of recognition for expected chargebacks, discounts, rebates, sales allowances and product returns, which are referred to as gross-to-net adjustments. A description of gross-to-net adjustments are described below.

Customer Credits: The Company’s customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. The Company expects the customers will earn prompt payment discounts and, therefore, the Company deducts the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

Rebates and Discounts: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the United States and mandated discounts in the European Union in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on negotiated discount rates and expected utilization as well as historical data. Estimates for expected utilization of rebates are based on data received from the customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from the Company’s wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to the Company the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, the Company maintains an accrual for chargebacks based on the estimated contractual discounts on products sold for which the chargeback has not been billed. If actual future chargebacks vary from these estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. Estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from the Company’s customers. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. The Company accrues a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Returns: Returns are generally estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales returns accruals.

Reserves for chargebacks, discounts, rebates, sales allowances and product returns are included within current liabilities in the Company’s Consolidated Balance Sheets.

For the period from July 1, 2016 through October 4, 2016, all of the Noden Products were distributed by Novartis under the terms of the Noden Purchase Agreement while transfer of the marketing authorization rights were pending. The Company presents revenue under the Novartis transition arrangement on a “net” basis and established a reserve for retroactive adjustment to the profit transfer with Novartis.

Beginning on October 5, 2016, Noden Pharma USA, Inc. distributed the Noden Products in the United States. The Company presented revenue for all sales in the United States on a “gross” basis and established a reserve for allowances.

For the period from October 5, 2016 to August 31, 2017, Novartis continued to distribute the Noden products outside of the United States. Beginning on September 1, 2017, Noden Pharma DAC began distributing the Noden Products to select countries outside the United States. The Company presents revenue for Noden Products sold by Novartis outside of the United States on a “net” basis. As of the third quarter of 2018, Noden Pharma DAC completed the marketing authorization transfers for all territories.

For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Medical Devices

The Medical Devices segment of the Company principally generates revenue from the sale and lease of the LENSAR^®Laser System, which may include equipment, Patient Interface Devices (“PIDs”), procedure licenses, and training, installation, warranty and maintenance agreements.

For bundled packages, the Company accounts for individual products and services separately if they are distinct - i.e. if a product or service is separately identifiable from other items in the bundled package and if the customer can benefit from it on its own or with other resources that are readily available to the customer. The LENSAR® Laser system, standard warranty training and installation services are one performance obligation. All other elements are separate performance obligations. PIDs, procedure licenses, warranty and maintenance services are also sold on a stand-alone basis.

As the Company both sells and leases the LENSAR^®Laser System, the consideration (including any discounts) is first allocated between lease and non-lease components and then allocated between the separate products and services based on their stand-alone selling prices. The stand-alone selling prices for the PIDs and procedure licenses are determined based on the prices at which the Company separately sells the PIDs and procedure licenses. The LENSAR^®Laser System and warranty stand-alone selling prices are determined using the expected cost plus a margin approach.

For LENSAR^®Laser System sales, the Company recognizes revenue in product revenue when a customer takes possession of the system. This usually occurs after the customer signs a contract, LENSAR installs the system, and LENSAR performs the requisite training for use of the system. For LENSAR^®Laser System leases, the Company recognizes revenue in product revenue over the length of the lease in accordance with ASC Topic 840, Leases.

The LENSAR^®Laser System requires both a consumable, a PID, and a procedure license to perform each procedure. The Company recognizes revenue for PIDs in product revenue when the customer takes possession of the PID. PIDs are sold by the case. The Company recognizes revenue for procedure licenses in product revenue when a customer purchases a procedure license from the web portal. Typically, consideration for PIDs and procedure licenses is considered fixed consideration except for certain customer agreements that provide for tiered volume discount pricing which is considered variable consideration.

The Company offers an extended warranty that provides additional services beyond the standard warranty. The Company recognizes revenue from the sale of extended warranties in product revenue over the warranty period. Customers have the option of renewing the warranty period, which is considered a new and separate contract.

Income Generating Assets

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

In January 2018, DFM, LLC, a wholly-owned subsidiary of the Company, granted an exclusive license related to certain Direct Flow Medical assets in exchange for $0.5 million in cash and up to $2.0 million in royalty payments. The $0.5 million payment was accounted for in accordance with ASC 606 under which the full cash payment was recognized as revenue in the first quarter of 2018 as DFM, LLC had fulfilled its performance obligation under the agreement.

