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 license agreement with UCLA) are also shared equally. The primary exceptions to equal cost sharing in the U.S. market are that each party bears its own commercial full-time equivalent, or 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 royalty ranging from the low teens to the low twenties on any aggregate net sales of XTANDI outside the United States, or 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 in the fourth quarter of 2009. 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 December 31, 2012, the Company had received an aggregate of $58.0 million in development milestone payments under the Astellas Collaboration Agreement. The Company expects that any of the remaining $277.0 million in substantive development milestone payments and the $320.0 million in sales milestone payments that the Company may earn in future periods will be recognized as revenue in their entirety in the period in which the underlying milestone event is achieved.

The remaining $277.0 million in substantive development milestone payments the Company is eligible to receive under the Astellas Collaboration Agreement are as follows:

Milestone Event

4^th line prostate cancer
patients⁽¹⁾

3^rd line prostate cancer
patients⁽²⁾

2^nd line prostate cancer
patients⁽³⁾⁽⁴⁾

First acceptance for filing of a marketing application in:

The U.S.

⁽⁵⁾

10 million

15 million

The first major country in Europe

⁽⁵⁾

5 million

10 million

Japan

5 million

10 million

First approval of a marketing application in:

The U.S.

⁽⁵⁾

30 million

60 million

The first major country in Europe

15 million

30 million

Japan

15 million

30 million

(1)

Defined as prostate cancer patients who meet each of the following three criteria: (a) prior treatment failure on either (i) one or more luteinizing hormone-releasing hormone, or LHRH, analog drugs or (ii) surgical castration; (b) prior treatment failure on one or more androgen receptor antagonist drugs; and (c) prior treatment failure on chemotherapy.

(2)

Defined as prostate cancer patients who meet each of the following three criteria: (a) prior treatment failure on either (i) one or more LHRH analog drugs or (ii) surgical castration; (b) prior treatment failure on one or more androgen receptor antagonist drugs; and (c) no prior exposure to chemotherapy for prostate cancer.

(3)	Defined as prostate cancer patients who meet each of the following two criteria: (a) prior treatment failure on either (i) one or more LHRH analog drugs or (ii) surgical castration; and (b) no prior treatment failure on one or more androgen receptor antagonist drugs.

(4)

An additional milestone payment of $7 million is payable upon the first to occur of: (a) first approval of a marketing application in the United States with a label encompassing 2nd line prostate cancer patients; (b) first approval of a marketing application in the first major country in Europe with a label encompassing 2nd line prostate cancer patients; (c) first approval of a marketing application in Japan with a label encompassing 2nd line prostate cancer patients; or (d) first patient dosed in a Phase 3 clinical trial other than the PREVAIL trial that is designed specifically to support receipt of marketing approval in 2nd line patients.

(5)	These milestone payments totaling $58.0 million have been previously earned and the related payments have been received.

Under the Company’s license agreement with UCLA, and subsequent amendments to this agreement, 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 Note 12, “Commitments and Contingencies.” During the year ended December 31, 2012, the Company recorded an aggregate of $6.5 million in milestone-related payments to UCLA within R&D expenses in the consolidated statements of operations. This amount consisted of $4.5 million representing UCLA’s ten percent share of the $45.0 million in substantive 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. During the years ended December 31, 2011 and 2010, the Company recorded $0.3 million and $1.0 million, respectively, of milestone-related payments to UCLA within R&D expenses in the consolidated statements of operations, representing UCLA’s ten percent share of development milestone payments received from Astellas for the respective period.

The Company and Astellas are each permitted to terminate the Astellas Collaboration Agreement for an uncured material breach by the other party or for the insolvency of the other party. Astellas has a right to terminate the Astellas Collaboration Agreement unilaterally by advance written notice to the Company, but, except in certain specified circumstances, generally cannot exercise that termination right until the first anniversary of XTANDI’s first commercial sale. Following any termination of the Astellas Collaboration Agreement in its entirety, all rights to develop and commercialize XTANDI will revert to the Company, and Astellas will grant a license to the Company to enable it to continue such development and commercialization. In addition, except in the case of a termination by Astellas for the Company’s material breach, Astellas will supply XTANDI to the Company during a specified transition period.

