6.	Deferred Revenues

The following table sets forth as of September 30, 2013 and 2012 the net deferred revenue balances for NUEDEXTA product shipments and the Company’s sale of future Abreva^® royalty rights to Drug Royalty USA.


	NUEDEXTA Product Shipments, Net			Drug Royalty USA Agreement			Total
Net deferred revenues as of October 1, 2012	$	—		$	4,049,318		$	4,049,318
Shipments, net		—			—			—
Recognized as revenues during period		—			(2,760,804	)		(2,760,804	)

Net deferred revenues as of September 30, 2013	$	—		$	1,288,514		$	1,288,514

Classified and reported as:
Current portion of deferred revenues	$	—		$	1,288,514		$	1,288,514
Deferred revenues, net of current portion		—			—			—

Total deferred revenues	$	—		$	1,288,514		$	1,288,514

Net deferred revenues as of October 1, 2011	$	1,652,788		$	6,138,628		$	7,791,416
Shipments, net		5,968,371			—			5,968,371
Recognized as revenues during period		(5,766,315	)		(2,089,310	)		(7,855,625	)
Recognized as a result of a change in accounting estimate(1)		(1,854,844	)		—			(1,854,844	)

Net deferred revenues as of September 30, 2012	$	—		$	4,049,318		$	4,049,318

Classified and reported as:
Current portion of deferred revenues	$	—		$	2,557,464		$	2,557,464
Deferred revenues, net of current portion		—			1,491,854			1,491,854

Total deferred revenues	$	—		$	4,049,318		$	4,049,318

(1)	The amount ultimately recognized as net product sales was approximately $1.7 million due to other discounts and allowances, including, but not limited to, rebates, chargebacks and co-pay assistance totaling approximately $191,000.

NUEDEXTA Product Shipments, net — The amount of deferred revenue from NUEDEXTA product shipments is shown net of estimated prompt-pay discounts and wholesaler fees based on wholesaler purchases. The amount that ultimately will be recognized as net product sales in the Company’s consolidated financial statements may be different due to other discounts and allowances, including, but not limited to, wholesaler fees based on wholesaler shipments, rebates, chargebacks and co-pay assistance. See Note 2, “Summary of Significant Accounting Policies – Revenue recognition – Product Sales – NUEDEXTA,” for further discussion.

Drug Royalty USA Agreement — In November 2002, the Company sold to Drug Royalty USA an undivided interest in the Company’s rights to receive future Abreva royalties under the license agreement with GSK for $24.1 million (the “Drug Royalty Agreement” and the “GSK License Agreement,” respectively). Under the Drug Royalty Agreement, Drug Royalty USA has the right to receive royalties from GSK on sales of Abreva until the expiration of the patent for Abreva on April 30, 2014. The Company retained the right to receive 50% of all royalties (a net of 4%) under the GSK License Agreement for annual net sales of Abreva in the U.S. and Canada in excess of $62.0 million. In fiscal 2013, 2012, and 2011, the Company recognized royalties related to the annual net Abreva sales in excess of $62.0 million in the amount of approximately $1.7 million, $1.6 million and $1.5 million, respectively, which is included in the accompanying consolidated statements of operations as revenues from royalties.

Revenues are recognized when earned, collection is reasonably assured and no additional performance of services is required. The Company classified the proceeds received from Drug Royalty USA as deferred revenue, and is recognizing the revenue over the life of the license agreement because of the Company’s continuing involvement over the term of the Drug Royalty Agreement. Such continuing involvement includes overseeing the performance of GSK and its compliance with the covenants in the GSK License Agreement, monitoring patent infringement, adverse claims or litigation involving Abreva, and undertaking to find a new license partner in the event that GSK terminates the agreement. The Drug Royalty Agreement contains both covenants and events of default that require such performance on the Company’s part. Therefore, nonperformance on the Company’s part could result in default of the arrangement, and could give rise to additional rights in favor of Drug Royalty USA under a separate security agreement with Drug Royalty USA, which could result in loss of the Company’s rights to share in future Abreva royalties if wholesale sales by GSK exceed $62.0 million a year. The deferred revenue is being recognized as revenue using the “units-of-revenue method” over the life of the license agreement. Based on a review of the Company’s continuing involvement, the Company concluded that the sale proceeds did not meet any of the rebuttable presumptions that would require classification of the proceeds as debt.