Queen et al. Royalty Revenues

Under the Company’s license agreements related to patents covering the humanization of antibodies, which it refers to as the Queen et al. patents, the Company receives royalty payments based upon its licensees’ net sales of covered products. Royalties qualify for the sales-and-usage exemption under ASC 606 as (i) royalties are based strictly on the sales-and-usage by the licensee; and (ii) a license of intellectual property is the sole or predominant item to which such royalties relate. Based on this exemption, these royalties are earned under the terms of a license agreement in the period the products are sold by the Company's partner and the Company has a present right to payment. Generally, under these agreements, the Company receives royalty reports from its licensees approximately one quarter in arrears; that is, generally in the second month of the quarter after the licensee has sold the royalty-bearing product. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty revenues the Company reports are not based upon estimates, and such royalty revenues are typically reported in the same period in which the Company receives payment from its licensees.

Although the last of the Queen et al. patents expired in December 2014, the Company has received royalties beyond expiration based on the terms of its licenses and its legal settlement. Under the terms of the legal settlement between Genentech, Inc. (“Genentech”) and the Company, the first quarter of 2016 was the last period for which Genentech paid royalties to the Company for Avastin^®, Herceptin^®, Xolair^®, Perjeta^® and Kadcyla^®. Other products from the Queen et al. patent licenses, such as Tysabri^®, entitle the Company to royalties following the expiration of its patents with respect to sales of licensed product manufactured prior to patent expiry in jurisdictions providing patent protection licenses. In November 2017, the Company was notified by Biogen, Inc. that product supply for Tysabri^® that was manufactured prior to patent expiry, and for which the Company would receive royalties on, had been extinguished in the United States and was rapidly being reduced in other countries. As a result, royalties from product sales of Tysabri were substantially lower in 2018 and no additional royalties are expected.

Royalty Rights - At Fair Value

Currently, the Company accounts for its investments in royalty rights at fair value with changes in fair value presented in earnings. The fair value of the investments in royalty rights is determined by using a discounted cash flow analysis related to the expected future cash flows to be received. These assets are classified as Level 3 assets within the fair value hierarchy, as the Company’s valuation estimates utilize significant unobservable inputs, including estimates as to the probability and timing of future sales of the related products. Transaction-related fees and costs are expensed as incurred.

The changes in the estimated fair value from investments in royalty rights along with cash receipts in each reporting period are presented together on the Company’s Consolidated Statements of Operations as a component of revenue under the caption, “Royalty rights - change in fair value.”

Realized gains and losses on royalty rights are recognized as they are earned and when collection is reasonably assured. Royalty Rights revenue is recognized over the respective contractual arrangement period. Critical estimates may include product demand and market growth assumptions, inventory target levels, product approval, pricing assumptions and the impact of competition from other branded or generic products. Factors that could cause a change in estimates of future cash flows include a change in estimated market size, a change in pricing strategy or reimbursement coverage, a delay in obtaining regulatory approval, a change in dosage of the product a change in the number of treatments and the entrants of new competitors or generic products. For each arrangement, the Company is entitled to royalty payments based on revenue generated by the net sales of the product.

Foreign Currency Hedging

From time to time, the Company may enter into foreign currency hedges to manage exposures arising in the normal course of business and not for speculative purposes.

The Company hedged certain Euro-denominated currency exposures related to royalties associated with its licensees’ product sales with Euro forward contracts. In general, those contracts were intended to offset the underlying Euro market risk in the Company’s royalty revenues. The last of those contracts expired in the fourth quarter of 2015 and was settled in the first quarter of 2016. The Company designated foreign currency exchange contracts used to hedge royalty revenues based on underlying Euro-denominated licensee product sales as cash flow hedges.

The fair value of the Euro forward contracts was estimated using pricing models with readily observable inputs from actively quoted markets and was disclosed on a gross basis. The aggregate unrealized gains or losses, net of tax, on the effective component of the hedge was recorded in stockholders’ equity as “Accumulated other comprehensive income.” Realized gains or losses on cash flow hedges are recognized as an adjustment to royalty revenue in the same period that the hedged transaction impacts earnings as royalty revenue. Any gain or loss on the ineffective portion of these hedge contracts is reported in “Interest and other income, net” in the period the ineffectiveness occurs.

