Collaboration and License Agreements

At September 30, 2016, the Company had collaboration and license agreements with Sandoz, Sandoz AG, Baxalta and Mylan.

The Company records product revenue based on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA.

Research and development revenue generally consists of amounts earned by us under our collaborations for technical development, regulatory and commercial milestones; reimbursement of research and development services and reimbursement of development costs under our collaborative arrangements with Sandoz and Baxalta; and recognition of the arrangement consideration under the collaborations with Baxalta and Mylan.

The collaboration with Mylan is a cost-sharing arrangement pursuant to which reimbursement for Mylan’s 50% share of collaboration expenses is recorded as a reduction to research and development expense and general and administrative expense depending on the nature of the activities.

The following tables provide amounts by period indicated and by line item included in the Company’s accompanying condensed consolidated statements of operations and comprehensive loss attributable to transactions arising from its significant collaborative arrangements and all other arrangements, as defined in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 808, Collaborative Arrangements. The dollar amounts in the tables below are in thousands.



	For the Three Months Ended September 30, 2016
	2003 Sandoz Collaboration Agreement		2006 Sandoz Collaboration Agreement		Baxalta Collaboration Agreement		Mylan Collaboration Agreement (1)		Total Collaborations
Collaboration revenues:
Product revenue	$	—	$	23,339	$	—	$	—	$	23,339
Research and development revenue:
Recognition of upfront payments and license payments	—		—		2,498		1,785		4,283
Research and development services and external costs	128		494		900		—		1,522
Total research and development revenue	$	128	$	494	$	3,398	$	1,785	$	5,805
Total collaboration revenues	$	128	$	23,833	$	3,398	$	1,785	$	29,144
Operating expenses:
Research and development expense(2)(3)	$	1	$	349	$	402	$	8,809	$	9,561
General and administrative expense(2)(3)	$	332	$	66	$	—	$	847	$	1,245
Total operating expenses	$	333	$	415	$	402	$	9,656	$	10,806



	For the Three Months Ended September 30, 2015
	2003 Sandoz Collaboration Agreement		2006 Sandoz Collaboration Agreement		Baxalta Collaboration Agreement		Total Collaborations
Collaboration revenues:
Product revenue	$	—	$	8,666	$	—	$	8,666
Research and development revenue:
Milestone payments	—		—		—		—
Recognition of upfront payments and license payments	—		—		2,442		2,442
Research and development services and external costs	69		742		1,876		2,687
Total research and development revenue	$	69	$	742	$	4,318	$	5,129
Total collaboration revenues	$	69	$	9,408	$	4,318	$	13,795
Operating expenses:
Research and development expense(2)	$	—	$	274	$	251	$	525
General and administrative expense(2)	$	104	$	38	$	166	$	308
Total operating expenses	$	104	$	312	$	417	$	833


(1)	The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016.


(2)	The amounts generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs.


(3)	As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately $7.7 million against research and development costs and $0.4 million against general and administrative costs during the three months ended September 30, 2016.



	For the Nine Months Ended September 30, 2016
	2003 Sandoz Collaboration Agreement		2006 Sandoz Collaboration Agreement		Baxalta Collaboration Agreement		Mylan Collaboration Agreement (1)		Total Collaborations
Collaboration revenues:
Product revenue	$	—	$	58,831	$	—	$	—	$	58,831
Research and development revenue:
Recognition of upfront payments and license payments	—		—		7,382		4,550		11,932
Research and development services and external costs	266		1,878		2,517		—		4,661
Total research and development revenue	$	266	$	1,878	$	9,899	$	4,550	$	16,593
Total collaboration revenues	$	266	$	60,709	$	9,899	$	4,550	$	75,424
Operating expenses:
Research and development expense(2)(3)	$	1	$	1,643	$	880	$	20,897	$	23,421
General and administrative expense(2)(3)	$	1,865	$	341	$	316	$	1,411	$	3,933
Total operating expenses	$	1,866	$	1,984	$	1,196	$	22,308	$	27,354



	For the Nine Months Ended September 30, 2015
	2003 Sandoz Collaboration Agreement		2006 Sandoz Collaboration Agreement		Baxalta Collaboration Agreement		Total Collaborations
Collaboration revenues:
Product revenue	$	2,843	$	27,850	$	—	$	30,693
Research and development revenue:
Milestone payments	—		20,000		—		20,000
Recognition of upfront payments and license payments	—		—		6,572		6,572
Research and development services and external costs	450		2,220		7,323		9,993
Total research and development revenue	$	450	$	22,220	$	13,895	$	36,565
Total collaboration revenues	$	3,293	$	50,070	$	13,895	$	67,258
Operating expenses:
Research and development expense(2)	$	208	$	703	$	1,376	$	2,287
General and administrative expense(2)	$	326	$	149	$	798	$	1,273
Total operating expenses	$	534	$	852	$	2,174	$	3,560


(1)	The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016.


