Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 6: COMMITMENTS AND CONTINGENCIES

Lease Obligations

     The Company leases its facilities, certain equipment and automobiles under non-cancelable operating leases expiring at various dates through 2016. The Company recognizes lease expense on a straight-line basis over the term of the lease, excluding renewal periods, unless renewal of the lease is reasonably assured. Lease expense was approximately $254,000 and $339,000 for the three months ended September 30, 2011 and 2010, respectively, and approximately $843,000 and $1.0 million for the nine months ended September 30, 2011 and 2010, respectively.

Supply Agreements

     The Company has entered into various supply agreements with certain vendors and pharmaceutical manufacturers. Financial commitments related to these agreements totaled approximately $11.9 million as of September 30, 2011, which includes any minimum amounts payable and penalties for failure to satisfy purchase commitments that the Company has determined to be probable and that are reasonably estimable. Since many of these commitment amounts are dependent on variable components of the agreements, actual payments and the timing of those payments may differ from management’s estimates. As of September 30, 2011, the Company had outstanding purchase orders related to inventory, excluding commitments under supply agreements, totaling approximately $8.6 million.

Royalty Agreements

     The Company has contractual obligations to pay royalties to the former owners or current licensors of certain product rights that have been acquired by or licensed to the Company. These royalties are typically based on a percentage of net sales of the particular licensed product. For the three months ended September 30, 2011 and 2010, total royalty expenses were $1.6 million and $2.6 million, respectively and for the nine months ended September 30, 2011 and 2010, total royalty expenses were $6.3 million and $9.8 million, respectively.

Collaboration Agreements

     The Company is committed to make potential future milestone payments to third parties as part of licensing, distribution and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. The Company may be required to make $38.3 million in additional payments to various parties if all milestones under the agreements are met. Because the achievement of milestones is neither probable nor reasonably estimable, such contingent payments have not been recorded on the accompanying consolidated balance sheets. The Company is also obligated to pay royalties on net sales or gross profit, if any, of certain product candidates currently in its portfolio following their commercialization.

     As of September 30, 2011, the Company had outstanding financial commitments related to ongoing research and development contracts totaling approximately $2.2 million.

Co-Promotion and Marketing Services Agreements

     The Company has entered into a co-promotion and marketing service agreement and a co-promotion agreement that grant third parties the exclusive rights to promote and sell certain products in conjunction with the Company. Under these agreements, the third parties are responsible for the costs associated with their sales representatives and the product samples distributed by their sales representatives, as well as certain other promotional expenses related to the products. Under one agreement, the Company pays the third party co-promotion fees equal to the ratio of total prescriptions written by pulmonary specialists to total prescriptions during the applicable period multiplied by a percentage of quarterly net sales of the products covered by the agreement, after third-party royalties. Under the other agreement, the Company pays the third parties fees based on a percentage of the net profits from sales of the product above a specified baseline within assigned sales territories. The co-promotion agreement is also subject to “sunset” fees that require the Company to pay additional fees for up to three months in the event of certain defined terminations of this agreement.

     As of September 30, 2011, the Company had outstanding financial commitments related to various marketing and analytical service agreements totaling approximately $4.8 million.

Severance

     Selected executive employees of the Company have employment agreements which provide for severance payments of up to two times base salary, bonuses and benefits upon termination, depending on the reasons for the termination. The executive would also be required to execute a release and settlement agreement. As of September 30, 2011, the Company had $348,000 recorded as accrued severance related to the departure of one of its executive officers.