Foreign Currency Translation

The Company uses the U.S. dollar predominately as the functional currency of its foreign subsidiaries. For foreign subsidiaries where the U.S. dollar is the functional currency, gains and losses from remeasurement of foreign currency balances into U.S. dollars are included in the Consolidated Statements of Operations. The aggregate net gains (losses) resulting from foreign currency transactions and remeasurement of foreign currency balances into U.S. dollars that were included in the Consolidated Statements of Operations amounted to a $0.7 million loss, $0.1 million gain and less than $0.1 million gain for the years ended December 31, 2018, 2017 and 2016, respectively.

Comprehensive (Loss) Income

Comprehensive (loss) income comprises net (loss) income adjusted for other comprehensive (loss) income, using the specific identification method, which includes the changes in unrealized gains and losses on cash flow hedges and changes in unrealized gains and losses on the Company’s investments in available-for-sale securities, all net of tax, which are excluded from the Company’s net (loss) income.

Income Taxes

The provision for income taxes is determined using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items are reflected in the Consolidated Financial Statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any interest and penalties on uncertain tax positions are included within the tax provision.

The Tax Cuts and Job Act of 2017 (the “2017 Tax Act”) significantly changed the existing U.S. corporate income tax laws by, among other things, lowering the corporate tax rate (from a top rate of 35% to a flat rate of 21%), implementing elements of a territorial tax system, and imposing a one-time deemed repatriation transition tax on cumulative undistributed foreign earnings, for which we have not previously paid U.S. taxes. The Company recognized the estimated tax impact related to the revaluation of deferred tax assets and liabilities in its Consolidated Financial Statements for the year ended December 31, 2017. The ultimate impact did not differ materially from these provisional amounts after additional analysis, changes in interpretations and assumptions the Company made and additional regulatory guidance that was issued. The accounting was completed when the Company’s 2017 U.S. corporate income tax return was filed in 2018. The Company has made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”) to account for taxes on GILTI as a current-period expense as incurred.

Business Combination

The Company applies ASC 805, Business combinations (“ASC 805”), pursuant to which the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Statements of Operations as a bargain purchase gain.

Lease Accounting and Lease Guarantee

The Company accounts for operating leases by recording rent expense on a straight-line basis over the expected life of the lease, commencing on the date the Company gains possession of leased property. The Company includes tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected life of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets under capital leases are recorded in property and equipment, net on the Company’s Consolidated Balance Sheets and depreciated in a manner consistent with other property and equipment.

Adopted Accounting Pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard requires equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. Under the previous guidance, changes in the fair value of equity securities were recognized through other comprehensive income. Effective January 1, 2018, the Company adopted the requirements of ASU No. 2016-01. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The new standard provides for specific guidance how certain transactions are classified in the statement of cash flows. Effective January 1, 2018, the Company adopted the requirements of ASU No. 2016-15. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. Effective January 1, 2018, the Company adopted the requirements of ASU No. 2016-16. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which requires entities to show the changes in total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Effective January 1, 2018, the Company adopted the requirements of ASU No. 2016-18. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases, which outlines a comprehensive lease accounting model that supersedes the current lease guidance and requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new standard is to be applied using either a modified retrospective approach, or an optional transition method that allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and will be effective for the Company starting with the first quarter of 2019, with early adoption permitted. Effective the first quarter of 2019, the Company will adopt the standard, using a modified retrospective approach. The Company does not expect the adoption will have a material impact on its consolidated statement of earnings. However, the new standard will require the Company to establish liabilities and corresponding right-of-use assets on its Consolidated Balance Sheet for operating leases that exist as of the January 1, 2019 adoption date.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The new guidance amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. ASU No. 2016-13 has an effective date of the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating ASU No. 2016-13 and assessing the impact, if any, it may have to the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the amendments, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis and early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The new guidance will become effective for the Company on January 1, 2020. Early adoption is permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact the adoption of this guidance will have on its Consolidated Financial Statements.

Net Income per Share

12 Months Ended

Dec. 31, 2018

Earnings Per Share [Abstract]

Net Income per Share

4. Net (Loss) Income per Share



Net (Loss) Income per Basic and Diluted Share	Year Ended December 31,
(in thousands, except per share amounts)	2018			2017		2016
Numerator
(Loss) income attributable to the PDL’s shareholders used to compute net (loss) income per basic and diluted share	$	(68,859	)	$	110,748	$	63,606

Denominator
Total weighted-average shares used to compute net (loss) income attributable to PDL's shareholders, per basic share	145,669			155,394		163,805
Restricted stock outstanding	—			863		387
Shares used to compute net (loss) income attributable to PDL’s shareholders, per diluted share	145,669			156,257		164,192

