NOTE 12 — COMMITMENTS AND CONTINGENCIES

(a) Lease Obligations

In the first quarter of 2014, the Company entered into the Fifth Amendment to its headquarters lease agreement in San Francisco, California, pursuant to which it leased approximately 29,000 additional square feet of office space. The Company is entitled to approximately $0.9 million of tenant improvement allowances pursuant to the Fifth Amendment. In connection with the execution of the Fifth Amendment, the Company delivered to the lessor a letter of credit collateralized by restricted cash totaling $2.1 million. In total, at June 30, 2014, the Company leased approximately 127,000 square feet of office space pursuant to the agreement, as amended, which expires in June 2019. Lease commitments pursuant to the Fifth Amendment are approximately $9.6 million over the term of the lease. There were no other changes to the Company’s lease obligations from that disclosed in the Company’s Annual Report.

Future operating lease obligations as of June 30, 2014, are as follows:


	Operating Leases
Years Ending December 31,
Remainder of 2014	$	3,595
2015		8,008
2016		8,170
2017		8,334
2018		8,499
2019 and thereafter		4,405

Total minimum lease payments	$	41,011

The Company is considered the “accounting owner” for a build-to-suit property and has recorded a build-to-suit lease obligation on its June 30, 2014 consolidated balance sheet. Additional information regarding the build-to-suit lease obligation is included in Note 6, “Build-To-Suit Lease Obligation.” Actual future lease payments under the build-to-suit lease are expected to be as follows for each of the periods presented:


	Expected Cash Payments Under Build- To-Suit Lease Obligation
Years Ending December 31,
Remainder of 2014	$	349
2015		2,435
2016		2,537
2017		2,614
2018		2,692
2019 and thereafter		16,935

Total minimum lease payments	$	27,562

(b) Restricted Cash

The Company had outstanding letters of credit collateralized by restricted cash totaling $12.0 million and $9.9 million at June 30, 2014, and December 31, 2013, respectively, to secure various leases, which were classified as long-term assets on the consolidated balance sheets.

(c) License Agreement with UCLA

Under an August 2005 license agreement with UCLA the Company’s subsidiary Medivation Prostate Therapeutics, Inc. holds an exclusive worldwide license under several UCLA patents and patent applications covering XTANDI and related compounds. Under the Astellas Collaboration Agreement, the Company granted Astellas a sublicense under the patent rights licensed to it by UCLA.

The Company is required to pay UCLA (a) an annual maintenance fee, (b) $2.8 million in aggregate milestone payments upon achievement of certain development and regulatory milestone events with respect to XTANDI (all of which has been paid as of June 30, 2014), (c) ten percent of all Sublicensing Income, as defined in the agreement, which the Company earns under the Astellas Collaboration Agreement, and (d) a four percent royalty on global net sales of XTANDI, as defined. Under the terms of the Astellas Collaboration Agreement, the Company shares this royalty obligation equally with Astellas with respect to sales in the United States, and Astellas is responsible for this entire royalty obligation with respect to sales outside of the United States. The Company is currently involved in certain litigation matters with UCLA, which are discussed below.

UCLA may terminate the agreement if the Company does not meet a general obligation to diligently proceed with the development, manufacturing and sale of licensed products, or if it commits any other uncured material breach of the agreement. The Company may terminate the agreement at any time upon advance written notice to UCLA. If neither party terminates the agreement early, the agreement will continue in force until the expiration of the last-to-expire patent on a country by country basis.

(d) Research and License Agreement

In March 2014, the Company entered into a Research and License Agreement with OncoFusion Therapeutics, Inc., or OncoFusion, for certain compounds targeting Bromodomain and Extra-Terminal (BET) proteins for potential use in oncology and other disease areas. Under the agreement, the Company gained exclusive worldwide rights for the development and commercialization of these compounds and will have access to OncoFusion’s growing library of small molecule BET Bromodomain inhibitor compounds from which the Company may select compounds to move forward into its drug discovery and development efforts. Under the terms of the agreement, the Company paid OncoFusion a $12.0 million license and research agreement fee during the second quarter of 2014, which was accrued at March 31, 2014. The Company could also be required to pay OncoFusion potential future development and sales milestone payments, subject to the achievement of defined clinical and commercial events, and royalties based on sales. Such future milestone and royalty payments are contingent upon future events that may or may not materialize.

(e) Litigation

The Company is party to legal proceedings, investigations, and claims in the ordinary course of its business, including the matters described below. The Company records accruals for outstanding legal matters when it believes that it is both probable that a liability has been incurred and the amount of such liability can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made. In addition, in accordance with the relevant authoritative guidance, for matters for which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, the Company will provide disclosure to that effect. Gain contingencies, if any, are recorded as a reduction of expense when they are realized.

