NOTE 3 — COLLABORATION AGREEMENTS

(a) Collaboration Agreement with Astellas

In October 2009, the Company entered into the Astellas Collaboration Agreement pursuant to which it is collaborating with Astellas to develop and commercialize XTANDI globally. Under the agreement, decision making and economic participation differs between the U.S. market and the ex-U.S. market. In the United States, decisions are generally made by consensus, pre-tax profits and losses are shared equally, and, subject to certain exceptions, development and commercialization costs (including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s XTANDI license agreement) are also shared equally. The primary exceptions to equal cost sharing in the U.S. market are that each party bears its own commercial FTE costs, and that development costs supporting regulatory approvals in both the United States and either Europe or Japan are borne one-third by the Company and two-thirds by Astellas. The Company and Astellas are co-promoting XTANDI in the U.S. market, with each company providing half of the sales and medical affairs effort in support of the product. Both the Company and Astellas are entitled to receive a fee for each qualifying detail made by its respective sales representatives. Outside the United States, decisions are generally made by Astellas and all development and commercialization costs (including cost of goods sold and the royalty on net sales payable to UCLA) are borne by Astellas. Astellas retains all ex-U.S. profits and losses, and pays the Company a tiered, double-digit royalty on net ex-U.S. sales. Astellas has sole responsibility for promoting XTANDI outside the United States, and for recording all XTANDI sales both inside and outside the United States. Both the Company and Astellas have agreed not to commercialize certain other products having a similar mechanism of action as XTANDI for the treatment of specified indications for a specified time period, subject to certain exceptions.

Under the Astellas Collaboration Agreement, Astellas paid the Company a non-refundable, up-front cash payment of $110.0 million. The Company is also eligible to receive up to $335.0 million in development milestone payments, plus up to an additional $320.0 million in sales milestone payments. As of September 30, 2012, the Company had received an aggregate of $58.0 million in development milestone payments under the Astellas Collaboration Agreement. Under the Company’s license agreement with UCLA, the Company is required to share with UCLA ten percent of the development milestone payments that the Company earns under the Astellas Collaboration Agreement. In ongoing litigation with UCLA initiated by the Company, UCLA has alleged in a counterclaim that the Company is also required to share with UCLA ten percent of any sales milestone payments the Company may receive under the Astellas Collaboration Agreement. The Company disputes this allegation, and intends to defend its position vigorously. For more information about this litigation, see “Legal Proceedings” in Item 1 of Part II below. During the third quarter of 2012, the Company recorded an aggregate of $6.5 million in milestone-related payments to UCLA within research and development expenses, or R&D, in the Company’s consolidated statements of operations. This amount consisted of $4.5 million representing UCLA’s ten percent share of the $45.0 million in development milestone payments the Company earned during that period under the Astellas Collaboration Agreement, plus a $2.0 million milestone payment under the UCLA license agreement for receipt of regulatory approval to commercialize XTANDI in the U.S.

(b) Former Collaboration Agreement with Pfizer

The Company entered into a collaboration agreement with Pfizer in October 2008. Under the terms of the agreement, the Company and Pfizer agreed to collaborate on the development of dimebon for the treatment of Alzheimer’s disease and Huntington disease for the U.S. market. Pfizer paid the Company a non-refundable, up-front cash payment of $225.0 million. Under the terms of the former collaboration agreement with Pfizer, the Company and Pfizer shared the costs and expenses of developing and commercializing dimebon for the U.S. market on a 60%/40% basis, with Pfizer assuming the larger share. In January 2012, Pfizer exercised its right to terminate the collaboration agreement and the Company and Pfizer discontinued development of dimebon for all indications.

(c) Collaboration Revenue

Collaboration revenue consists of three components: (a) collaboration revenue attributable to U.S. XTANDI sales; (b) collaboration revenue attributable to ex-U.S. XTANDI sales; and (c) collaboration revenue attributable to up-front and milestone payments.

Collaboration revenue for the three and nine months ended September 30, 2012 and 2011 was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Collaboration revenue:
Attributable to U.S. XTANDI sales	$	7,056	$	—	$	7,056	$	—
Attributable to ex-U.S. XTANDI sales		—		—		—		—
Attributable to up-front and milestone payments		57,742		14,940		137,479		45,448

Total collaboration revenue	$	64,798	$	14,940	$	144,535	$	45,448

Collaboration Revenue Attributable to U.S. XTANDI Sales

Under the Astellas Collaboration Agreement, Astellas records all U.S. XTANDI sales. The Company and Astellas share equally all pre-tax profits and losses from U.S. XTANDI sales. Subject to certain exceptions, the Company and Astellas also share equally all XTANDI development and commercialization costs attributable to the U.S. market, including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s XTANDI license agreement. The primary exceptions to 50/50 cost sharing are that each party bears its own commercial FTE costs, and that development costs supporting regulatory approvals in both the U.S. and either Europe or Japan are borne one-third by the Company and two-thirds by Astellas. The Company recognizes collaboration revenue attributable to U.S. XTANDI sales in the period in which such sales occur. Collaboration revenue attributable to U.S. XTANDI sales consists of the Company’s share of pre-tax profits and losses from U.S. sales, plus reimbursement of the Company’s share of reimbursable U.S. development and commercialization costs. The Company’s collaboration revenue attributable to U.S. XTANDI sales in any given period will be mathematically equal to 50% of U.S. XTANDI net sales as reported by Astellas for the applicable period.