Net (loss) income attributable to PDL’s shareholders, per share - basic	$	(0.47	)	$	0.71	$	0.39
Net (loss) income attributable to PDL’s shareholders, per share - diluted	$	(0.47	)	$	0.71	$	0.39

The computation of basic earnings per share (“EPS”) is based on the weighted-average number of the Company’s common shares outstanding. The computation of diluted EPS is based on the weighted-average number of the Company’s common shares outstanding and dilutive potential common shares, which may be issued pursuant to outstanding stock options and restricted stock awards using the treasury stock method, and the 4.0% Convertible Senior Notes due February 1, 2018 (the “February 2018 Notes”) that were repaid on February 1, 2018 and the 2.75% Convertible Senior Notes due December 1, 2021 (the “December 2021 Notes”), in each case, for the period that the notes were outstanding, including, if applicable, the effect of adding back interest expense and the underlying shares using the if converted method.

December 2021 Notes Capped Call Potential Dilution

In November 2016, the Company issued $150.0 million in aggregate principal of the December 2021 Notes, which provide in certain situations for the conversion of the outstanding principal amount of the December 2021 Notes into shares of the Company’s common stock at a predefined conversion rate. For additional information on the conversion rates on the Company’s convertible debt, see Note 16, Term Loan and Convertible Senior Notes. In conjunction with the issuance of the December 2021 Notes, the Company entered into a capped call transaction, with a hedge counterparty. The capped call transaction is expected generally to reduce the potential dilution, and/or offset, to an extent, the cash payments the Company may choose to make in excess of the principal amount, upon conversion of the December 2021 Notes. The Company has excluded the capped call transaction from the net (loss) income per diluted share computation as such securities would have an anti-dilutive effect and those securities should be considered separately rather than in the aggregate in determining whether their effect on net (loss) income per diluted share would be dilutive or anti-dilutive. For additional information regarding the capped call transaction related to the Company’s December 2021 Notes; see Note 16, Term Loan and Convertible Senior Notes.

Anti-Dilutive Effect of Stock Options and Restricted Stock Awards

For the years ended December 31, 2018 and 2017, the Company excluded approximately 3,892,000 and 502,000 shares underlying outstanding stock options, respectively, calculated on a weighted-average basis, from the Company’s net (loss) income per diluted share calculations because their effect was anti-dilutive. There were no outstanding options for the year ended December 31, 2016. For the years ended December 31, 2018, 2017 and 2016, the Company excluded approximately 1,139,000, 1,830,000, and 1,107,000 shares, respectively, underlying restricted stock awards, calculated on a weighted-average basis, from the Company’s net (loss) income per diluted share calculations because their effect was anti-dilutive.

Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. Fair Value Measurements

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following table presents the fair value of the Company’s financial instruments measured at fair value on a recurring basis by level within the valuation hierarchy, as discussed in Note 2, Summary of Significant Accounting Policies:



	December 31, 2018								December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	226,719	$	—	$	—	$	226,719	$	417,563	$	—	$	—	$	417,563
Corporate securities	—		—		—		—		4,848		—		—		4,848
Warrants	—		62		—		62		—		29		—		29
Royalty rights - at fair value	—		—		376,510		376,510		—		—		349,223		349,223
Total	$	226,719	$	62	$	376,510	$	603,291	$	422,411	$	29	$	349,223	$	771,663

Financial liabilities:
Contingent consideration, current¹	$	—	$	—	$	1,071	$	1,071	$	—	$	—	$	—	$	—
Contingent consideration, non-current	—		—		—		—		—		—		42,000		42,000
Total	$	—	$	—	$	1,071	$	1,071	$	—	$	—	$	42,000	$	42,000

___________________

¹ Contingent consideration, current is classified as “Accrued liabilities” on the Consolidated Balance Sheet. See Note 14, Accrued Liabilities, for details.

There have been no transfers between levels during the periods presented in the table above. The Company recognizes transfers between levels on the date of the event or change in circumstances that caused the transfer.

Corporate Securities

Corporate securities consisted primarily of U.S. corporate equity holdings. The fair value of corporate securities was estimated using market quoted prices.

Warrants

Warrants consist primarily of purchased call options to buy U.S. corporate equity holdings and derivative assets acquired as part of note receivable investments. The fair value of the warrants is estimated using recently quoted market prices of the underlying equity security and the Black-Scholes option pricing model.

