Commitments and Contingencies

9 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

     Center for Neurologic Study (“CNS”) — The Company holds the exclusive worldwide marketing rights to NUEDEXTA for certain indications pursuant to an exclusive license agreement with CNS.

     In fiscal 2005, the Company paid $75,000 to CNS under the agreement for the submission of the new drug application (“NDA”) for the PBA indication. Upon FDA approval of NUEDEXTA for the treatment of PBA in the first quarter of fiscal 2011, the Company paid an additional $75,000 milestone. In addition, the Company is obligated to pay CNS a royalty ranging from approximately 5% to 8% of net GAAP revenue generated by sales of NUEDEXTA. During the nine month period ended June 30, 2011, the Company recorded royalties of approximately $199,000 related to NUEDEXTA product shipments. Of this amount, approximately $122,000 is recorded to cost of product sales in the condensed consolidated statements of operations for the nine months ended June 30, 2011, and the remaining $77,000 represents deferred cost of product sales and is recorded to other current assets in the condensed consolidated balance sheet at June 30, 2011. Under certain circumstances, the Company may have the obligation to pay CNS a portion of net revenues received if it sublicenses NUEDEXTA to a third party.

     Under the agreement with CNS, the Company is required to make payments on achievements of up to a maximum of ten milestones, based upon five specific medical indications. Maximum payments for these milestone payments could total approximately $1.1 million if the Company pursued the development of NUEDEXTA for all five of the licensed indications. In general, individual milestones range from $75,000 to $125,000 for each accepted NDA filing and a similar amount for each approved NDA in addition to the royalty discussed above on net GAAP revenues. The Company does not have the obligation to develop additional indications under the CNS license agreement.

     Lease Commitment — On February 1, 2011, the Company entered into a lease agreement for approximately 30,000 square feet of office space commencing on July 1, 2011, for an initial lease term of 65 months. The lease has scheduled increases each year. The aggregate minimum payments over the initial lease term of the lease are expected to be approximately $3.8 million.

     Legal Contingencies — In June 2011, the FDA reported that an Abbreviated New Drug Application (ANDA) for a generic version of NUEDEXTA capsules was submitted on March 7, 2011. The Company has since received Paragraph IV certification notices from four separate companies contending that the Company’s patents listed in the Orange Book (U.S. Patents 7,659,282 and RE 38,115, which expire in August 2026 and January 2016, respectively) are invalid, unenforceable and/or will not be infringed by the manufacture, use, or sale of a generic form of NUEDEXTA. The Company intends to vigorously enforce its intellectual property rights relating to NUEDEXTA.

     In the ordinary course of business, the Company may face various claims brought by third parties and it may, from time to time, make claims or take legal actions to assert the Company’s rights, including intellectual property rights as well as claims relating to employment and the safety or efficacy of its products. Any of these claims could subject the Company to costly litigation and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, the Company’s insurance carriers may deny coverage or the Company’s policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company’s operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage the Company’s reputation and business. Management believes the outcomes of currently pending claims and lawsuits are not likely to have a material effect on the Company’s operations or financial position.

     In May 2010, the Company received proceeds from a legal settlement in the amount of approximately $390,000. The proceeds were recorded as Other, net under Other Income (Expense) in the condensed consolidated statement of operations in the third quarter of fiscal 2010.

     In addition, it is possible that the Company could incur termination fees and penalties if it elected to terminate contracts with certain vendors.

     Guarantees and Indemnities — The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware, and various lessors in connection with facility leases for certain claims arising from such facilities or leases. Additionally, the Company periodically enters into contracts that contain indemnification obligations, including contracts for the purchase and sale of assets, wholesale distribution agreements, clinical trials, pre-clinical development work and securities offerings. These indemnification obligations provide the contracting parties with the contractual right to have the Company pay for the costs associated with the defense and settlement of certain claims, typically in circumstances where the Company has failed to meet its contractual performance obligations in some fashion.

     The maximum amount of potential future payments under such indemnifications is not determinable. The Company has not incurred significant costs related to these guarantees and indemnifications, and no liability has been recorded in the condensed consolidated financial statements for guarantees and indemnifications as of June 30, 2011.