LIABILITY RELATED TO SALE OF FUTURE ROYALTIES	6 Months Ended
Jun. 30, 2014
LIABILITY RELATED TO SALE OF FUTURE ROYALTIES
LIABILITY RELATED TO SALE OF FUTURE ROYALTIES	NOTE 8. LIABILITY RELATED TO SALE OF FUTURE ROYALTIES In October 2013, the Company sold its interests in royalty and milestone payments under its license agreements in the Type 2 diabetes therapeutic area to PDL for $240.5 million. The Company has significant continuing involvement in the PDL Transaction primarily due to an obligation to act as the intermediary for the supply of 1000mg Glumetza to Salix, the licensee of Glumetza. Under the relevant accounting guidance, because of the Company’s significant continuing involvement, the PDL Transaction has been accounted for as debt and is being 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 that is based on the amount and timing 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%. The Company periodically assesses the expected royalty and milestone payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, the Company will prospectively adjust the amortization of the debt and the interest rate. As royalties are remitted to PDL from Depo DR Sub as described at Note 1 above, the balance of the debt will be effectively repaid over the life of the agreement. The Company will record non-cash royalty revenues and non-cash interest expense within its condensed consolidated statement of operations over the term of the agreement signed in connection with the PDL Transaction. The Company recognized $33.3 million and $76.1 million in non-cash royalty revenue for the three and six months ended June 30, 2014. The Company incurred $4.9 million and $10.3 million in non- cash interest expense for the three and six months ended June 30, 2014. As of June 30, 2014, the liability related to the PDL Transaction was $194.9 million. In addition the amount receivable from our collaborative partners with respect to the PDL Transaction was $33.2 million which has been reflected within “Receivables from collaborative partners” in the accompanying condensed consolidated balance sheets as of June 30, 2014. The amounts receivable from our collaborative partners with respect to the PDL Transaction was $6.9 million as of December 31, 2013.

NOTE 8. LIABILITY RELATED TO SALE OF FUTURE ROYALTIES

In October 2013, the Company sold its interests in royalty and milestone payments under its license agreements in the Type 2 diabetes therapeutic area to PDL for $240.5 million. The Company has significant continuing involvement in the PDL Transaction primarily due to an obligation to act as the intermediary for the supply of 1000mg Glumetza to Salix, the licensee of Glumetza. Under the relevant accounting guidance, because of the Company’s significant continuing involvement, the PDL Transaction has been accounted for as debt and is being 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 that is based on the amount and timing 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%.

The Company periodically assesses the expected royalty and milestone payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, the Company will prospectively adjust the amortization of the debt and the interest rate.

As royalties are remitted to PDL from Depo DR Sub as described at Note 1 above, the balance of the debt will be effectively repaid over the life of the agreement. The Company will record non-cash royalty revenues and non-cash interest expense within its condensed consolidated statement of operations over the term of the agreement signed in connection with the PDL Transaction. The Company recognized $33.3 million and $76.1 million in non-cash royalty revenue for the three and six months ended June 30, 2014. The Company incurred $4.9 million and $10.3 million in non- cash interest expense for the three and six months ended June 30, 2014.

As of June 30, 2014, the liability related to the PDL Transaction was $194.9 million. In addition the amount receivable from our collaborative partners with respect to the PDL Transaction was $33.2 million which has been reflected within “Receivables from collaborative partners” in the accompanying condensed consolidated balance sheets as of June 30, 2014. The amounts receivable from our collaborative partners with respect to the PDL Transaction was $6.9 million as of December 31, 2013.