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Collaboration Agreements
12 Months Ended
Dec. 31, 2013
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Collaboration Agreements

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 The Regents of the University of California, or UCLA (or the Regents), 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 is responsible for its own commercial full-time equivalent, or FTE, costs, and that development costs supporting marketing 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. XTANDI 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 and up to $320.0 million in sales milestone payments. As of December 31, 2013, the Company has earned an aggregate of $78.0 million in development milestone payments and $25.0 million in sales milestone payments under the Astellas Collaboration Agreement. The Company expects that any of the remaining $257.0 million in development milestone payments and the remaining $295.0 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 triggering events for the remaining $257.0 million in development milestone payments the Company is eligible to receive under the Astellas Collaboration Agreement are as follows:

 

Milestone Event

   4th line  prostate cancer
patients(1)
    3rd line  prostate cancer
patients(2)
     2nd 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 )    $ 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

     (5 )    $ 15 million       $ 30 million   

Japan

   $  15 million      $ 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 $7.0 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 $78.0 million have been received as of December 31, 2013.

The triggering events for the remaining $295.0 million in sales milestone payments the Company is eligible to receive are as follows:

 

Annual Global Net Sales in a Calendar Year

  

Milestone Payment(1)

$800 million

   $50 million

$1.2 billion

   $70 million

$1.6 billion

   $175 million

 

(1) Each milestone shall only be paid once during the term of the Astellas Collaboration Agreement.

Under the Company’s license agreement with UCLA, the Company is required to share with UCLA ten percent of all Sublicensing Income, as defined in the agreement, which the Company earns under the Astellas Collaboration Agreement. In ongoing litigation with UCLA initiated by the Company, UCLA has alleged in a cross-complaint that the Company is required to share with UCLA ten percent of any sales milestone payments the Company may receive under the Astellas Collaboration Agreement because such milestones constitute Sublicensing Income under the license agreement with UCLA. The Company disputes this allegation and appealed the Court’s judgment in the cross-complaint in favor of Regents on February 13, 2014 along with other matters in the litigation unrelated to the cross-complaint. For more information about this litigation, see Note 12, “Commitments and Contingencies.”

 

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. 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. Amortization of the full Pfizer up-front payment was completed upon completion of the Company’s performance obligations in the third quarter of 2012.

(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:

 

     Years Ended December 31,  
     2013      2012      2011  

Collaboration revenue:

        

Attributable to U.S. XTANDI sales

   $ 196,208       $ 35,752      $ —    

Attributable to ex-U.S. XTANDI sales

     6,338        —          —    

Attributable to up-front and milestone payments

     70,396         145,944         60,389   
  

 

 

    

 

 

    

 

 

 

Total

   $ 272,942       $ 181,696       $ 60,389   
  

 

 

    

 

 

    

 

 

 

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 is responsible for its own commercial FTE costs and that development costs supporting marketing 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 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 was as follows:

 

     Years Ended
December 31,
 
     2013     2012  

Net U.S. sales (as reported by Astellas)

   $ 392,415      $ 71,504   

Shared U.S. development and commercialization costs

     (241,106     (88,908
  

 

 

   

 

 

 

Pre-tax U.S. profit (loss)

   $ 151,309      $ (17,404
  

 

 

   

 

 

 

Medivation’s share of pre-tax U.S. profit (loss)

   $ 75,655      $ (8,702

Reimbursement of Medivation’s share of shared U.S. costs

     120,553        44,454   
  

 

 

   

 

 

 

Collaboration revenue attributable to U.S. XTANDI sales

   $ 196,208      $ 35,752   
  

 

 

   

 

 

 

XTANDI first became available for shipment on September 13, 2012. Collaboration revenue attributable to U.S. XTANDI sales for the year ended December 31, 2012 represents U.S. XTANDI sales from September 13, 2012 through December 31, 2012. There was no collaboration revenue attributable to U.S. XTANDI sales for the year ended December 31, 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 United States, 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 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 royalties from Astellas on those sales.

Collaboration revenue attributable to ex-U.S. XTANDI sales was $6.3 million for the year ended December 31, 2013. There was no collaboration revenue attributable to ex-U.S. XTANDI sales for the years ended December 31, 2012 or 2011.

Collaboration Revenue Attributable to Up-front and Milestone Payments

Collaboration revenue attributable to up-front and milestone payments was as follows:

 

     Years Ended December 31,  
     2013      2012      2011  

Collaboration revenue attributable to up-front and milestone payments:

        

From Astellas

   $ 70,396       $ 73,914       $ 24,374   

From Pfizer

     —           72,030         36,015   
  

 

 

    

 

 

    

 

 

 

Total

   $ 70,396       $ 145,944       $ 60,389   
  

 

 

    

 

 

    

 

 

 

 

Deferred revenue under the Astellas Collaboration Agreement consisted of the following:

 

     December 31,  
     2013      2012  

Current

   $ 16,931       $ 33,862   

Long-term

     —          8,465   
  

 

 

    

 

 

 

Total

   $ 16,931       $ 42,327   
  

 

 

    

 

 

 

(d) Cost-Sharing Payments

The following table summarizes the reductions in R&D expenses related to development cost sharing payments:

 

     Years Ended December 31,  
     2013      2012      2011  

Development cost-sharing payments from Astellas

   $ 46,594       $ 47,473       $ 44,285   

Development cost-sharing payments from Pfizer

     —          1,740         12,365   
  

 

 

    

 

 

    

 

 

 

Total

   $ 46,594       $ 49,213       $ 56,650   
  

 

 

    

 

 

    

 

 

 

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

 

     Years Ended December 31,  
     2013     2012     2011  

Commercialization cost-sharing payments to Astellas

   $ (11,973   $ (3,437   $ (472

Commercialization cost-sharing payments from Pfizer

     —         9        32   
  

 

 

   

 

 

   

 

 

 

Total

   $ (11,973   $ (3,428   $ (440
  

 

 

   

 

 

   

 

 

 

(e) Collaboration Receivable

At December 31, 2013 and 2012, collaboration receivable from Astellas was $107.2 million and $35.5 million, respectively. The amounts receivable at December 31, 2013 and 2012 were received in the first quarter of 2014 and 2013, respectively.