AGREEMENTS WITH GLAXOSMITHKLINE

6 Months Ended

Jun. 30, 2011

AGREEMENTS WITH GLAXOSMITHKLINE

AGREEMENTS WITH GLAXOSMITHKLINE

NOTE 8. AGREEMENTS WITH GLAXOSMITHKLINE

        In October 2009, we entered into agreements with GlaxoSmithKline ("GSK") under which we will collaborate with GSK over a period of five years to discover and develop specific epigenetic therapeutics.

        The total deferred revenue related to GSK of $2,545,000 is being recognized ratably over five years, the expected term of our substantive performance obligations under the collaboration. We recognized $127,000 of the deferred revenue as development and license revenue in both the three months ended June 30, 2011 and 2010. We recognized $254,000 of the deferred revenue as development and license revenue in both the six months ended June 30, 2011 and 2010.

        As noted in further detail in our Annual Report on Form 10-K for the year ended December 31, 2010, GSK is obligated to make certain additional payments to us if and when the compounds reach specified developmental goals, as well as payments to us if and when the compounds that GSK has licensed achieve certain regulatory goals. The License Agreement further provides that if the licensed compounds derived from the joint research team become products, GSK will pay us sales achievement payments as well as royalties on annual net sales of such products. Total potential development and commercialization payments payable to us could exceed $375 million. Revenues associated with substantive, at-risk milestones pursuant to this collaborative agreement, representing $75 million of this total, will be recognized upon achievement of the milestones. We consider a milestone to be substantive at the inception of the arrangement if it is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, it relates solely to past performance, and it is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-refundable contingent future amounts receivable in connection with future events specified in the collaboration agreement that are not considered milestones will be recognized as revenue when payments are earned from our collaborators through completion of any underlying performance obligations, the amounts are fixed or determinable, and collectibility is reasonably assured.