Unless terminated earlier by the Company or Astellas pursuant to the terms thereof, the Astellas Collaboration Agreement will remain in effect: (a) in the United States, until such time as Astellas notifies the Company that Astellas has permanently stopped selling products covered by the Astellas Collaboration Agreement in the United States; and (b) in each other country of the world, on a country-by-country basis, until such time as (i) products covered by the Astellas Collaboration Agreement cease to be protected by patents or regulatory exclusivity in such country and (ii) commercial sales of generic equivalent products have commenced in such country.

(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 and commercialization of its former product candidate 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 in the fourth quarter of 2008. 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 due to the negative Phase 3 trial results in both 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 was as follows for the periods presented:


	Years Ended December 31,
	2012		2011		2010
Collaboration revenue:
Attributable to U.S. XTANDI sales	$	35,752	$	—	$	—
Attributable to ex-U.S. XTANDI sales		—		—		—
Attributable to up-front and milestone payments		145,944		60,389		62,508

Total	$	181,696	$	60,389	$	62,508

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 license agreement with UCLA. 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 year ended December 31, 2012, was as follows:


	Year Ended December 31, 2012
Net U.S. sales (as reported by Astellas)	$	71,504
Shared U.S. development and commercialization costs		(88,908	)

Pre-tax U.S. profit (loss)	$	(17,404	)

Medivation’s share of pre-tax U.S. profit (loss)	$	(8,702	)
Reimbursement of Medivation’s share of shared U.S. costs		44,454

Collaboration revenue attributable to U.S. XTANDI sales	$	35,752

Collaboration revenue attributable to U.S. XTANDI sales for the year ended December 31, 2012, represents U.S. XTANDI sales from September 13, 2012, when XTANDI first became available for shipment, through December 31, 2012. There was no collaboration revenue attributable to U.S. XTANDI sales for the years ended December 31, 2011 and 2010.

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 license agreement with UCLA, and pays the Company a tiered royalty ranging from the low teens to the low twenties on net ex-U.S. XTANDI sales. The Company will recognize 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 royalties from Astellas on those sales.

There was no collaboration revenue attributable to ex-U.S. XTANDI sales for the years ended December 31, 2012, 2011 or 2010.

Collaboration Revenue Attributable to Up-front and Milestone Payments

Through December 31, 2012, the Company has received an aggregate of $168.0 million of payments from Astellas, consisting of an up-front payment of $110.0 million and development milestone payments of $58.0 million, and $225.0 million of up-front payments under its former collaboration agreement with Pfizer. The following table summarizes collaboration revenue attributable to up-front and milestone payments for the periods presented:


	Years Ended December 31,
	2012		2011		2010
Collaboration revenue attributable to up-front and milestone payments:
From Astellas	$	73,914	$	24,374	$	23,492
From Pfizer		72,030		36,015		39,016

Total	$	145,944	$	60,389	$	62,508

Deferred revenue consisted of the following as of the dates presented:


	December 31,
	2012		2011
Current portion of deferred revenue:
From Astellas	$	33,862	$	23,747
From Pfizer		—		36,015

Total	$	33,862	$	59,762

Long-term portion of deferred revenue:
From Astellas	$	8,465	$	47,494
From Pfizer		—		36,015

Total	$	8,465	$	83,509

(d) Cost-Sharing Payments

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


	Years Ended December 31,
	2012		2011		2010
Development cost-sharing payments from Astellas	$	47,473	$	44,285	$	34,125
Development cost-sharing payments from Pfizer		1,740		12,365		29,139

Total	$	49,213	$	56,650	$	63,264

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


	Years Ended December 31,
	2012			2011			2010
Commercialization cost-sharing payments (to) from Astellas	$	(3,437	)	$	(472	)	$	520
Commercialization cost-sharing payments from (to) Pfizer		9			32			(1,084	)

Total	$	(3,428	)	$	(440	)	$	(564	)

(e) Collaboration Receivables

At December 31, 2012 and 2011, collaboration receivables from Astellas and Pfizer were as follows:


	December 31,
	2012		2011
From Astellas	$	35,458	$	10,554
From Pfizer		—		1,991

Total	$	35,458	$	12,545

The amounts receivable at December 31, 2012, from Astellas were received in the first quarter of 2013.