(2)	The amounts generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs.


(3)	As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately $19.8 million against research and development costs and $1.0 million against general and administrative costs during the nine months ended September 30, 2016.

2003 Sandoz Collaboration Agreement

In 2003, the Company entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration Agreement, with Sandoz to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection, a generic version of LOVENOX®, in the United States. Under the terms of the 2003 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively work with each other to develop and commercialize Enoxaparin Sodium Injection for any and all medical indications within the United States. In addition, the Company granted Sandoz an exclusive license under its intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States.

Sandoz began selling Enoxaparin Sodium Injection in July 2010. For the three months ended March 2015, the Company received a 10% royalty on net sales. In June 2015, the Company and Sandoz amended the 2003 Sandoz Collaboration Agreement, effective April 1, 2015, to provide that Sandoz would pay the Company 50% of contractually-defined profits on sales. For the nine months ended September 30, 2015, the Company earned $2.8 million in product revenue consisting of $0.1 million in profits from Sandoz' sales of Enoxaparin in the second quarter of 2015, net of a claw-back adjustment of $0.1 million, and $2.7 million in royalties from Sandoz' sales of Enoxparin in the first quarter of 2015. Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three months ended September 30, 2016, three months ended September 30, 2015 or the nine months ended September 30, 2016, and therefore the Company did not record product revenue for Enoxaparin Sodium Injection in those periods.

A portion of Enoxaparin Sodium Injection development expenses and certain legal expenses, which in the aggregate have exceeded a specified amount, are offset against profit-sharing amounts, royalties and milestone payments. The Company’s contractual share of such development and legal expenses is subject to an annual claw-back adjustment at the end of each of the first five product years, with the product year beginning on July 1 and ending on June 30. The annual adjustment can only reduce the Company’s profits, royalties and milestones by up to 50% in a given calendar quarter and any excess amount due will be carried forward into future quarters and reduce any profits in those future periods until it is paid in full. Annual adjustments, including amounts carried forward into future periods, are recorded as a reduction in product revenue.

2006 Sandoz Collaboration Agreement

In 2006 and 2007, the Company entered into a series of agreements, including a collaboration and license agreement, as amended, or the 2006 Sandoz Collaboration Agreement, with Sandoz AG; and a stock purchase agreement and an investor rights agreement, with Novartis Pharma AG. Under the 2006 Sandoz Collaboration Agreement, the Company and Sandoz AG agreed to exclusively collaborate on the development and commercialization of GLATOPA and M356, among other products. Costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense. For GLATOPA and M356, the Company is generally responsible for all of the development costs in the United States. For GLATOPA and M356 outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses as well as any external costs incurred in the development of products to the extent development costs are born by Sandoz. All commercialization costs are borne by Sandoz.

Sandoz commenced sales of GLATOPA in the United States on June 18, 2015. Under the 2006 Sandoz Collaboration Agreement, the Company earns 50% of contractually-defined profits on Sandoz’ worldwide net sales of GLATOPA. The Company is entitled to earn 50% of contractually-defined profits on Sandoz’ worldwide net sales of M356, if M356 is commercialized. Profits on net sales of GLATOPA and M356 are calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of net sales. Sandoz is responsible for funding all of the legal expenses incurred under the 2006 Sandoz Collaboration Agreement; however, a portion of certain legal expenses, including any patent infringement damages, can be offset against the profit-sharing amounts in proportion to the Company’s 50% profit sharing interest.

For the three months ended September 30, 2016, the Company recorded $23.3 million in product revenues from Sandoz’ sales of GLATOPA. For the nine months ended September 30, 2016, the Company recorded $58.8 million in product revenues from Sandoz’ sales of GLATOPA. The Company is eligible to receive in the aggregate up to $120 million in additional milestone payments upon the achievement of certain commercial and sales-based milestones for GLATOPA and M356 in the United States. None of these payments, once received, is refundable and there are no general rights of return in the arrangement. Sandoz AG has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.

The term of the 2006 Sandoz Collaboration Agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party pursuant to the provisions of the 2006 Sandoz Collaboration Agreement. The 2006 Sandoz Collaboration Agreement may be terminated if either party breaches the 2006 Sandoz Collaboration Agreement or files for bankruptcy. In addition, either the Company or Sandoz AG may terminate the 2006 Sandoz Collaboration Agreement with respect to M356, if clinical trials are required for regulatory approval of M356.