Collaboration revenue attributable to U.S. XTANDI sales for the three and nine months ended September 30, 2012 was as follows:


	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Net U.S. sales (as reported by Astellas)	$	14,112		$	14,112
Shared U.S. development and commercialization costs		(41,928	)		(41,928	)

Pre-tax U.S. profit (loss)	$	(27,816	)	$	(27,816	)

Medivation’s share of pre-tax U.S. profit (loss)	$	(13,908	)	$	(13,908	)

Reimbursement of Medivation’s share of shared U.S. costs		20,964			20,964

Collaboration revenue attributable to U.S. XTANDI sales	$	7,056		$	7,056

There was no collaboration revenue attributable to U.S. XTANDI sales for the three and nine months ended September 30, 2011.

Collaboration Revenue Attributable to Ex-U.S. XTANDI Sales

Under the Astellas Collaboration Agreement, Astellas records all ex-U.S. XTANDI sales. Astellas is responsible for all development and commercialization costs for XTANDI outside the U.S., including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s XTANDI license agreement, and pays the Company tiered, double-digit royalties on net ex-U.S. XTANDI sales. The Company recognizes collaboration revenue attributable to ex-U.S. XTANDI sales in the period in which such sales occur. Collaboration revenue attributable to ex-U.S. XTANDI sales consists of royalty payments from Astellas on those sales.

There was no collaboration revenue attributable to ex-U.S. XTANDI sales for the three and nine months ended September 30, 2012 and 2011.

Collaboration Revenue Attributable to Up-front and Milestone Payments

The Company records non-refundable, up-front payments under its current and former collaboration agreements as deferred revenue and recognizes these payments as collaboration revenue on a straight-line basis over the applicable estimated performance period. Milestone payments earned by the Company under its collaboration agreements are recognized as revenue in their entirety in the period in which the underlying milestone event is achieved, except that any milestone payments that (a) are related to the performance of the Company’s deliverables under the applicable collaboration agreement, (b) are triggered by events that occur during the performance period under the applicable collaboration agreement, and (c) do not constitute substantive milestones, are recorded as deferred revenue and recognized as collaboration revenue on a straight-line basis over the expected performance period.

Collaboration revenue attributable to up-front and milestone payments for the three and nine months ended September 30, 2012 and 2011 was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Collaboration revenue attributable to up-front and milestone payments:
From Astellas	$	52,256	$	5,936	$	65,449	$	18,436
From Pfizer		5,486		9,004		72,030		27,012

Total collaboration revenue attributable to up-front and milestone payments	$	57,742	$	14,940	$	137,479	$	45,448

Deferred revenue consisted of the following:


	September 30, 2012		December 31, 2011
Current portion:
Deferred revenue from Astellas	$	29,024	$	23,747
Deferred revenue from Pfizer		—		36,015

Total	$	29,024	$	59,762

Long-term portion:
Deferred revenue from Astellas	$	21,768	$	47,494
Deferred revenue from Pfizer		—		36,015

Total	$	21,768	$	83,509

(d) Cost-Sharing Payments

Under both the Astellas Collaboration Agreement and the former collaboration agreement with Pfizer, the Company and its collaboration partners share certain development and commercialization costs (including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s XTANDI license agreement) in the United States. The parties make quarterly cost-sharing payments to one another in amounts necessary to ensure that each party bears its contractual share of the overall shared U.S. development and commercialization costs incurred. The Company’s policy is to account for cost-sharing payments to its collaboration partners as increases in expense in its consolidated statements of operations, while cost-sharing payments by its collaboration partners to the Company are accounted for as reductions in expense. Cost-sharing payments related to development activities and commercialization activities are recorded in R&D and selling, general and administrative expenses, or SG&A, respectively.

The following table summarizes the reductions in R&D related to cost-sharing payments for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Development cost-sharing payments from Astellas	$	11,003	$	11,480	$	39,131	$	32,593
Development cost-sharing payments from Pfizer		51		2,484		1,740		10,387

Total	$	11,054	$	13,964	$	40,871	$	42,980

The following table summarizes the (increases) reductions in SG&A related to cost-sharing payments for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Commercialization cost-sharing payments (to) from Astellas	$	(1,187	)	$	176		$	(1,857	)	$	634
Commercialization cost-sharing payments (to) from Pfizer		—			(3	)		9			33

Total	$	(1,187	)	$	173		$	(1,848	)	$	667