NOTE 14. COMMITMENTS AND CONTINGENCIES

(a) Lease Obligations

In the first quarter of 2015, the Company entered into the Sixth Amendment to its corporate headquarters lease agreement in San Francisco, California, pursuant to which it leased approximately 16,000 additional square feet of office space. The Company is entitled to approximately $0.3 million of tenant improvement allowances pursuant to the Sixth Amendment. In connection with the execution of the Sixth Amendment, the Company delivered to the lessor a letter of credit collateralized by restricted cash totaling $1.6 million. In total, at June 30, 2015, the Company leased approximately 143,000 square feet of office space pursuant to the lease agreement, as amended, which expires in June 2019. Lease commitments pursuant to the Sixth Amendment are approximately $6.1 million over the term of the lease.

Future operating lease obligations as of June 30, 2015 are as follows:


Years Ending December 31,	Operating Leases
Remainder of 2015	$	4,569
2016		9,345
2017		9,544
2018		9,746
2019		5,065
2020 and thereafter		—

Total minimum lease payments	$	38,269

The Company is considered the “accounting owner” for a build-to-suit property and has recorded a build-to-suit lease obligation on its consolidated balance sheets. Additional information regarding the build-to-suit lease obligation is included in Note 8, “Build-To-Suit Lease Obligation.”

Expected future lease payments under the build-to-suit lease as of June 30, 2015 are as follows:


Years Ending December 31,	Expected Cash Payments Under Build- To-Suit Lease Obligation
Remainder of 2015	$	1,177
2016		2,168
2017		2,233
2018		2,300
2019		2,368
2020 and thereafter		12,028

Total minimum lease payments	$	22,274

(b) Restricted Cash

The Company had outstanding letters of credit collateralized by restricted cash totaling $13.3 million and $11.8 million at June 30, 2015 and December 31, 2014, respectively, to secure various operating leases. At June 30, 2015, $0.6 million and $12.7 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, 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.

(c) License Agreement with UCLA

Under an August 2005 license agreement with UCLA, the Company’s subsidiary Medivation Prostate Therapeutics, Inc., or MPT, 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, 2015), (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 is 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 Agreements

Contemporaneous with the execution of the License Agreement with CureTech, the Company entered into a Manufacturing Services and Supply Agreement, or MSA, with CureTech pursuant to which CureTech will provide clinical trial supply of MDV9300 over a three year period. In accordance with the terms of the MSA, as amended on June 29, 2015, the Company paid CureTech upfront and setup fees of $3.0 million during the fourth quarter of 2014 and $0.2 million during the second quarter of 2015. 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 MDV9300 over the three-year term of the MSA, of which $6.0 million has been paid through June 30, 2015. 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.

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 MDV9300 from CureTech to this third party, further scale up and production of Phase 3 clinical trial material of MDV9300 from this entity’s manufacturing facility. The estimated total consideration under the current statement of work is approximately $14.5 million, of which approximately $1.0 million has been paid through June 30, 2015.

(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 was recorded in R&D expense in the consolidated statement of operations for the three months ended March 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, 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 originally 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. Since its acquisition by Johnson & Johnson, ARN-509 is now known as JNJ-56021927, or JNJ-927. JNJ-927 is an investigational drug currently in development to treat the non-metastatic CRPC population. JNJ-927 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 additional breach of contract claims against the Regents professor and adding as additional defendants a former Regents professor and Aragon. The Company seeks remedies including a declaration that it is the proper licensee of JNJ-927, contractual remedies conferring to it exclusive patent license rights regarding JNJ-927, and other equitable and monetary relief. On August 7, 2012, the Regents filed a cross-complaint against the Company seeking declaratory relief that that the Regents is entitled to ten percent of any sales milestone payments under the Astellas Collaboration Agreement because such milestones constitute Sublicensing Income under the license agreement with the Regents. Under the Astellas Collaboration Agreement, the Company is eligible to receive up to $320.0 million in sales milestone payments. 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 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. As of June 30, 2015, the Company has earned $75.0 million in sales milestones under the Astellas Collaboration Agreement, and as a result of this judgment, the Company has paid the Regents $7.5 million, representing 10% of the sales milestone amounts earned from Astellas. The Company appealed this judgment 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 one of the breach of contract claims, and in favor of the Regents professor on the fraud claims. On November 22, 2013, the Court entered judgment consistent with the jury’s verdict. The Company’s notice of appeal of the judgment on the fraud claims was filed on February 13, 2014. On October 24, 2014, the court of appeals issued an order consolidating all of these appeals for hearing and consideration purposes. The briefing of all appeals has completed and the parties await the setting of a date for oral argument by the appellate court.

On April 11, 2014, the Regents filed a complaint against the Company in which UCLA alleges that the “Operating Profits” Medivation has received (and will continue to receive) from Astellas, as a result of the Astellas Collaboration Agreement, constitute Sublicensing Income under the license agreement between Medivation and the Regents and that Medivation and MPT have failed to pay the Regents ten percent of such Operating Profits. Although the Regents further alleged that Medivation breached its fiduciary duties to the Regents, as minority shareholder of MPT, the Regents dismissed this claim without prejudice on July 16, 2014. On March 23, 2015, based upon an application by both the Company and the Regents, the court designated the case complex and assigned a single judge in the complex division of San Francisco Superior Court. The Company denies the Regents’ allegations and intends to vigorously defend the litigation.

While the Company believes it has meritorious positions with respect to the claims above 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.