Baxalta Collaboration Agreement

The Company and Baxter International Inc., Baxter Healthcare Corporation and Baxter Healthcare SA, collectively referred to as Baxter, entered into a global collaboration and license agreement effective February 2012, or the Baxter Collaboration Agreement, to develop and commercialize biosimilars, including M923. In connection with Baxter’s internal corporate restructuring in July 2015, Baxter assigned all of its rights and obligations under the Baxter Collaboration Agreement to Baxalta. In light of the assignment, all references to Baxter and the Baxter Collaboration Agreement have been replaced with references to Baxalta and the Baxalta Collaboration Agreement, respectively. On June 3, 2016, Baxalta Incorporated and Shire plc, or Shire, announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated is a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave the Company twelve months’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement.

Under the Baxalta Collaboration Agreement, the Company and Baxalta agreed to collaborate, on a world-wide basis, on the development and commercialization of M923, the Company’s biosimilar HUMIRA® (adalimumab) candidate, and M834, the Company’s biosimilar ORENCIA® (abatacept) candidate, and Baxalta had the right to select four additional reference products to target for biosimilar development under the collaboration. In July 2012, Baxalta selected an additional product: M511, the Company’s biosimilar AVASTIN® (bevacizumab) candidate. In December 2013, Baxalta terminated its option to license M511 under the Baxalta Collaboration Agreement following an internal portfolio review. In February 2015, Baxalta’s right to select additional programs expired without being exercised. Also in February 2015, Baxalta terminated in part the Baxalta Collaboration Agreement as it relates specifically to M834 and all worldwide development and commercialization rights for M834 reverted to the Company.

Under the Baxalta Collaboration Agreement, each party granted the other an exclusive license under its intellectual property rights to develop and commercialize M923 for all therapeutic indications. The Company agreed to provide development and related services on a commercially reasonable basis through the filing of an Investigational New Drug application, or IND, or equivalent application in the European Union for M923. Development and related services include high-resolution analytics, characterization, and product and process development. Baxalta is responsible for clinical development, manufacturing and commercialization activities and will exclusively distribute and market M923. The Company has the right to participate in a joint steering committee, consisting of an equal number of members from the Company and Baxalta, to oversee and manage the development and commercialization of M923 under the collaboration. Costs, including development costs, payments to third parties for intellectual property licenses, and expenses for legal proceedings, including the patent exchange process pursuant to the Biologics Price Competition and Innovation Act of 2009, will be borne by the parties in varying proportions, depending on the type of expense and the stage of development. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses and external development costs for reimbursable activities related to M923.

Under the terms of the Baxalta Collaboration Agreement, the Company received an initial cash payment of $33 million, a $7 million license payment for achieving pre-defined “minimum development criteria” for M834, and $12 million in technical and development milestone payments in connection with the UK Medicines and Healthcare Products Regulatory Agency’s acceptance of Baxalta’s clinical trial application to initiate a pharmacokinetic clinical trial for M923.

Under the terms of the Baxalta Collaboration Agreement, the effective date of the termination is twelve months following the date Baxalta gave the termination notice, as more particularly set forth in the Baxalta Collaboration Agreement, or the Effective Date. As of the Effective Date, (i) Baxalta is obligated to transfer to the Company all ongoing regulatory, development, manufacturing and commercialization activities and related records for M923 and, at the Company’s request, assign to the Company any third party agreements reasonably necessary for and primarily related to the development, manufacture, and commercialization of M923 to the extent permitted by the agreements' terms, (ii) the licenses granted pursuant to the Baxalta Collaboration Agreement by the Company to Baxalta under the Company’s intellectual property rights relating to M923 will terminate, the licenses granted pursuant to the Baxalta Collaboration Agreement by Baxalta to the Company under Baxalta’s intellectual property rights relating to M923 will survive, and Baxalta is obligated to grant to the Company additional licenses under Baxalta’s intellectual property rights relating to M923 existing as of the Effective Date, and (iii) the Company is obligated to pay to Baxalta a royalty of 5% of net sales, as such term is defined in the Baxalta Collaboration Agreement, until Baxalta’s development expenses and commercialization costs, as such terms are defined in the Baxalta Collaboration Agreement, occurring through the Effective Date are reimbursed. Following receipt of the termination notice, the Company is no longer eligible to receive any regulatory milestone payments under the Baxalta Collaboration Agreement. Prior to the Effective Date, Baxalta is obligated to continue to perform development and manufacturing activities for M923, which is currently in a pivotal clinical trial from which data is expected to be reported in 2016.