Royalty Rights - At Fair Value

Depomed Royalty Agreement

On October 18, 2013, the Company entered into the Royalty Purchase and Sale Agreement (the “Depomed Royalty Agreement”) with Depomed, Inc. and Depo DR Sub, LLC (together, “Depomed”), whereby the Company acquired the rights to receive royalties and milestones payable on sales of five Type 2 diabetes products licensed by Depomed in exchange for a $240.5 million cash payment. Total consideration was $241.3 million, which was comprised of the $240.5 million cash payment to Depomed and $0.8 million in transaction costs.

The rights acquired include Depomed’s royalty and milestone payments accruing from and after October 1, 2013: (a) from Santarus, Inc. (“Santarus”), which was subsequently acquired by Salix Pharmaceuticals, Inc. (“Salix”), which itself was acquired by Valeant Pharmaceuticals International, Inc. (“Valeant”), which, in July 2018, changed its name to Bausch Health Companies Inc. (hereafter referred to as “Bausch Health”) with respect to sales of Glumetza (metformin HCL extended-release tablets) in the United States; (b) from Merck & Co., Inc. with respect to sales of Janumet^® XR (sitagliptin and metformin HCL extended-release tablets); (c) from Janssen Pharmaceutica N.V. with respect to potential future development milestones and sales of its approved fixed-dose combination of Invokana^® (canagliflozin, a sodium glucose cotransporter 2 (SGLT2) inhibitor) and extended-release metformin tablets, marketed as Invokamet XR^®; (d) from Boehringer Ingelheim and Eli Lilly and Company with respect to potential future development milestones and sales of the investigational fixed-dose combinations of drugs and extended-release metformin subject to Depomed’s license agreement with Boehringer Ingelheim, including its approved products, Jentadueto XR^® and Synjardy XR^®; and (e) from LG Life Sciences and Bausch Health for sales of extended-release metformin tablets in Korea and Canada, respectively.

On August 2, 2018, PDL Investment Holding, LLC (“PDLIH”), a wholly-owned subsidiary of the Company and assignee from the Company under the Depomed Royalty Agreement, entered into an amendment to the Depomed Royalty Agreement with Depomed. Pursuant to the amendment, PDLIH purchased all of Depomed’s remaining interests in royalty and milestone payments payable on sales of Type 2 diabetes products licensed by Depomed for $20.0 million. Prior to the amendment, the Depomed Royalty Agreement provided that the Company would have received all royalty and milestone payments due under license agreements between Depomed and its licensees until the Company received payments equal to two times the cash payment it made to Depomed, or approximately $481.0 million, after which all net payments received by Depomed would have been shared equally between the Company and Depomed. Following the amendment, the Depomed Royalty Agreement provides that the Company will receive all royalty and milestone payments due under the license agreements between Depomed and its licensees. The Company has elected to continue to elect the fair value option and carry the financial asset at fair value.

The Depomed Royalty Agreement terminates on the third anniversary following the date upon which the later of the following occurs: (a) October 25, 2021, or (b) at such time as no royalty payments remain payable under any license agreement and each of the license agreements has expired by its terms.

As of December 31, 2017, the Company determined that its royalty purchase interest in Depo DR Sub, LLC represented a variable interest in a variable interest entity. However, the Company did not have the power to direct the activities of Depo DR Sub, LLC that most significantly impact Depo DR Sub, LLC’s economic performance and was not the primary beneficiary of Depo DR Sub, LLC; therefore, Depo DR Sub, LLC was not subject to consolidation by the Company.

As of December 31, 2018, in conjunction with the amendment described above, the Company was provided the power to direct the activities of Depo DR Sub, LLC and is the primary beneficiary of Depo DR Sub, LLC; therefore, Depo DR Sub, LLC is subject to consolidation by the Company. As of December 31, 2018, Depo DR Sub, LLC did not have any assets or liabilities of value for consolidation with the Company.

The financial asset acquired represents a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected future cash flows to be generated by each licensed product. This financial asset is classified as a Level 3 asset within the fair value hierarchy, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future commercialization for products not yet approved by regulatory agencies outside of the United States. The discounted cash flows are based upon expected royalties from sales of licensed products over approximately a nine-year period. The discount rates utilized range from 10% to 24%. Significant judgment is required in selecting appropriate discount rates. At December 31, 2018, an evaluation was performed to assess those rates and general market conditions potentially affecting the fair market value of the financial asset. Should these discount rates increase or decrease by 2.5%, the fair value of the asset could decrease by $22.9 million or increase by $27.2 million, respectively. A third-party expert was engaged to assist management develop its original estimate of the expected future cash flows, which was updated after the acquisition of Depomed’s reversionary interest in August 2018. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from those estimates. The Company periodically assesses the expected future cash flows and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than the original estimates, the Company will adjust the estimated fair value of the asset. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $6.6 million, respectively.

