XML 59 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Endo License and Development Agreement
 9 Months Ended
Sep. 30, 2012
Endo License and Development Agreement [Abstract]  
Endo License and Development Agreement 4. Endo License and Development Agreement

4. Endo License and Development Agreement:

On January 5, 2012, the Company, Arius and Arius Two, entered into a definitive License and Development Agreement with Endo (the “Endo Agreement”), pursuant to which the Company, Arius and Arius Two agreed to grant Endo an exclusive commercial world-wide license to develop, manufacture, market and sell the Company’s BEMA ® Buprenorphine product and to complete U.S. development of such products for purposes of seeking FDA approval.

Pursuant to the Endo Agreement, Endo has obtained all rights necessary to complete the clinical and commercial development of BEMA ® Buprenorphine and to sell the product worldwide. Although Endo has obtained all such necessary rights, the Company has agreed under the Endo Agreement to be responsible for the completion of clinical trials regarding BEMA® Buprenorphine necessary to submit a New Drug Application (“NDA”) to the FDA in order to obtain approval of BEMA® Buprenorphine in the U.S., pursuant to a development plan set forth in the Endo Agreement (as it may be amended pursuant to the Endo Agreement). The Company is responsible for development activities through the filing of the NDA in the U.S., while Endo is responsible for the development following the NDA submission as well as the manufacturing, distribution, marketing and sales of BEMA® Buprenorphine on a worldwide basis. In addition, Endo is responsible for all filings required in order to obtain regulatory approval of BEMA® Buprenorphine.

Pursuant to the Endo Agreement, the Company has received or will receive the following payments (some portion(s) of which will be utilized by the Company to support its development obligations under the Endo Agreement with respect to the product):

 

  •  

$30 million non-refundable upfront payment by January 19, 2012 (received January 17, 2012);

 

  •  

up to an aggregate of $95 million in six separate potential milestone payments based on the following pre-defined events: (i) enhancement of intellectual property rights (two milestones aggregating $35 million in potential milestone payments, including $15 million upon issuance of a certain patent covering the product which was received May 2012), (ii) clinical development (two milestones aggregating $20 million in potential milestone payments) and (iii) regulatory events (two milestones aggregating $40 million in potential milestone payments);

 

  •  

up to an aggregate of $55 million based on the achievement of four separate potential sales milestones; and

 

  •  

Sales-based royalties in a particular percentage range on U.S. sales of BEMA ® Buprenorphine, and royalties in a lesser range on sales outside the United States, subject to certain restrictions and adjustments.

The Company has assessed its arrangement with Endo and the Company’s deliverables thereunder at inception to determine: (i) the separate units of accounting for revenue recognition purposes, (ii) which payments should be allocated to which of those units of accounting and (iii) the appropriate revenue recognition pattern or trigger for each of those payments. The assessment requires subjective analysis and requires management to make judgments, 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.

At the inception of the Endo arrangement and in accordance with the revenue recognition criteria under ASC Topic 605 (and specifically ASC 605-25-25), the Company determined that: (i) the Endo Agreement is a multi-deliverable arrangement under ASC Topic 605 and (ii) one of the multi-deliverable features is a license with stand-alone value under ASC 605-25-25-5a. In such analysis, it was determined that the license to Endo had stand-alone value under ASC 605-25-25-5a as a result of the transfer of the license, ownership of the subject Investigational New Drug Application, certain know-how and certain patents rights to Endo. As noted above, the result was that Endo obtained, at the inception of the Endo Agreement, all of the rights and knowledge necessary to fully exploit its license without the further involvement of the Company. Additionally, the Company concluded that the value of the license delivered to Endo at contract inception exceeded the up-front payment received, and that the milestone payments were adequate consideration for the other deliverables in the arrangement. Accordingly, the upfront payment of $30 million was recognized upon receipt.

The analysis of the fair value of the deliverables was based on the income approach, the Company’s negotiations with Endo and other factors, and was further based on management’s estimates and assumptions which included consideration of how a market participant would use the license, estimated market opportunity and market share, and assumed royalty rates that would be paid for sales of products relying on the license. Also considered were entity specific assumptions regarding the results of clinical trials, the likelihood of FDA approval of the subject product and the likelihood of commercialization based in part on the Company’s prior agreements with the BEMA® technology.

The Company further analyzed the milestone payments noted above in accordance with ASC 605-28 to determine if such milestones are substantive. This determination included an analysis of the Company’s performance to achieve each milestone, the enhancement of value of the delivered items, the timing of performance related to the milestone, and the reasonability of the milestone relative to all the deliverables and payment terms.

The term of the Endo Agreement shall last, on a country-by-country basis, until the later of: (i) 10 years from the date of the first commercial sale of BEMA® Buprenorphine in a particular country or (ii) the date on which the last valid claim of the Company’s patents covering BEMA® Buprenorphine in a particular country has expired or been invalidated. The Endo Agreement shall be subject to termination: (i) by Endo, at any time, upon a specific amount of prior written notice to the Company, (ii) by Endo and the Company upon their mutual written agreement, (iii) by either party upon a material default or breach of the Endo Agreement and such default or breach is not cured within a specified timeframe, (iv) the voluntary or involuntary bankruptcy of either party or (v) by the Company if Endo does not meet certain diligence obligations outside of the United States.

On February 16, 2012, the Company announced that the U.S. Patent and Trademark Office (“USPTO”) issued a Notice of Allowance regarding the Company’s patent application (No. 13/184306), which patent will extend the exclusivity of the BEMA ® drug delivery technology for its BEMA ® Buprenorphine and BEMA® Buprenorphine/Naloxone products from 2020 to 2027. In April 17, 2012, the Company announced that this patent was granted. As a result, pursuant to the Endo Agreement, the Company received a milestone payment from Endo in the amount of $15 million in May 2012. This milestone had been evaluated to be a substantive milestone under ASC 605-28, and therefore was recognized as revenue when the patent was granted.

The remaining milestone payments will also be recognized as revenue when they are achieved, except that one milestone is contingently refundable for a period of time. Revenue related to that milestone will be recognized as refund provisions expire. Sales-based royalties will be recognized as they accrue under the terms of the Endo Agreement.