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Commitments
12 Months Ended
Dec. 31, 2011
Commitments [Abstract]  
Commitments

6. Commitments

Facility Lease

On October 21, 2010, the Company entered into an amendment to its lease agreement, dated March 7, 2008, to increase the office space in Charlotte, North Carolina that serves as its corporate headquarters. Occupancy of the additional space occurred in March 2011. Occupancy for the originally leased space occurred in May 2008. Upon taking delivery of the newly added space and upon expiration of a free rental period of six months from the date of delivery anticipated, or September 2011, the monthly payments increased by approximately $8,000 per month to a total of approximately $29,000. The lease, as amended, expires on or about March 11, 2016 and calls for annual rent increases of 3%. A security deposit of approximately $38,000 is being held by the lessor in conjunction with the lease. In addition, the lease initially provided an option to rent additional adjacent space. Such option expired in November 2009. The future aggregate minimum lease payments under non-cancellable operating leases are approximately $1.6 million through the lease expiration date of March 2016.

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $339,963, $202,267 and $248,404, respectively.

License Agreements

In March 2004, the Company entered into a license agreement with Dr. M. Gopal Nair, Ph.D., of the University of South Alabama College of Medicine, for the rights to use, produce, distribute and market products derived from an invention by Dr. Nair, claimed in US Patent # 5,912,251, entitled "metabolically inert anti-inflammatory and antitumor antifolates", designated by the Company as CH-1504 and related compounds. The license provides the Company exclusive, worldwide (excluding India) rights for CH-1504 and related compounds. The Company made an upfront payment in May 2004 of $150,000 and milestone payments as required by the agreement of $100,000 each in March 2006 and 2005. In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, in settlement of the $150,000 annual milestone payment liability. In March 2008, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, in settlement of the 2008 anniversary milestone payment. In April 2009, the Company made the 2009 anniversary milestone payment of $150,000. In September 2010, the Company made a milestone payment of $100,000 related to patient dosing in a Phase II study as required by the agreement. The Company is obligated to pay royalties under the agreement until the later of the expiration of the applicable patent or the applicable last date of market exclusivity after the first commercial sale, on a country-by-country basis. There are no minimum royalties required under the agreement. The Company is also obligated to make future potential milestone payments based on the achievement of specific development and regulatory approval milestones. Based on the Company's current development plans for compounds licensed under this agreement, approximately $1.5 million of payments may become due if specific milestones are achieved, subject to the Company's right to terminate the license agreement. In addition, should the Company enter into an out-licensing agreement, such payments could be offset by revenue received from the sub-licensee.

In May 2006, the Company entered into an agreement with Dainippon Sumitomo Pharma Co., Ltd. ("DSP") for a worldwide, exclusive, sub-licensable license and rights to certain intellectual property and proprietary information (the "DSP Agreement") relating to L-threo-3,4-dihydroxyphenylserine ("L-DOPS" or "droxidopa") including, but not limited to all information, formulations, materials, data, drawings, sketches, designs, testing and test results, records and regulatory documentation. As consideration for these rights, the Company paid DSP $100,000 and issued 63,131 shares of its common stock, with a value of approximately $4.35 per share, or $274,621. As additional consideration, the Company agreed to pay DSP and/or its designees (1) royalties on the sales should any compound be approved for commercial sale, and (2) milestone payments, payable upon achievement of milestones as defined in the DSP Agreement. In February 2008, the Company made a milestone payment under the DSP Agreement of $500,000 related to patient dosing in a Phase III study. In December 2011, the Company made a milestone payment under the DSP Agreement of $750,000 related to submission of an NDA to the FDA and has remaining potential future milestone payments, subject to the Company's right to terminate the DSP Agreement, totaling $2.5 million. The Company and DSP also initiated, and the Company agreed to fund, activities focused on modifying the manufacturing capabilities of DSP in order to expand capacity and comply with regulations and requirements of the FDA. Based on work performed by DSP as of December 31, 2011, the Company had recorded expense of approximately $3.1 million and had a remaining liability of approximately $60,000 at December 31, 2011.

