Significant Collaborative Research and Development Agreements

12 Months Ended

Dec. 31, 2012

Significant Collaborative Research and Development Agreements [Abstract]

Significant Collaborative Research and Development Agreements

8.    Significant Collaborative Research and Development Agreements

Novus International, Inc.

On June 23, 2011, the Company entered into a collaboration agreement with Novus to develop, manufacture and commercialize a suite of new enzyme products from the Company’s late stage product pipeline in the animal health and nutrition product line (collectively referred to as “animal feed enzymes”). Novus’s business focuses on the research, development, manufacture, and sale of animal health and nutrition products for poultry, pork, beef, dairy, aquaculture, and companion animal industries on a worldwide basis. As of the effective date of the agreement and through a defined period, the development exclusivity term, both parties agreed to exclusivity to the type of enzymes specified in the agreement.

Upon signing, the Company granted to Novus a license to use, offer for sale, sell, import and export the animal feed enzymes to the extent necessary to make, have made, use, offer for sale, sell, import and export any product that contains, incorporates or comprises any form of such animal feed enzyme in the animal health and nutrition field. The animal feed enzymes are to be selected by a management team consisting of four individuals, two from each company, from a list of candidate enzymes. Once each candidate enzymes is selected, the license with respect to the animal feed enzyme will automatically become effective and be deemed to be delivered by the Company to Novus.

The Company received $2.5 million from Novus as an upfront non-refundable license fee. Additionally, in accordance with the agreement, the Company is entitled to an additional $2.5 million upon the earlier of (i) first commercial sale or (ii) first regulatory submission. This achievement is deemed to add value to the product candidate and will be based on past performance performed by the Company, and as such the amount was concluded to be a substantive milestone to be recognized upon achievement. Further, all development costs going forward will be shared equally between both partners. All future profits and losses also will be shared equally upon commercialization.

The agreement with Novus will continue in effect for so long as the Company and Novus are developing and commercializing animal feed enzymes or products in the animal health and nutrition field, unless earlier terminated under certain circumstances as provided below. Either party may terminate the agreement prior to expiration upon the material breach of the agreement by the other party, or upon the bankruptcy or insolvency of the other party. In addition, either party may terminate the agreement prior to expiration in the event the other party or any of its affiliates commences a patent challenge with respect to any patent of the non-challenging party specified by the agreement. Also, following the certain dates specified in the agreement, Novus may terminate the entire agreement for any reason or the management team, comprised of two representatives from both parties, may terminate certain aspects of the agreement for specified reasons.

The agreement was deemed to be a collaborative arrangement with multiple deliverables as defined under authoritative accounting guidance. Several contingent and non-contingent deliverables were identified within the agreement. Contingent deliverables will be evaluated separately as the related contingency is resolved. The Company identified the licenses required to produce the final end products and the reimbursement of development costs as separate non-contingent deliverables within the agreement. The license deliverables are estimated to be delivered in the next twelve months. The development and regulatory activities are currently estimated to be ongoing through 2013. All non-contingent deliverables were determined to have standalone value and qualify as separate units of accounting, allowing independent revenue recognition of each deliverable. Revenue associated with each deliverable is recognized when the item is delivered.

The animal feed enzyme licenses’ best estimated selling price was determined based on the Company’s analysis of the estimated future discounted cash flows. The best estimated selling price of the reimbursement of development costs was calculated based on a market rate established by evaluating historical collaboration agreements and calculations based on the actual expenses of the employees to be working on the collaboration. Due to the adoption of the new guidance on multiple-element revenue arrangements discussed in Note 1, once the license deliverables are delivered, the Company will be able to recognize up to the relative selling price of the license deliverables as revenue not to exceed cash received. During the first quarter 2012, the Company completed one of the identified deliverables in the agreement related to the delivery of one of the licenses required to produce the final end products and recognized $2.9 million related to the relative selling price of the delivered license. Collaborative revenue for the years ended December 31, 2012 and 2011 related to the Novus agreement equaled $3.6 million and $0.3 million. There was $0.5 million in deferred revenue related to the Novus agreement as of December 31, 2012.