NOTE 14. COMMITMENTS AND CONTINGENCIES

(a) Leases

The Company leases approximately 142,000 square feet of office space, including 127,000 square feet of office space at its corporate headquarters, pursuant to operating lease agreements expiring at various dates through December 2019. The Company has the option to extend the lease term of its corporate headquarters for an additional five years.

Future operating lease obligations as of December 31, 2014, are as follows:


Years Ending December 31,	Operating Leases
2015	$	8,008
2016		8,170
2017		8,334
2018		8,499
2019		4,431
2020 and thereafter		—

Total	$	37,442

The Company is considered the “accounting owner” for a build-to-suit property and has recorded a build-to-suit lease obligation on its December 31, 2014 consolidated balance sheet. Additional information regarding the build-to-suit lease obligation is included in Note 7, “Build-To-Suit Lease Obligation.”

Expected future lease payments under the build-to-suit lease as of December 31, 2014 are as follows:


Years Ending December 31,	Expected Cash Payments Under Build- To-Suit Lease Obligation
2015	$	2,435
2016		2,538
2017		2,614
2018		2,692
2019		2,773
2020 and thereafter		14,162

Total minimum lease payments	$	27,214

Rent expense for the years ended December 31, 2014, 2013, and 2012 was $8.1 million, $5.2 million, and $4.6 million, respectively. In addition to the amounts included in the tables above, certain lease agreements also require the Company to make additional payments during the lease term for taxes, insurance, and other operating expenses.

(b) Restricted Cash

The Company had outstanding letters of credit collateralized by restricted cash totaling $11.8 million and $9.9 million at December 31, 2014 and 2013, respectively, to secure various operating leases. At December 31, 2014, $0.2 million and $11.6 million of restricted cash associated with these letters of credit were classified as current and long-term assets, respectively, on the consolidated balance sheets. At December 31, 2013, $9.9 million of restricted cash associated with these letters of credit was 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 December 31, 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 litigation with UCLA, which are discussed in the section titled “Litigation” 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) Clinical Manufacturing Agreements

Manufacturing Services and Supply Agreement with CureTech Ltd.

Contemporaneous with the execution of the License Agreement with CureTech described in Note 4, “Business Acquisition,” the Company entered into a Manufacturing Services and Supply Agreement, or MSA, with CureTech pursuant to which CureTech will provide clinical trial supply of pidilizumab over a three year period. In accordance with the terms of the MSA, the Company paid CureTech an upfront fee of $3.0 million during the fourth quarter of 2014, which has been recorded in R&D expense in the consolidated statement of operations for the year ended December 31, 2014. The Company is required to pay CureTech a one-time milestone payment of $5.0 million upon the completion of the Manufacturing Technology Transfer, as defined. In accordance with the terms of the MSA, the Company is also responsible for providing Manufacturing Funding totaling up to $19.3 million for clinical trial materials of pidilizumab over the three-year term of the MSA. The Manufacturing Funding is contingent upon the successful achievement of the requirements set forth in the Manufacturing Plan, and any such amounts may be reduced or eliminated by the Company under the terms of the MSA.

The MSA shall commence on the Effective Date and, shall continue in force and effect until the earlier of (i) the termination of the License Agreement by the Company, or (ii) unless earlier terminated in accordance with the MSA, the third anniversary of the Effective Date. The MSA may be renewed by mutual agreement of the Parties for additional terms of one (1) year or such other time periods as the Parties may agree, upon at least six (6) months notice of such renewal. If CureTech fails to deliver minimum quantities of clinical product supply of the Licensed Molecule, the Company may terminate by written notice to CureTech any or all current and future manufacturing and supply obligations.

The Company considered the guidance in ASC 805-10-55-18, “Business Combinations—Determining What is Part of the Business Combination Transaction,” and concluded that the $5.0 million milestone payment to CureTech upon completion of the Manufacturing Technology Transfer is contingent consideration under the acquisition model and therefore is included in determining the acquisition date fair value of the consideration transferred to CureTech under the License Agreement described in Note 4, “Business Acquisition.”

Development and Manufacturing Services Agreement

During the fourth quarter of 2014, the Company entered into a Development and Manufacturing Services Agreement with a third party clinical manufacturing organization. The term of the agreement is for the longer of (i) a period of five (5) years or (ii) through the completion of the Services, as defined. Under the current statement of work under this agreement, the Company intends to transfer the current manufacturing process of pidilizumab from CureTech to this third party, further scale up and production of Phase 3 clinical trial material of pidilizumab from this entity’s manufacturing facility. The estimated total consideration under the current statement of work is approximately $14.8 million and is currently estimated to be completed in approximately 18 months. The Company will record payments pursuant to this statement of work as R&D expense in the consolidated statements of operations in the period in which the services have been performed.

(e) Research and License Agreement

In March 2014, the Company entered into a Research and License Agreement with a third party. Under the terms of the agreement, the Company paid a $12.0 million license and research agreement fee which is recorded in R&D expense in the consolidated statement of operations for the year ended December 31, 2014. The Company could also be required to pay 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.

(f) 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 significant 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 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 the 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 December 31, 2014, the Company has earned $75.0 million in sales milestones under the Astellas Collaboration Agreement, of which $50.0 million was earned in 2014 and $25.0 million was earned in 2013. The Company recorded expense of $5.0 million and $2.5 million during 2014, and 2013, respectively, within SG&A, representing 10% of the sales milestone amounts earned from Astellas. 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 been concluded. 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 Medivation 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 October 17, 2014, the briefing in Medivation’s appeal of the summary judgment order and cross-complaint order in favor of Regents, as well as its appeal of the judgment on the fraud claims against the Regents professor commenced. On October 24, 2014, the court of appeals issued an order consolidating all of these appeals for hearing and consideration purposes, so the appeals will be heard and considered together once the briefing is completed.

On April 11, 2014, UCLA filed a complaint against the Company in which UCLA alleges that Medivation and 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 Astellas 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.