When the Company acquired the Depomed royalty rights, Glumetza was marketed by Santarus. In January 2014, Salix acquired Santarus and assumed responsibility for commercializing Glumetza, which was generally perceived to be a positive development because of Salix’s larger sales force and track record in the successful commercialization of therapies. In late 2014, Salix made a number of disclosures relating to an excess of supply at the distribution level of Glumetza and other drugs that it commercialized and the practices leading to this excess of supply which were under review by Salix’s audit committee in relation to the related accounting practices. Because of these disclosures and the Company’s lack of direct access to information as to the levels of inventory of Glumetza in the distribution channels, the Company commenced a review of all public statements by Salix, publicly available historical third-party prescription data, analyst reports and other relevant data sources. The Company also engaged a third-party expert to specifically assess estimated inventory levels of Glumetza in the distribution channel and to ascertain the potential effects those inventory levels may have on expected future cash flows. Salix was acquired by Valeant in early April 2015. In mid-2015, Valeant implemented two price increases on Glumetza. At year-end 2015, a third-party expert was engaged by the Company to assess the impact of the Glumetza price adjustments and near-term market entrance of generic equivalents to the expected future cash flows. Based on the analysis performed, management revised the underlying assumptions used in the discounted cash flow analysis at year-end 2015. In February 2013 a generic equivalent to Glumetza was approved by the U.S. Food and Drug Administration (“FDA”) and in August 2016, two additional generic equivalents to Glumetza were approved to enter the U.S. market. In February 2016, Lupin Pharmaceuticals, Inc., in August 2017, Teva Pharmaceutical Industries Ltd., and in July 2018, Sun Pharmaceutical, Inc. (“Sun”) each launched a generic equivalent approved product.

In May 2017, the Company received notification that a subsidiary of Valeant had launched an authorized generic equivalent product in February 2017, and the Company received royalties on such authorized generic equivalent product under the same terms as the branded Glumetza product, retroactive to February 2017.

In February 2016, at the Company’s request and pursuant to the Depomed Royalty Agreement, Depomed exercised its audit right with respect to Glumetza royalties. The independent auditor engaged to perform the royalty audit completed it in July 2017, and based upon the results of the audit, Depomed, on behalf of the Company, filed a lawsuit on September 7, 2017, against Valeant and one of its subsidiaries, claiming damages for unpaid royalties, fees and interest. Valeant (now Bausch Health), Depomed and the Company entered into a settlement agreement on October 27, 2017 whereby the parties agreed to dismiss the litigation, with prejudice, and Valeant agreed to pay to Depomed $13.0 million. The full amount of the settlement payment was transferred to the Company under the terms of the Depomed Royalty Agreement in November 2017. In October 2018, PDL submitted notice of its intent to exercise its audit right under the Depomed Royalty Agreement with respect to the period beginning January 1, 2016 and ending December 31, 2018.

At December 31, 2018, management re-evaluated, with assistance of a third-party expert, the market share data, the gross-to-net revenue adjustment assumptions and Glumetza demand data. These data and assumptions are based on available but limited information. At December 31, 2018, management updated the expected future cash flows based on the current period demand and supply data of Glumetza and the authorized generic equivalent product launched by Bausch Health.

As of December 31, 2018, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date, including future cash flows for the authorized generic equivalent product. The Company continues to monitor whether the generic competition further affects sales of Glumetza and thus royalties on such sales paid to the Company, and the impact of the launched authorized generic equivalent. Due to the uncertainty around Bausch Health’s marketing and pricing strategy, as well as Sun’s recently launched generic product and limited historical demand data after generic market entrance, the Company may need to further evaluate future cash flows in the event of more rapid reduction or increase in market share of Glumetza and its authorized generic equivalent product and/or a further erosion in net pricing.

On May 31, 2016, the Company obtained a notification indicating that the FDA approved Jentadueto XR for use in patients with Type 2 diabetes. In June 2016, the Company received a $6.0 million FDA approval milestone pursuant to the terms of the Depomed Royalty Agreement. The product approval was earlier than initially expected. Based on the FDA approval and anticipated timing of the product launch, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at June 30, 2016. At year-end 2017, management re-evaluated, with assistance of a third-party expert, the cash flow assumptions for Jentadueto XR and revised the discounted cash flow model. As of December 31, 2018, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

On September 21, 2016, the Company obtained a notification indicating that the FDA approved Invokamet XR for use in patients with Type 2 diabetes. The product approval triggered a $5.0 million approval milestone payment to the Company pursuant to the terms of the Depomed Royalty Agreement. Based on the FDA approval and timing of the product launch, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at December 31, 2017.

