8. Commitments and Contingencies

Operating Leases

The Company entered into an operating lease in September 2007 for its corporate headquarters, consisting of approximately 26,386 square feet of office space in San Mateo, California. The lease, which expires in July 2012, includes total base rent of $2.3 million, a period of free rent and rent escalation, all of which are accounted for on a straight-line basis over the lease term. Also included in the terms of the lease is a tenant improvement allowance of $106,000, which was received in 2009, was recorded to deferred rent and is being amortized on a straight-line basis over the remaining term of the lease. The Company's obligation under the sublease is secured by a letter of credit in the original amount of $240,000, and in accordance with the provisions of the sublease agreement, the Company can reduce the letter of credit, if certain conditions are met, by $40,000 on each of the first three anniversaries of the lease commencement date. As a result of having met these conditions, the Company reduced the letter of credit to $160,000 at December 31, 2010, of which the full amount is secured by a certificate of deposit that is included in the Company's consolidated balance sheet at December 31, 2011 as Restricted cash in current assets. The Company has a deferred rent liability of $115,000 as of December 31, 2011, of which the full amount is classified as a current liability.

Total rent expense under all operating leases, which also includes rent expense for certain office equipment, was $0.5 million for each of the years ended December 31, 2011, 2010 and 2009. Future minimum payments under all non-cancellable operating lease obligations are as follows as of December 31, 2011 (in thousands):


Year End December 31,
2012	$	391
2013		16
2014		—
2015 and beyond		—

Total minimum lease payments	$	407

Purchase Obligations

The Company has issued non-cancellable purchase orders to third-party manufacturers of Qutenza and NGX-1998 for manufacturing, stability and related services including reimbursable amounts from Astellas for the supply of Qutenza based on the Astellas Agreement. These purchase orders totaled $1.5 million as of December 31, 2011 and included $1.0 million for stability and related services, $0.2 million related to Qutenza product manufacturing costs for the U.S. market and NGX-1998 clinical supply development cost along with $0.3 million of commitments related to supply of Qutenza to Astellas. Actual payments for purchases from these third-party manufacturers, a portion of which were made to satisfy Astellas supply requests, were $2.9 million, $3.2 million and $1.7 million during the years ended December 31, 2011, 2010 and 2009, respectively.

Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and generally provide for various indemnifications including indemnification from claims resulting from clinical trial activities and intellectual property matters. The Company's liability under these agreements is unknown because it involves the potential for future claims that may be made against the Company, but have not yet been made. To date, the Company has not received any claims under its various indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company's request in such capacity. The Company may terminate the indemnification agreements with its officers and directors upon 90 days written notice, but termination will not affect claims for indemnification relating to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited, however, the Company's director and officer insurance policy reduces the Company's exposure and may enable the Company to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2011.

Legal Matters

The Company is subject to various legal disputes that arise in the normal course of business which include or may include employment matters, contract disputes, intellectual property matters, product liability actions, and other matters. The Company does not know whether it would prevail in these matters nor can it be assured that any remedy could be reached on commercially viable terms, if at all. Based on currently available information, the Company does not believe that any of these disputes will have a material adverse impact on the Company's results of operations, liquidity or financial position. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company recorded a $1.0 million charge in 2010 related to intellectual property matters as discussed in Note 10, and subsequently reversed $0.3 million of such accrual in 2011.