Revenue Recognition and Sales Returns Reserves

6 Months Ended

Jun. 30, 2011

REVENUE RECOGNITION AND SALES RETURN RESERVES: [Abstract]

Revenue Recognition, Policy [Policy Text Block]

REVENUE RECOGNITION AND SALES RETURNS RESERVES:

Net revenues include net product revenues (sales of Progesterone Products to Watson and Merck Serono and sales of STRIANT), royalty revenues (primarily royalty revenues from Watson on sales of Progesterone Products) and other revenues, (primarily the amortization of the deferred revenue and milestone payments from the Watson Transactions).

Net product revenues are recognized when shipped, except in the case of product shipments to Watson, which are recognized when received at Watson's warehouse. Royalty revenues, based on sales by licensees, are recorded as revenues as those sales are made by the licensees.

The Watson Transactions included allocated proceeds for licenses to the Progesterone Products and the continuation of development of the Progesterone Products through the filing of the related NDA with the FDA.  The Company could not determine the fair value of the continuation of development of the Progesterone Products and concluded the license fee and continuation of development to be a single unit of account resulting in the deferral of allocated proceeds and recognition as revenue over the estimated development period.   The adoption of Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition: Multiple-Element Arrangements by the Company on January 1, 2011, did not alter the revenue recognition for the Watson Transactions as ASU 2009-13 is only applicable to revenue arrangements entered into or materially modified after adoption.

The Company's collaboration agreement with Watson entitles it to milestone payments based upon the successful completion of clinical development milestones in the PREGNANT study, regulatory filings, receipt of regulatory approvals and product launches.  The Company applies the Milestone Method and recognizes the entire amount as revenue in the period earned for all milestones considered substantive.  The Company considers a number of factors in determining if a milestone payment is substantive including: if the payment is commensurate with the Company's performance to achieve the milestone or the enhancement of the value of the delivered items as a result of a specific outcome resulting from the Company's performance to achieve the milestone; if the milestone relates only to past performance and if the milestone is reasonable relative to all of the deliverables and payment terms within the collaboration agreement.  The Company earned a $5.0 million milestone upon the FDA acceptance of the preterm birth NDA.  The Company determined this to be a substantive milestone and recognized the entire amount as revenue in the three month period ended June 30, 2011.

The Company's policy for sales to the trade, domestically, allows product to be returned for a period beginning three months prior to the product expiration date and ending twelve months after the product expiration date. Provisions for returns on sales to wholesalers, distributors and retail chain stores were estimated based on a percentage of sales, using such factors as historical sales information, distributor inventory levels and product prescription data, and are recorded as a reduction to sales in the same period as the related sales are recognized. The Company assumes that its customers are using the first-in, first-out method in filling orders so that the oldest saleable product is used first. The Company recorded a provision for returns on a quarterly basis using an estimated rate and adjusts the provision when necessary. With regard to sales returns for CRINONE and PROCHIEVE, the Company is only responsible for returns of products sold prior to the closing of the Watson Transactions on July 2, 2010. In addition, with the sale of STRIANT, the Company is only responsible for returns of products sold prior to the closing under the STRIANT Asset Purchase Agreement on April 20, 2011. The Company is not responsible for returns for international sales. Sales adjustments for international sales are estimated to recognize changes in foreign exchange rates and government tenders that may fluctuate within a year.

An analysis of the reserve for sales returns follows:

	Six Months Ended June 30,
	2011			2010
Balance at beginning of year	$	2,663,648		$	1,883,623
Provision:
Related to current period sales	52,487			694,913
Related to prior period sales	—			820,841
	52,487			1,515,754
Returns:
Related to current period sales	—			(36,220		)
Related to prior period sales	(464,682		)	(552,322		)
	(464,682		)	(588,542		)
Balance at end of quarter	$	2,251,453		$	2,810,835