In conjunction with and as consideration for activities related to the execution of the DSP Agreement, the Company entered into a Finder's Agreement with Paramount BioCapital, Inc. ("Paramount"). In May 2006, pursuant to the Finder's Agreement, the Company issued warrants for the purchase of 250,000 shares of its common stock at an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that occurred in January 2007 and, accordingly, the Company recorded a charge for the fair value of the warrants at January 2007 of $433,750. The Company utilized the Black-Scholes-Merton valuation model for estimating the fair value of the warrants at the date the condition lapsed, based on a risk-free interest rate of 4.79%, an expected life of three years, an expected dividend yield of 0%, an expected volatility of 66.01% and no estimated forfeitures. As additional consideration, the Company agreed to (1) make future milestone payments to Paramount, upon achievement of milestones as defined in the Finder's Agreement, (2) pay royalties on sales should any licensed compound become available for commercial sale, and (3) compensate a stated third-party consultant for services rendered in the evaluation of the transaction with DSP. The Company has remaining potential future milestone payments under the Finder's Agreement of $150,000.

The amount expended under these agreements and charged to research and development expense was $750,000 during the year ended December 31, 2011, $100,000 during the year ended December 31, 2010 and $150,000 during the year ended December 31, 2009.

Development and Commercialization Agreement

Effective May 2006, the Company entered into a development and commercialization agreement (the "Development Agreement") with Active Biotech AB ("AB") to co-develop and commercialize the I-3D portfolio of orally active, dihydroorotate dehydrogenase ("DHODH") inhibiting compounds for the treatment of autoimmune diseases and transplant rejection. Under the terms of the Development Agreement, an initial payment of $1.0 million was made to AB at the time of the Development Agreement with such funds utilized to cover the initial costs of research and development efforts jointly approved by both parties. At December 31, 2006, the Company had expensed the entire $1.0 million payment and expensed additional costs of $0.3 million. During 2007, the Company expensed costs of $0.6 million under the program related to costs of research and development. During 2008, the Company and AB ceased joint discovery efforts on this portfolio.

In April 2008, the Company and AB entered into a termination and assignment agreement (the "Termination Agreement"), whereby AB discontinued its participation in the I-3D co-development program and assigned its entire right, title and interest in the portfolio to the Company in exchange for royalties on future sales. The Termination Agreement also eliminated the Company's obligation related to payment of potential future development milestones under the Development Agreement. The Company has recorded no costs related to this program during 2011, 2010 or 2009.

Contract Research and Manufacturing Purchase Obligations

The Company often contracts with third parties to facilitate, coordinate and perform agreed upon research and development and manufacturing activities. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue its research and manufacturing activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

 

In addition, the Company has contracted with a third party for the manufacture of commercial quantities of Northera prior to the date it anticipates that Northera will receive final marketing approval and might perform similar activities for other of its product candidates in the future. The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the appropriate regulatory agencies on a timely basis, or ever. This risk notwithstanding, the Company initiated such activities with its primary supplier of active pharmaceutical ingredient of Northera in December 2010 and had incurred expenses of approximately $3.8 million and approximately $1.9 million related to these activities during 2011 and 2010, respectively. Until final approval to market any of the Company's product candidates is received from the appropriate regulatory agencies, such costs are expensed to research and development. The Company intends to continue such activities during 2012 in order to build pre-launch inventories of Northera prior to final governmental approval. In addition, in October 2011, the Company committed to the purchase of active pharmaceutical ingredient from DSP to be used in the production of commercial inventory in preparation for the market launch of Northera in the United States. The value of this obligation is approximately $7.2 million. A small initial shipment of this material was delivered in the first quarter of 2012. Although the remainder of this material could be shipped at any time within a two-year period following the completion of its manufacture, it is not anticipated to be shipped prior to the commercial launch of Northera in the United States.

Commitments under research and development programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $8.3 million at December 31, 2011.

Other Contractual Obligations

During 2011, the Company contracted with various third parties to facilitate, coordinate and perform agreed upon commercialization support activities in anticipation of the planned launch of Northera in the United States in 2012. These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. The Company currently intends to continue these activities as contracted at December 31, 2011. However, should a need arise to cancel activities under these contracts, there can be cancellation fees that could be punitive in nature.

Business activities being performed under these contracts include, but are not limited to, market research, marketing and advertising planning and development, contracted Medical Science Liaison professionals, sales territory mapping, publication planning, sales force recruiting, sales operations support and planning, messaging and website development, public relations and information technology support and planning.

Commitments under these programs represent contractual commitments entered into for materials and services in the normal course of business and totaled approximately $12.2 million at December 31, 2011.