NOTE 3. COLLABORATION AGREEMENTS

(a) Collaboration Agreement with Astellas

In October 2009, the Company entered into a collaboration agreement with Astellas, or 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 (“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 the 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 defined by the Astellas Collaboration Agreement) as XTANDI for the treatment of prostate cancer for a specified time period, subject to certain exceptions.

Under the Astellas Collaboration Agreement, Astellas paid the Company a non-refundable, upfront 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, 2014, the Company has earned all of the $335.0 million in development milestone payments and $75.0 million in sales milestone payments under the Astellas Collaboration Agreement. The Company expects that any of the remaining $245.0 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 sales milestone payments are as follows:


Annual Global Net Sales in a Calendar Year		Milestone Payment⁽¹⁾
$400 million		⁽²⁾
$800 million		⁽³⁾
$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.

(2)	This milestone totaling $25.0 million was earned and recognized as collaboration revenue during the fourth quarter of 2013 and payment was received in the first quarter of 2014.

(3)	This milestone totaling $50.0 million was earned and recognized as collaboration revenue during the fourth quarter of 2014 and is included in receivable from collaboration partner on the consolidated balance sheet at December 31, 2014. Payment was received during the first quarter of 2015.

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, upfront 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 upfront 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 related to U.S. XTANDI sales; (b) collaboration revenue related to ex-U.S. XTANDI sales; and (c) collaboration revenue related to upfront and milestone payments.

Collaboration revenue was as follows:


	Years Ended December 31,
	2014		2013		2012
Collaboration revenue:
Related to U.S. XTANDI sales	$	339,902	$	196,208	$	35,752
Related to ex-U.S. XTANDI sales		49,476		6,338		—
Related to upfront and milestone payments		321,109		70,396		145,944

Total	$	710,487	$	272,942	$	181,696

Collaboration Revenue Related 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 the equal 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 related to U.S. XTANDI sales in the period in which such sales occur. Collaboration revenue related 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 related to U.S. XTANDI sales in any given period is equal to 50% of U.S. XTANDI net sales as reported by Astellas for the applicable period.

Collaboration revenue related to U.S. XTANDI sales was as follows:


	Years Ended December 31,
	2014			2013			2012
U.S. XTANDI sales (as reported by Astellas)	$	679,805		$	392,415		$	71,504
Shared U.S. development and commercialization costs		(323,730	)		(241,106	)		(88,908	)

Pre-tax U.S. profit (loss)	$	356,075		$	151,309		$	(17,404	)

Medivation’s share of pre-tax U.S. profit (loss)	$	178,037		$	75,655		$	(8,702	)
Reimbursement of Medivation’s share of shared U.S. costs		161,865			120,553			44,454

Collaboration revenue related to U.S. XTANDI sales	$	339,902		$	196,208		$	35,752

XTANDI first became available for shipment on September 13, 2012. Collaboration revenue related 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.

Collaboration Revenue Related 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 related to ex-U.S. XTANDI sales in the period in which such sales occur. Collaboration revenue related to ex-U.S. XTANDI sales consists of royalties from Astellas on those sales.

Collaboration revenue related to ex-U.S. XTANDI sales was $49.5 million and $6.3 million for the years ended December 31, 2014 and 2013, respectively. There was no collaboration revenue related to ex-U.S. XTANDI sales for the year ended December 31, 2012.

Collaboration Revenue Related to Upfront and Milestone Payments

Collaboration revenue related to upfront and milestone payments was as follows:


	Years Ended December 31,
	2014		2013		2012
From Astellas:
Development milestones earned	$	257,000	$	20,000	$	45,000
Sales milestones earned		50,000		25,000		—
Amortization of deferred upfront and development milestones		14,109		25,396		28,914

		321,109		70,396		73,914
From Pfizer:
Amortization of deferred upfront and development milestones		—		—		72,030

Total	$	321,109	$	70,396	$	145,944

Deferred revenue under the Astellas Collaboration Agreement was $2.8 million and $16.9 million at December 31, 2014 and 2013, respectively.

(d) Cost-Sharing Payments

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


	Years Ended December 31,
	2014		2013		2012
Development cost-sharing payments from Astellas	$	63,479	$	46,594	$	47,473
Development cost-sharing payments from Pfizer		—		—		1,740

Total	$	63,479	$	46,594	$	49,213

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


	Years Ended December 31,
	2014			2013			2012
Commercialization cost-sharing payments to Astellas	$	(36,094	)	$	(11,973	)	$	(3,437	)
Commercialization cost-sharing payments from Pfizer		—			—			9

Total	$	(36,094	)	$	(11,973	)	$	(3,428	)

(e) Collaboration Receivable

At December 31, 2014 and 2013, collaboration receivable from Astellas was $184.7 million and $107.2 million, respectively. The amounts receivable at December 31, 2014 and 2013 were received in the first quarter of 2015 and 2014, respectively.