In March 2010, the first of several putative securities class action lawsuits was commenced in the U.S. District Court for the Northern District of California, naming as defendants the Company and certain of its officers. The lawsuits are largely identical and allege violations of the Securities Exchange Act of 1934, as amended. The actions were consolidated in September 2010 and, in April 2011 the court entered an order appointing Catoosa Fund, L.P. and its attorneys as lead plaintiff and lead counsel. In March 2012, after the court dismissed with prejudice the lead plaintiff’s first and second amended complaints with prejudice, the court entered judgment in favor of defendants. Lead plaintiff filed a notice of appeal to the U.S. Circuit Court of Appeals for the Ninth Circuit in April 2012. The U.S. Circuit Court of Appeals for the Ninth Circuit affirmed the district court’s decision on March 7, 2014. As of the date of this filing, the district court’s order dismissing this matter with prejudice is final, and the matter has been formally concluded.

In May 2011, the Company filed a lawsuit in San Francisco Superior Court against the Regents of the University of California, or the Regents, and one of its professors, alleging breach of contract and fraud claims, among others. The Company’s allegations in this lawsuit include that it has exclusive commercial rights to an investigational drug known as ARN-509, which is currently being developed by Aragon Pharmaceuticals, or Aragon. In August 2013, Johnson & Johnson and Aragon completed a transaction in which Johnson & Johnson acquired all ARN-509 assets owned by Aragon. ARN-509 is an investigational drug currently in development to treat non-metastatic CRPC population. ARN-509 is a close structural analog of XTANDI, was developed contemporaneously with XTANDI in the same academic laboratories in which XTANDI was developed, and was purportedly licensed by the Regents to Aragon, a company co-founded by the heads of the academic laboratories in which XTANDI was developed. On February 9, 2012, the Company filed a Second Amended Complaint, adding as additional defendants a former Regents professor and Aragon. The Company seeks remedies including a declaration that it is the proper licensee of ARN-509, contractual remedies conferring to it exclusive patent license rights regarding ARN-509, and other equitable and monetary relief. On August 7, 2012, the Regents filed a cross-complaint against the Company seeking declaratory relief which, if granted, would require the Company to share with the Regents ten percent of any sales milestone payments it may receive under the Astellas Collaboration Agreement because such milestones constitute Sublicensing Income under the license agreement with UCLA. Under the Astellas Collaboration Agreement, the Company is eligible to receive up to $320.0 million in sales milestone payments. As of June 30, 2014, the Company has earned $25.0 million in sales milestones under the Astellas Collaboration Agreement. The Company recorded a $2.5 million accrued payment to UCLA at December 31, 2013, representing ten percent of the $25.0 million sales milestone payment, which was paid to UCLA during the first quarter of 2014. On September 18, 2012, the trial court approved a settlement agreement dismissing the former Regents professor who was added to the case on February 9, 2012. On December 20, 2012, and January 25, 2013, the Court granted summary judgment motions filed by defendants Regents and Aragon, resulting in dismissal of all claims against Regents and Aragon, but denied such motions filed by the remaining Regents professor. On April 15, 2013, the Company filed a Notice of Appeal seeking appeal of the judgment in favor of Aragon, which is now wholly-owned by Johnson & Johnson, and the briefing of that matter has commenced. The bench trial of the Regent’s cross-complaint against the Company was conducted in July 2013, and on January 15, 2014, the Court entered a judgment in the cross-complaint in favor of Regents, which the Company appealed on February 13, 2014 along with the December 2012 summary judgment order in favor of Regents. The jury trial of the Company’s breach of contract and fraud claims against the remaining Regents professor was conducted in October and November 2013. On November 15, 2013, the jury rendered a verdict in the case, finding in favor of the Company on the breach of contract claim, and in favor of the Regents professor on the fraud claims. On November 22, 2013, the Court entered judgment for the prevailing party Medivation on the contract claim, and entering judgment in favor of the Regents professor on the fraud claims. The Company’s notice of appeal of the judgment on the fraud claims was filed on February 13, 2014. On April 11, 2014, UCLA filed a complaint against the Company in which UCLA alleges that Medivation and Medivation Prostate Therapeutics, Inc. (MPT) have failed to pay UCLA ten percent of “Operating Profits” Medivation has received (and will continue to receive) from Astellas, as a result of the 2009 Collaboration Agreement, and that Medivation has breached its fiduciary duties to UCLA, as minority shareholder of MPT. On July 16, 2014, UCLA dismissed without prejudice its claim that Medivation breached its fiduciary duties to UCLA, as a minority shareholder of MPT. The Company denies UCLA’s allegations and intends to vigorously defend the litigation.

While the Company believes it has meritorious positions with respect to the claims asserted against it and intends to advance its positions in these lawsuits vigorously, including on appeal, the process of resolving matters through litigation or other means is inherently uncertain, and it is not possible to predict the ultimate resolution of any such proceeding. The actual costs of defending the Company’s position may be significant, and the Company may not prevail. The Company believes it is entitled to coverage under its relevant insurance policies with respect to the putative securities class action lawsuits, subject to a $350,000 retention, but coverage could be denied or prove to be insufficient.