We received an initial payment of €2.0 million (approximately $2.4 million) for the purchased assets and will receive additional potential payments upon the achievement of certain regulatory and product label milestones. Additionally, we are entitled to

 

We concluded that the performance obligations identified in the Purchase Agreement included the transfer of the intellectual property and our efforts towards the approval by the EMA and other regulatory bodies. The initial closing payment was allocated between the property transfer and our EMA efforts as set forth below.

 

We used the expected cost-plus approach to estimate the standalone selling price of approximately $1.4 million related to our efforts towards the approval by the EMA and other regulatory bodies. This includes employee related expenses as well as other manufacturing, regulatory and clinical costs which will be incurred as part of our efforts. At the time of the agreement, we believed that the services would be at a consistent rate and would be substantially complete as of December 31, 2018. As such, we recognized the revenue ratably at an amount equal to approximately $157,000 per month through June 30, 2018. We currently estimate that the services will likely extend until March 31, 2019 and we will recognize the revenue ratably at an amount equal to approximately $104,000 per month over the period from July 1, 2018 through March 31, 2019. If the facts and circumstances change, we will reassess these assumptions. The costs associated with these services will be expensed over the same period.

 

We used the residual approach to value the transfer of the intellectual property at approximately $1.0 million as we had not established and had no reliable way to establish a standalone selling price for the intellectual property.

 

As a result of the outcome of the milestone and earn-out payments being unpredictable due to the involvement of third parties, we believe that using the most likely amount method is appropriate. Any subsequent revenue related to milestone and earn-out payments will be recognized at the time the milestones are achieved or when the related net sales have occurred.

 

The Purchase Agreement provides that we will supply Molteni with semi-finished product (i.e., the implant, the applicator and related technology) on an exclusive basis at a fixed price through December 31, 2019, with subsequent price increases not to exceed annual cost increases to us for the active pharmaceutical ingredient and under our current manufacturing agreement. Revenue will be recognized when the semi-finished product has been transferred to Molteni.

 

Molteni will be prohibited from marketing a Competitor Product (as defined in the Purchase Agreement) in the Molteni Territory for the five year period following approval of the MAA. Thereafter, Molteni will be required to pay us a low single digit royalty on net sales of any Competitor Product.

 

The following table presents changes in contract assets and liabilities during the year ended December 31, 2018:

 

 

. The loan (the “Convertible Loan”) was made on September 18, 2018 and will convert automatically into shares of our common stock upon the issuance by the EMA of marketing approval for Probuphine at a conversion price per share equal to the lower of (i) the closing price on the loan funding date ($3.42 per share) or (ii) the closing price on the conversion date. We concluded that the approximately $1.1 million immediate payment by Molteni reflected a milestone payment with no additional obligations to us and therefore was recognized as revenue during the three month period ended September 30, 2018. Due to the conversion provision of the Convertible Loan, ASC 815,

required that we classify this as an embedded derivative and changes in the fair value were recorded in the Statements of Operations and Comprehensive Loss. The Convertible Loan contains other covenants and events of default substantially consistent with the Restated Loan Agreement described in Note 8. “Debt Agreements.”

 

The key assumptions used to value the Convertible Loan embedded derivative were as follows: