Development and License Agreement with The Gillette Company and New License Agreement with The Procter & Gamble Company (and its wholly owned subsidiary The Gillette Company)

12 Months Ended

Dec. 31, 2011

Development and License Agreements [Abstract]

Development and License Agreement with The Gillette Company and New License Agreement with The Procter & Gamble Company (and its wholly owned subsidiary The Gillette Company)

Note 9 – Development and License Agreement with The Gillette Company and License Agreement with The Procter & Gamble Company (and its wholly owned subsidiary The Gillette Company)

Effective as of February 14, 2003, we entered into a Development and License Agreement (the “Agreement”) with Gillette to complete the development and commercialization of a home-use, light-based hair removal device for women. In October 2005, P&G completed its acquisition of Gillette. P&G, as the acquiring party, assumed all of Gillette’s rights and obligations under the Agreement. The Agreement provided for up to $7 million in support of research and development to be paid by Gillette over approximately 30 months. Effective as of June 28, 2004, we completed the initial phase of the Agreement and both parties decided to move onto the next phase. Accompanying this decision, we amended the Agreement, whereby Gillette provided $2.1 million in additional development funding to further technical innovations over a 9-month extension of the development phase, which was completed on August 31, 2006 (the “Development Phase”).

     On September 29, 2006, in response to a first decision point in the Agreement, Gillette decided to continue with the project. On December 8, 2006, over-the-counter clearance was obtained from the United States Food and Drug Administration for the device and, per the Agreement, Gillette was obligated to make a development completion payment to us of $2.5 million, which was paid on December 26, 2006. We recorded $2.5 million payment as revenue over a 12 month period, as we were obligated to perform additional services to Gillette during that period in consideration for this payment.

Under the Agreement, Gillette was required to conduct approximately 12 months of commercial assessment tests with respect to the device. Based on the commercial assessment tests, Gillette was to decide by January 7, 2008 whether or not to continue with the project (the “Launch Decision”). On February 21, 2007, we announced an amendment to the Agreement to include the development and commercialization of an additional home-use, light-based hair removal device for women, and we also announced that we had executed an amended and restated development and license agreement to incorporate other amendments, including several new amendments to allow for more open collaboration through commercialization. With regard to the additional home-use, light-based hair removal device for women, we completed certain development activities in consultation with Gillette during an eleven month program. Gillette provided us with $1.2 million and an additional $300,000 upon the completion of certain deliverables which we recognized over an eleven month period as costs were incurred and services were provided.

On December 21, 2007, we announced an amendment to the Agreement to extend the Launch Decision until no later than February 29, 2008. During this extension period, we negotiated with Gillette and P&G for a new agreement to replace the existing one. On February 29, 2008, we entered into a License Agreement with P&G and Gillette under which we granted P&G a non-exclusive license to certain patents and technology to commercialize home-use, light-based hair removal devices for women. This License Agreement terminated and replaced the Agreement.

Under the License Agreement, for the years ended December 31, 2011, 2010, and 2009, we recognized $2.2 million, $4.3 million, and $5.0 million of other revenues from P&G, respectively. Prior to the fourth quarter of 2010, other revenues consisted of $1.25 million of quarterly technology transfer payments (“TTP Quarterly Payment” as defined in the License Agreement). TTP Quarterly Payments are being made by P&G during the term of the License Agreement up to and including the quarter in which P&G launches the first Licensed Product (as defined in the License Agreement). Thereafter, TTP and royalty payments will be based on product sales as set forth in the License Agreement. TTPs, including the TTP Quarterly Payments, are non-creditable and non-refundable and there is no right of offset.  On December 9, 2010, we announced an amendment to the License Agreement with P&G and Gillette. The amendment provides additional funding from each company to meet the common goal of a successful product launch. The amendment does not change the scope of P&G's non-exclusive license to Palomar's broad patent portfolio as well as its non-exclusive license to the extensive technology developed by Palomar prior to February 28, 2008 for home-use, light-based hair removal devices for women.  Under the amended License Agreement, the parties agreed to reduce pre-commercial launch calendar quarterly payments from $1.25 million to $1.0 million for the calendar quarter ending December 31, 2010 and thereafter to $2.0 million per year for an agreed period, after which the payments return to $1.25 million per calendar quarter if no product has been launched. P&G will apply the savings, together with agreed minimum overall program funding, to accelerating product readiness and commercialization while Palomar will be paid an increased percentage of sales after commercial launch.   The payments under the amended license agreement are being recognized ratably through the expected launch term.

As of December 31, 2011 and December 31, 2010, there were $0.2 million and $0.4 million of advance payments, respectively received from P&G for which services were not yet provided and were included in deferred revenue.