On December 13, 2016, the Company obtained a notification indicating that the FDA approved Synjardy XR for use in patients with Type 2 diabetes. The product approval triggered a $6.0 million approval milestone payment to the Company pursuant to the terms of the Depomed Royalty Agreement. Based on the FDA approval and the April 2017 launch of Synjardy XR by Boehringer Ingelheim, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at December 31, 2017.

In August 2018, Depomed, Inc. was renamed Assertio Therapeutics, Inc.

As of December 31, 2018, the fair value of the asset acquired as reported in the Company’s Consolidated Balance Sheet was $264.4 million and the maximum loss exposure was $264.4 million.

Viscogliosi Brothers Royalty Agreement

On June 26, 2014, the Company entered into a Royalty Purchase and Sale Agreement (the “VB Royalty Agreement”) with VB, whereby VB conveyed to the Company the right to receive royalties payable on sales of a spinal implant that has received pre-market approval from the FDA held by VB and commercialized by Paradigm Spine, LLC (“Paradigm Spine”), in exchange for a $15.5 million cash payment, less fees.

The royalty rights acquired include royalties accruing from and after April 1, 2014. Under the terms of the VB Royalty Agreement, the Company receives all royalty payments due to VB pursuant to certain technology transfer agreements between VB and Paradigm Spine until the Company has received payments equal to 2.3 times the cash payment made to VB, after which all rights to receive royalties will be returned to VB. VB’s ability to repurchase the royalty right for a specified amount expired on June 26, 2018.

The fair value of the royalty rights at December 31, 2018, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over approximately a ten-year period. The discount rate utilized was 15.0%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $1.4 million or increase by $1.6 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.4 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. At each reporting period, an evaluation is performed to assess those estimates, discount rate utilized and general market conditions affecting fair market value.

As of December 31, 2018, the fair value of the asset acquired as reported in the Company’s Consolidated Balance Sheet was $14.1 million and the maximum loss exposure was $14.1 million.

University of Michigan Royalty Agreement

On November 6, 2014, the Company acquired a portion of all royalty payments of U-M worldwide royalty interest in Cerdelga^® (eliglustat) for $65.6 million pursuant to the Royalty Purchase and Sale Agreement with U-M (the “U-M Royalty Agreement”). Under the terms of the U-M Royalty Agreement, the Company receives 75% of all royalty payments due under U-M’s license agreement with Genzyme Corporation, a Sanofi company (“Genzyme”) until expiration of the licensed patents, excluding any patent term extension. Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme. Cerdelga was approved in the United States in August 2014, in the European Union in January 2015, and in Japan in March 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities. While marketing applications have been approved in the United States, the European Union and Japan, national pricing and reimbursement decisions are delayed in some countries. A third-party expert is engaged by the Company to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Based on the analysis performed, management revised the underlying assumptions used in the discounted cash flow analysis. As of December 31, 2018, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows.

The fair value of the royalty right at December 31, 2018, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over approximately a four-year period. The discount rate utilized was approximately 12.8%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $1.1 million or increase by $1.2 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.6 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. An evaluation of those estimates, discount rate utilized and general market conditions affecting fair market value is performed in each reporting period.

As of December 31, 2018, the fair value of the asset acquired as reported in the Company’s Consolidated Balance Sheet was $25.6 million and the maximum loss exposure was $25.6 million.

ARIAD Royalty Agreement

On July 28, 2015, the Company entered into the revenue interest assignment agreement (the “ARIAD Royalty Agreement”) with ARIAD, whereby the Company acquired the rights to receive royalties from ARIAD’s net revenues generated by the sale, distribution or other use of Iclusig^® (ponatinib), a cancer medicine for the treatment of adult patients with chronic myeloid leukemia, in exchange for up to $200.0 million in cash payments. The purchase price of $100.0 million was payable in two tranches of $50.0 million each, with the first tranche having been funded on July 28, 2015 and the second tranche having been funded on July 28, 2016. Upon the occurrence of certain events, including a change of control of ARIAD, the Company had the right to require ARIAD to repurchase the royalty rights for a specified amount. The Company elected the fair value option to account for the hybrid instrument in its entirety. Any embedded derivative shall not be separated from the host contract. The asset acquired pursuant to the ARIAD Royalty Agreement represents a single unit of accounting.

