10.

Mundipharma Agreements

As the result of Allos becoming our wholly owned subsidiary effective September 5, 2012, on a consolidated basis we assumed obligations under a strategic collaboration agreement with Mundipharma, or the Mundipharma Collaboration Agreement, pursuant to which we agreed to collaborate in the development of FOLOTYN according to a mutually agreed-upon development plan, as updated by the parties from time to time. Under the Mundipharma Collaboration Agreement, we retained full commercialization rights for FOLOTYN in the United States and Canada with Mundipharma having exclusive rights to commercialize FOLOTYN in all other countries in the world, or the Mundipharma territories.

On May 29, 2013 the Company and Mundipharma entered into an amendment to amend and restate the Collaboration Agreement, referred to as the Amended Collaboration Agreement in order to modify the scope of the licensed territory and the respective development obligations of the parties. As a result of the Amended Collaboration Agreement, Europe and Turkey were excluded from Mundipharma’s commercialization territory, and royalty and milestone rates were modified. In addition, the Company received $7.0 million from Mundipharma. All other terms and conditions remained unchanged from the original collaboration agreement.

Pursuant to the Amended Collaboration Agreement, we may receive potential regulatory milestone payments of up to $16 million and commercial progress- and sales-dependent milestone payments of up to $107 million. All of these remaining potential milestone payments are not deemed to be substantive for accounting purposes and will be recognized when the appropriate revenue recognition criteria have been met. We will also receive tiered double digit royalties based on net sales of FOLOTYN within Mundipharma’s licensed territories consistent with the terms of the original Collaboration Agreement.

The Company also entered into a separate supply agreement with Mundipharma Medical Company, an affiliate of Mundipharma, pursuant to which we have agreed to supply FOLOTYN for use in clinical trials for which Mundipharma bears operational responsibility and to support Mundipharma’s commercial requirements. We refer to this as the Mundipharma Supply Agreement, and we refer to the Mundipharma Supply Agreement and the Amended Collaboration Agreement together as the Amended Mundipharma Agreements.

As part of the original Collaboration Agreement, we were obligated to perform research and development services related to jointly agreed-upon clinical development activities through approximately 2022, with cost sharing as discussed below. The Company recorded the fair value of the related deferred development cost obligation of $12.3 as of September 5, 2012, using the discounted cash flow method of the income approach.

In connection with the Amended Collaboration Agreement, the Company determined that the entire $7.0 million development payment from Mundipharma is allocable as arrangement consideration related to the research and development services obligation described above, resulting in an aggregate development cost liability of $18.7 million at June 30, 2013. The development cost liability includes assumptions about internal estimates of research and development personnel needed to perform the research and development services; and estimates of expected cash outflows to third parties for services and supplies for our projected clinical trial enrollment and patient treatment-related follow up time periods through approximately 2031. As with the Company’s previous accounting for the development cost liability, the Company will reevaluate the measurement of this liability at each subsequent reporting date and record the change in measurement to research and development expense.

Under the original Collaboration Agreement, Mundipharma was initially responsible for 40% of the joint development costs incurred by the parties, which increased to 50% upon the later of (i) the calendar quarter of the first approval of FOLOTYN in the EU for relapsed or refractory PTCL or first-line PTCL, and (ii) the first calendar quarter in which the development cost differential equals or exceeds $15.0 million. The “development cost differential” was defined as the cumulative amount of joint development costs that Mundipharma would have incurred if it was responsible for 50% of the joint development costs rather than its initial 40% share. To the extent that this development cost differential did not meet or exceed $15.0 million by December 31, 2019, then the Company was obligated to pay Mundipharma the difference between $15.0 million and the amount of the development cost differential as of December 31, 2019. The Company recorded the joint development cost reimbursements received from Mundipharma as research and development in the statement of operations; and we record the full amount of our joint development costs as research and development expense. Research and development for the three and six months ended June 30, 2013 included $268,000 and $589,000, respectively, related to the 40% joint development cost reimbursement under the original Collaboration Agreement.

The Amended Collaboration Agreement eliminated the development cost differential computation requirement. Prospectively, the Company and Mundipharma will bear their own development costs. The Amended Collaboration Agreement required Spectrum to compute the remaining development cost differential amount which was $12,099 as of May 31, 2013. The Company determined that the remaining development cost differential liability pursuant to the Amended Collaboration Agreement was $18.7 million which is included in the Company’s balance sheet at June 30, 2013. As a result of the amendment, Spectrum reevaluated the fair value measurement of the related contingent payment obligation and determined that its fair value was zero, as no remaining contingent obligation remained at May 29, 2013. Therefore, the Company recorded the difference between the carrying value and the new fair value of the related contingent payment obligation of $2.4 million at May 29, 2013 to research and development expense in the accompanying statement of operations.

As of June 30, 2013, accounts receivable related to the Mundipharma Agreements totaled $24,000. As of June 30, 2013 and December 31, 2012, deferred amounts related to the Mundipharma Agreements consisted of ($ in 000’s):


	June 30, 2013		December 31, 2012
Deferred development cost liability	$	3,251	$	856


Deferred development cost liability, less current portion		15,400		11,377
Deferred payment contingency		—		2,287

	$	18,651	$	14,520