2. REVENUES

For all revenue transactions, the Company evaluates its contracts with its customers to determine revenue recognition using the following five-step model:

1)The Company identifies the contract(s) with a customer;

2)The Company identifies the performance obligations in the contract;

3)The Company determines the transaction price;

4)The Company allocates the transaction price to the identified performance obligations; and

5)The Company recognizes revenue when (or as) the entity satisfies a performance obligation.

Product Revenue

Product revenue is recognized at the time of shipment at which time the Company has satisfied its performance obligation. Product revenue is recognized net of consideration paid to the Company’s customers, wholesalers and certified pharmacies. Such consideration is for services rendered by the wholesalers and pharmacies in accordance with the wholesalers and certified pharmacy services network agreements, and includes a fixed rate per prescription shipped and monthly program management and data fees. These services are not deemed sufficiently separable from the customers’ purchase of the product; therefore, they are recorded as a reduction of revenue at the time of revenue recognition.

Other product revenue allowances include a reserve for estimated product returns, certain prompt pay discounts and allowances offered to the Company’s customers, program rebates and chargebacks. These product revenue allowances are recognized as a reduction of revenue at the date at which the related revenue is recognized. The Company also offers discount programs to patients. Calculating certain of these items involves estimates and judgments based on sales or invoice data, contractual terms, utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates or chargebacks. The Company reviews the adequacy of product revenue allowances on a quarterly basis. Amounts accrued for product revenue allowances are adjusted when trends or significant events indicate that adjustment is appropriate and to reflect actual experience. See Note 9 for product reserve balances.

Supply Revenue

The Company produces STENDRA/SPEDRA through a contract manufacturing partner and then sells it to the Company’s commercialization partners. The Company is the primary responsible party in the commercial supply arrangements and bears significant risk in the fulfillment of the obligations, including risks associated with manufacturing, regulatory compliance and quality assurance, as well as inventory, financial and credit loss. As such, the Company recognizes supply revenue on a gross basis as the principal party in the arrangements. The Company recognizes supply revenue at the time of shipment and, in the unusual case where the product does not meet contractually-specified product dating criteria at the time of shipment to the partner, the Company records a reserve for estimated product returns. There are no such reserves as of March 31, 2020.

License and Milestone Revenue

License and milestone revenues related to arrangements, usually license and/or supply agreements, entered into by the Company are recognized by following the five-step process outlined above. The allocation and timing of recognition of such revenue will be determined by that process and the amounts recognized and the timing of that recognition may not exactly follow the wording of the agreement as the amount allocated following the accounting analysis of the agreement may differ and the timing of recognition of a significant performance obligation may predate the contractual date.

Royalty Revenue

The Company relies on data provided by its collaboration partner in determining its contractually-based royalty revenue. Such data includes accounting estimates and reports for various discounts and allowances, including product returns. The Company records royalty revenues based on the best data available and makes any adjustments to such revenues as such information becomes available.

Revenue by Source and Geography

Revenue disaggregated by revenue source and by geographic region was as follows (in thousands):


	Three Months Ended March 31,
	2020							2019
	U.S.		ROW			Total		U.S.		ROW			Total
Qsymia—Net product revenue	$	8,914	$	—		$	8,914	$	8,423	$	—		$	8,423
Qsymia—License revenue		—		2,000			2,000		—		—			—
Qsymia—Royalty revenue		—		564			564		—		—			—
PANCREAZE - Net product revenue		5,035		748			5,783		5,074		—			5,074
PANCREAZE - Royalty revenue		—		—			—		—		570			570
STENDRA/SPEDRA—Supply revenue		—		1,823			1,823		—		1,604			1,604
STENDRA/SPEDRA—Royalty revenue		—		547			547		—		475			475
Total revenue	$	13,949	$	5,682	(1)	$	19,631	$	13,497	$	2,649	(2)	$	16,146

(1)

$2.4 million of which was attributable to Germany, $2.6 million of which was attributable to South Korea and $0.7 million of which was attributable to Canada.

(2)

$2.0 million of which was attributable to Germany and $0.6 million of which was attributable to Canada.

Revenue and cost of goods sold by source was as follows (in thousands):


	Three Months Ended March 31,
	2020								2019
	Qsymia		PANCREAZE		STENDRA/ SPEDRA		Total		Qsymia		PANCREAZE		STENDRA/ SPEDRA		Total
Net product revenue	$	8,914	$	5,783	$	—	$	14,697	$	8,423	$	5,074	$	—	$	13,497
License		2,000		—		—		2,000		—		—		—		—
Supply revenue		—		—		1,823		1,823		—		—		1,604		1,604
Royalty revenue		564		—		547		1,111		—		570		475		1,045
Total revenue	$	11,478	$	5,783	$	2,370	$	19,631	$	8,423	$	5,644	$	2,079	$	16,146

Cost of goods sold (excluding amortization)	$	1,340	$	1,602	$	1,685	$	4,627	$	1,382	$	1,461	$	1,465	$	4,308
Amortization of intangible assets	$	91	$	3,547	$	—	$	3,638	$	91	$	3,547	$	—	$	3,638