In February 2017, Takeda Pharmaceutical Company Limited (“Takeda”) acquired ARIAD and the Company exercised its put option on the same day, which resulted in an obligation by Takeda to pay the Company a 1.2x multiple of the $100.0 million funded by the Company under the ARIAD Royalty Agreement, less royalty payments already received by the Company.

On March 30, 2017, Takeda fulfilled its obligations under the put option and paid the Company the repurchase price of $108.2 million for the royalty rights under the ARIAD Royalty Agreement.

AcelRx Royalty Agreement

On September 18, 2015, the Company entered into a royalty interest assignment agreement (the “AcelRx Royalty Agreement”) with ARPI LLC, a wholly-owned subsidiary of AcelRx, whereby the Company acquired the rights to receive a portion of the royalties and certain milestone payments on sales of Zalviso^® (sufentanil sublingual tablet system) in the European Union, Switzerland and Australia by AcelRx’s commercial partner, Grünenthal, in exchange for a $65.0 million cash payment. Under the terms of the AcelRx Royalty Agreement, the Company receives 75% of all royalty payments and 80% of the first four commercial milestone payments due under AcelRx’s license agreement with Grünenthal until the earlier to occur of (i) receipt by the Company of payments equal to three times the cash payments made to AcelRx and (ii) the expiration of the licensed patents. Zalviso received marketing approval by the European Commission in September 2015. Grünenthal launched Zalviso in the second quarter of 2016 and the Company started to receive royalties in the third quarter of 2016.

As of December 31, 2018 and 2017, the Company determined that its royalty rights under the AcelRx Royalty Agreement represented a variable interest in a variable interest entity. However, the Company does not have the power to direct the activities of ARPI LLC that most significantly impact ARPI LLC’s economic performance and is not the primary beneficiary of ARPI LLC; therefore, ARPI LLC is not subject to consolidation by the Company.

The fair value of the royalty right at December 31, 2018, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over approximately a fourteen-year period. The discount rate utilized was approximately 13.4%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $9.9 million or increase by $12.2 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $1.8 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. At December 31, 2018, management performed an evaluation of those estimates, discount rate utilized and general market conditions to determine the fair market value of the asset, and such an evaluation is performed for each reporting period. As of December 31, 2018, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

As of December 31, 2018, the fair value of the asset acquired as reported in the Company’s Consolidated Balance Sheet was $70.4 million and the maximum loss exposure was $70.4 million.

Kybella Royalty Agreement

On July 8, 2016, the Company entered into a royalty purchase and sales agreement with an individual, whereby the Company acquired that individual’s rights to receive certain royalties on sales of KYBELLA^® by Allergan plc in exchange for a $9.5 million cash payment and up to $1.0 million in future milestone payments based upon product sales targets. The Company started to receive royalty payments during the third quarter of 2016.

The fair value of the royalty right at December 31, 2018, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of a licensed product over approximately a seven-year period. The discount rate utilized was approximately 14.4%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease or increase by $0.2 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.1 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. An evaluation of those estimates, discount rate utilized and general market conditions affecting fair market value is performed in each reporting period.

As of December 31, 2018, the fair value of the asset acquired as reported in the Company’s Consolidated Balance Sheet was $2.1 million and the maximum loss exposure was $2.1 million.

The following tables summarize the changes in Level 3 Royalty Right Assets and the gains and losses included in earnings for the year ended December 31, 2018:



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Rights Assets

(in thousands)				Royalty Rights - At Fair Value
Fair value as of December 31, 2017							$	349,223

	Financial instruments purchased						20,000
	Total net change in fair value for the period
		Change in fair value of royalty rights - at fair value		$	85,256
		Proceeds from royalty rights - at fair value		$	(77,969	)
			Total net change in fair value for the period				7,287

Fair value as of December 31, 2018							$	376,510



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Rights Assets
	Fair Value as of		Purchase of		Royalty Rights -			Fair Value as of
(in thousands)	December 31, 2017		Royalty Assets		Change in Fair Value			December 31, 2018
Assertio	$	232,038	$	20,000	$	12,333		$	264,371
VB	14,380		—		(272		)	14,108
U-M	26,769		—		(1,174		)	25,595
AcelRx	72,894		—		(2,514		)	70,380
Avinger	396		—		(396		)	—
KYBELLA	2,746		—		(690		)	2,056
	$