3.	Meda License, Development and Supply Agreements:

In September 2007 and August 2006, the Company entered into license, development and supply agreements (collectively referred to as the "Meda Agreements") with Meda to develop and commercialize ONSOLIS^® in, respectively, the United States, Mexico and Canada (the "Meda U.S. Licensing Agreements") and in certain countries in Europe (the "Meda EU Licensing Agreements"). These agreements were subsequently amended to cover all territories worldwide other than South Korea and Taiwan. These arrangements have license terms which commence on the date of first commercial sale in each respective territory and end on the earlier of the entrance of a generic product to the market or upon expiration of the patents, which begin to expire in January 2019. Meda may terminate the Meda U.S. Licensing Agreements at any time after a specified notice to the Company and may terminate the Meda EU Licensing Agreements only upon breach of a material provision of the contract. The Company's rights and obligations under these arrangements and related contractual cash flows from Meda are as follows:


	Cash flows received and revenue deferred
Contractual Rights and Obligations	September 30, 2011			December 31, 2010

North America

License rights to ONSOLIS^® (BEMA^® Fentanyl) and milestone payments	$	59,800,000		$	59,800,000

Research and Development Services for:
• Non-cancer subsequent indication of product and further development of initial product	$	1,541,570		$	1,541,570

Total North America Agreement Milestones	$	61,341,570		$	61,341,570


Europe and Rest of World

License rights to BREAKYL™ (BEMA^® Fentanyl) and milestone payments	$	8,000,000		$	8,000,000

Research and Development Services for:
• BREAKYL™ product through governmental approval in a E.U. country	$	4,548,720		$	4,522,788

Total Europe and Rest of World Milestones	$	12,548,720		$	12,522,788


Total All Milestones	$	73,890,290		$	73,864,358


Release of Milestones upon and subsequent to first sale	$	(59,727,570	)	$	(59,716,770	)


Remaining Deferred Revenue	$	14,162,720		$	14,147,588

The Company has, in accordance with GAAP, assessed these arrangements and their deliverables to determine if such deliverables are considered separate units of accounting at the inception or upon delivery of the items required in the arrangements. The assessment requires subjective analysis and requires management to make estimates and assumptions about whether deliverables within multiple-element arrangements are separable and, if so, to determine the fair value to be allocated to each unit of accounting.

The Company determined that, upon inception of both the Meda Agreements, all deliverables are to be considered one combined unit of accounting since the fair value of the undelivered license was not determinable and the research and development efforts provided do not have standalone value apart from the license. As such, all cash payments from Meda that were related to these deliverables were recorded as deferred revenue. All cash payments from Meda for upfront and milestone payments and research and development services provided are nonrefundable. Upon commencement of the license term (date of first commercial sale in each territory), the license and certain deliverables associated with research and development services were deliverable to Meda. The first commercial sale in the U.S. occurred in October 2009. As a result, $59.7 million of the aggregate milestones and services revenue were recognized. To be received upon first commercial sale in a European country, an estimated $18.0 million will be recognized, which includes an additional $5.0 million in milestones and approximately $0.5 million in research and development services. At September 30, 2011, there was remaining deferred revenue of $14.2 million, of which $12.6 million is related to the EU Meda arrangement milestones and EU Meda research and development services. The Company has estimated the amount of time and associated dollars (based on comparable services provided by outside third parties), as further noted below. As time progresses, the Company will continue to estimate the time required for ongoing obligations, and adjust the remaining deferral accordingly on a quarterly basis.

In connection with delivery of the license to Meda, the Company has determined that each of the undelivered obligations have stand-alone value to Meda as these post-commercialization services encompass additional clinical trials on different patient groups but do not require further product development and these services and product supply obligations can be provided by third-party providers available to Meda. Further, the Company obtained third-party evidence of fair value for the non-cancer and other research and development services and other service obligations, based on hourly rates billed by unrelated third-party providers for similar services contracted by the Company. The Company also obtained third-party evidence of fair value of the product supply deliverable based on the outsourced contract manufacturing cost charged the Company from the third-party supplier of the product. The arrangements do not contain any general rights of return. Therefore, the remaining deliverables to the arrangements will be accounted for as three separate units of accounting to include: (1) product supply, (2) research and development services for the non-cancer indication and further research and development of the first indication of the ONSOLIS^® product and (3) the combined requirements related to the remaining other service-related obligations due Meda to include participation in committees and certain other specified services. A portion of the upfront payments attributed to other service-related obligations will be recognized as revenue as services are provided through expiration of the license. This represents approximately $1.6 million (under the Meda U.S. Agreements) and $0.1 million (under the Meda EU Agreements).

In accordance with GAAP, the Company has determined that it is acting as a principal under the Meda Agreements and, as such, has recorded product supply revenue, research and development services revenue and other services revenue amounts on a gross basis in the Company's consolidated financial statements. The Company earns royalties based on a percentage of net sales revenue of the ONSOLIS^® product. Product royalty revenues are computed on a quarterly basis when revenues are fixed or determinable, collectability is reasonably assured and all other revenue recognition criteria are met.

ONSOLIS^® was approved by the Canadian regulatory authorities in May 2010, and is the first product approved in Canada for the management of breakthrough cancer pain. ONSOLIS^® is marketed in Canada by Meda Valeant Pharma Canada Inc., a joint venture between Meda and Valeant Canada Limited. In the third quarter 2011, ONSOLIS^® product was released by the Company's third party manufacturer for distribution in both Canada and the United States. This release of product provided the launching stocks for the commercial launch of ONSOLIS^® in Canada, as well as provided for supply of ONSOLIS^® in the United States.

On October 20, 2010, the Company and Meda announced approval of BEMA^® Fentanyl in Europe via the Decentralized Procedure, with Germany acting as Reference Member State. BEMA^® Fentanyl is indicated for the management of breakthrough pain in opioid tolerant, adult patients with cancer. National marketing authorization approvals, enabling commercial sales in each of the 25 individual E.U. countries, are now expected over the next several months. BEMA^® Fentanyl will be marketed as BREAKYL™ (fentanyl buccal film) in Europe. Under the terms of its licensing agreement with Meda, the Company will receive a milestone payment of $2.5 million triggered by the first national marketing authorization of BREAKYL™ and another $2.5 million at the time of the first commercial sale that is anticipated sometime prior to the end of 2012. Additionally, the Company will receive a double-digit royalty on net sales.