In accordance with FASB’s ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified the deliverables at the inception of the Baxalta Collaboration Agreement. The deliverables were determined to include (i) six development and product licenses, for each of M923, M834 and the four additional collaboration products, (ii) research and development services related to each of M923, M834 and the four additional collaboration products and (iii) the Company’s participation in a joint steering committee. The Company determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Baxalta does not have the contractual right to resell the license, and (3) Baxalta is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting exist for each of the six licenses together with the related research and development services, as well as the one unit of accounting for the joint steering committee. The estimated selling price for these units of accounting was determined based on similar license arrangements and the nature of the research and development services to be performed for Baxalta and market rates for similar services. At the inception of the Baxalta Collaboration Agreement, arrangement consideration of $61 million, which included the $33 million upfront payment and aggregate option payments for the four additional collaboration products of $28.0 million, was allocated to the units of accounting based on the relative selling price method. Of the $61 million, $10.3 million was allocated to the M923 product license together with the related research and development services, $10.3 million to each of the four additional collaboration product licenses with the related research and development services, $9.4 million was allocated to the M834 product license together with the related research and development services due to that product’s stage of development at the time the license was delivered, and $114,000 was allocated to the joint steering committee unit of accounting.

At the inception of the Baxalta Collaboration Agreement, the Company delivered development and product licenses for M923 and M834 and commenced revenue recognition of the arrangement consideration allocated to those products. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. Baxalta’s termination of its option to license M511 in December 2013 as well as its termination of M834 and the lapsing of its right to select additional products in February 2015 reduced the number of deliverables from seven to two and decreased the total consideration from $61 million to $40 million. The Company determined that the change in total consideration received and total deliverables under the arrangement represented a change in estimate and, as a result, the Company reallocated the revised total consideration of $40 million to the remaining deliverables under the agreement using the original best estimate of selling price. The remaining deliverables are the combined unit of account for the M923 license and the related research and development services and the Company’s participation on the joint steering committee. Of the $40 million, $39.6 million was allocated to the M923 product license together with the related research and development services and $0.4 million was allocated to the joint steering committee unit of accounting. The Company recognized the resulting change in revenue as a result of the decrease in deliverables and expected consideration on a prospective basis. The Company recorded this revenue on a straight-line basis over the applicable performance period, which began with delivery of the development and product license and ends upon FDA approval of the product.

As a result of Baxalta's termination notice, the Company's performance period for M923 and the joint steering committee will end on the Effective Date, as defined above; therefore, the Company will recognize the remaining deferred revenue balance as of September 30, 2016 of $14.6 million ratably as revenue over the remaining performance period of twelve months, with quarterly amortization of $3.7 million for the next three quarters and $3.5 million in the third quarter of 2017. The impact of this change in estimate on the Company's net loss and net loss per share was immaterial for the three and nine months ended September 30, 2016.

Mylan Collaboration Agreement

On January 8, 2016, the Company and Mylan entered into a collaboration agreement, or the Mylan Collaboration Agreement, which became effective on February 9, 2016, pursuant to which the Company and Mylan agreed to collaborate exclusively, on a world-wide basis, to develop, manufacture and commercialize six of the Company’s biosimilar candidates, including M834.

Under the terms of the Mylan Collaboration Agreement, Mylan agreed to pay the Company a non-refundable upfront payment of $45 million. In addition, the Company and Mylan share equally costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, with Mylan funding its share of collaboration expenses incurred by the Company, in part, through up to six contingent milestone payments, totaling up to $200 million across the six product candidates.

For each product candidate other than M834, at a specified stage of early development, the Company and Mylan will each decide, based on the product candidate’s development progress and commercial considerations, whether to continue the development, manufacture and commercialization of such product candidate under the collaboration or to terminate the collaboration with respect to such product candidate.

Under the Mylan Collaboration Agreement, the Company granted Mylan an exclusive license under the Company’s intellectual property rights to develop, manufacture and commercialize the product candidates for all therapeutic indications, and Mylan granted the Company a co-exclusive license under Mylan’s intellectual property rights for the Company to perform its development and manufacturing activities under the product work plans agreed by the parties, and to perform certain commercialization activities to be agreed by the joint steering committee for such product candidates if the Company exercises its co-commercialization option described below. The Company and Mylan established a joint steering committee consisting of an equal number of members from the Company and Mylan to oversee and manage the development, manufacture and commercialization of product candidates under the collaboration. Unless otherwise determined by the joint steering committee, it is anticipated that, in collaboration with the other party, (a) the Company will be primarily responsible for nonclinical development activities and initial clinical development activities for product candidates; additional (pivotal or Phase 3 equivalent) clinical development activities for M834; and regulatory activities for product candidates in the United States through regulatory approval; and (b) Mylan will be primarily responsible for additional (pivotal or Phase 3 equivalent) clinical development activities for product candidates other than M834; regulatory activities for the product candidates outside the United States; and regulatory activities for products in the United States after regulatory approval, when all marketing authorizations for the products in the United States will be transferred to Mylan. Mylan will commercialize any approved products, with the Company having an option to co-commercialize, in a supporting commercial role, any approved products in the United States. The joint steering committee is responsible for allocating responsibilities for other activities under the collaboration.

