NOTE 9. LIABILITY RELATED TO SALE OF FUTURE ROYALTIES

In October 2013, as noted above, we sold our interests in royalty and milestone payments under our license agreements in the Type 2 diabetes therapeutic area to PDL for $240.5 million. Until September 30, 2014, this transaction was accounted for as debt that was amortized using the interest method over the life of the arrangement. In order to determine the amortization of the debt, the Company is required to estimate the total amount of future royalty payments to be received by PDL and payments the Company is required to make to PDL, if any, over the life of the arrangement. The sum of these amounts less the $240.5 million proceeds the Company received will be recorded as interest expense over the life of the debt. Consequently, the Company imputes interest on the unamortized portion of the debt and records interest expense using an estimated interest rate for an arms-length debt transaction. Our estimate of the interest rate under the arrangement is based on the amount of royalty and milestone payments expected to be received by PDL over the life of the arrangement. Our estimate of this total interest expense resulted in an effective annual interest rate of approximately 10%.

As a result of the debt accounting, even though we did not retain the related royalties and milestones under the transaction (as the amounts are remitted to PDL), we continued to record revenue related to these royalties and milestones until September 30, 2014. We recognized $242.8 million and $18.1 million of non-cash revenue associated with the PDL Transaction for the years ended December 31, 2014 and December 31, 2013, respectively.

Effective October 1, 2014, the Company, Valeant, Salix and PDL executed an amended agreement which eliminated any and all continuing obligations on the part of the Company in the supply of 1000mg Glumetza tablets. Consequently, the entire outstanding balance of the liability related to the sale of future royalties and milestones of approximately $147.0 million was recognized within "Non-cash PDL royalty revenue" in the accompanying Consolidated Statement of Operations.

The following table shows the activity within the liability account during the year ended December 31, 2014 (in thousands):

Liability related to sale of future royalties as of December 31, 2013	$	227,079
Non-cash interest expense recognized until September 30, 2014		14,646
Amounts collected and remitted to PDL until September 30, 2014		(75,314	)

Total liability related to sale of future royalties as of September 30, 2014		166,411
Amounts collected and remitted to PDL in Q4, 2014 relating to Q3, 2014		(19,455	)
Income recognized in Q4, 2014		(146,956	)

Total liability related to sale of future royalties as of December 31, 2014	$	—