Deferred Revenue

12 Months Ended

Dec. 31, 2013

Deferred Revenue

Deferred Revenue

Note 10. Deferred Revenue

• Qsymia Deferred Revenue

        At December 31, 2013, the Company had $10.3 million in current deferred revenue, which represents Qsymia product shipped to the Company's certified home delivery pharmacy services networks, wholesalers and certified retail pharmacies, but not yet dispensed to patients through prescriptions, net of prompt payment discounts.

• STENDRA™ or SPEDRA™ Deferred Revenue

        As further discussed in Note 11 below, in 2013, the Company received €6.7 million, (€8 million, net of approximately 16% reimbursable withholding tax) from Menarini as a prepayment for future royalties on sales of SPEDRA. The gross prepayment amount of €8 million, or $10.6 million, is recorded as non-current deferred revenue as of December 31, 2013, and will be recognized through future earnings and deducted by Menarini against future royalties owed to the Company until such amount, plus interest cost, is depleted in full.

        The Company supplied certain initial orders of STENDRA or SPEDRA product with a right of return or credit, which did not meet the required specifications of its partners. As such, the Company recorded these shipments as deferred revenue as of December 31, 2013. Under the Company's product supply agreements, as long as product meets specified product dating criteria at the time of shipment to the partner, the Company's commercialization partners do not have a right of return or credit for expired product. However, given STENDRA or SPEDRA's 48-month shelf life and lack of selling history, the Company has not been able to reliably estimate expected returns of product at the time of shipment for certain initial product supply orders under these agreements that retain a right of return or credit for product supplied that does not meet the commercialization partners' criteria. Therefore, for these orders, the Company recognizes revenue when units are dispensed to patients through prescriptions, at which point, the product is not subject to return. In addition, the Company allocated a portion of the manufacturing milestone payment received from Sanofi in 2013 to product that was supplied in the first quarter of 2014, based on relative estimated selling prices. As a result, the Company had $6.7 million in non-current deferred revenue related to STENDRA or SPEDRA product supply as of December 31, 2013.