The term of the collaboration will continue throughout the development and commercialization of the product candidates, on a product-by-product and country-by-country basis, until development and commercialization by or on behalf of the Company and Mylan pursuant to the Mylan Collaboration Agreement has ceased for a continuous period of two years for a given product candidate in a given country, unless earlier terminated by either party pursuant to the terms of the Mylan Collaboration Agreement.

The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party will have the right to continue the development, manufacture and commercialization of the terminated products in the terminated countries. In the case of a termination for convenience, the other party will have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.

In accordance with FASB’s ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified the deliverables at the inception of the Mylan Collaboration Agreement. The deliverables were determined to include (i) six development and product licenses, for each of M834 and the five additional collaboration products, (ii) research and development services related to each of M834 and the five additional collaboration products and (iii) the Company’s participation in the joint steering committee. The Company has determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Mylan does not have the contractual right to resell the license, and (3) Mylan is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting exist for each of the six licenses together with the related research and development services, or the combined units of accounting, as well as a separate unit of accounting for participation in the joint steering committee. VSOE and TPE were not available for the combined units of accounting. As such, the Company determined BESP for the combined units of accounting based on an analysis of its existing license arrangements and other available data and the nature and extent of the research and development services to be performed. BESP for the joint steering committee unit of accounting was based on market rates for similar services. At the inception of the Mylan Collaboration Agreement, total arrangement consideration of $45 million was allocated to each of the units of accounting based on the relative selling price method. Of the $45 million, $8.2 million was allocated to the M834 combined unit of accounting, between $5.7 million and $9.0 million to the five additional combined units of accounting, considering the products’ stage of development at the time the licenses were delivered, and $51,000 was allocated to the joint steering committee unit of accounting. Changes in the key assumptions used to determine BESP for the units of accounting would not have a significant effect on the allocation of arrangement consideration.

At the inception of the Mylan Collaboration Agreement, the Company delivered development and product licenses for all six collaboration products and commenced revenue recognition of the arrangement consideration allocated the respective units of accounting. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. The Company is recording revenue on a straight-line basis over the applicable performance period during which the research and development services are expected to be delivered, which begins upon delivery of the development and product license and ends upon FDA approval of the product. The Company currently estimates that the performance period for the M834 unit of accounting is approximately four years, an average of approximately seven years for the additional five combined units of accounting and approximately eight years for the joint steering committee unit of accounting. As of September 30, 2016, $40.4 million was deferred under this agreement, of which $7.1 million was included in current liabilities and $33.3 million was included in non-current liabilities in the consolidated balance sheet.

As discussed above, the Mylan Collaboration Agreement became effective on February 9, 2016. Beginning on February 9, 2016, the Company shares collaboration expenses with Mylan and, as such, the net amount due from Mylan for its 50% share of collaboration expenses is recorded as a collaboration receivable in the consolidated balance sheet and a reduction in research and development and/or general and administrative expenses in the consolidated statement of operations and comprehensive loss, in accordance with the Company’s policy, which is consistent with the nature of the cost reimbursement. Collaboration costs incurred by the Company are recorded as research and development expense and/or general and administrative expense, depending on the nature of the activities, as incurred.

As discussed above, Mylan will fund a portion of its 50% share of collaboration expenses, in part, through up to $200 million in contingent milestone payments across the six product candidates. The contingent payments will reduce the collaboration receivable balance and any unused portion of the contingent payment will be available to offset Mylan’s 50% share of collaboration costs in future periods. If in a given year a contingent payment is not expected to be made by Mylan and there is no balance available from a prior contingent payment balance as of the beginning of the collaboration year, the parties will reconcile total collaboration expenses on a semi-annual basis and Mylan will make a payment to the Company. For the nine months ended September 30, 2016, the Company reduced research and development expenses by $19.8 million and general and administrative expenses by $1.0 million, representing Mylan’s 50% share of collaboration expenses.