License and Collaboration Agreements

Alimera Sciences, Inc.

In February 2005, the Company granted Alimera an exclusive worldwide license to manufacture, develop, market and sell ILUVIEN for the treatment and prevention of eye diseases in humans other than uveitis. Under the collaboration agreement, the Company and Alimera agreed to collaborate on the development of ILUVIEN for DME and to share the development expenses equally.

In connection with a March 2008 amendment (as amended, the “Alimera Agreement”), the Company received $12.0 million in cash and a $15.0 million conditional, interest-bearing note, Alimera cancelled $5.7 million of accrued development cost liabilities then owed by the Company, Alimera agreed that it would pay a $25.0 million milestone payment upon FDA approval of ILUVIEN for DME and would assume all financial responsibility for the development of licensed products under the Alimera Agreement, which had previously been shared equally. In exchange, the Company decreased its share in any future net profits, as defined, on sales of ILUVIEN by Alimera from 50% to 20%, measured quarterly on a country-by-country basis, subject to an offset of 20% of pre-profitability net losses, as defined, previously incurred by Alimera on a country-by-country basis. In the event that Alimera sublicenses commercialization, the Company is entitled to 20% of royalties and 33% of non-royalty consideration received by Alimera, less certain permitted deductions.

The Company considered the Alimera Agreement to be a revenue arrangement with multiple deliverables and, having determined that its deliverables did not have stand-alone value, concluded that the deliverables represented a single unit of accounting. The terms of the Alimera Agreement defined the end period of the Company’s performance obligations as December 31, 2009 and, accordingly, the total initial consideration of $18.3 million was deferred and recognized as revenue on a straight-line basis over the 21.5 month performance period ended December 31, 2009. Additional cash consideration received from Alimera during the performance period, which consisted of conditional note interest payments and development cost reimbursements, was recognized as revenue during the performance period using the cumulative catch-up method. As a conditional payment obligation, the $15.0 million Alimera note was not recorded as an asset but instead treated as contingent future revenue consideration. Amounts received from Alimera subsequent to December 31, 2009, including payment in full of the conditional note in April 2010, were, and any future milestone and profit share payments will be, recognized as revenue upon receipt or at such earlier date, if applicable, on which any such amount is both fixed and determinable and reasonably assured of collectibility.

Revenue related to the Alimera Agreement totaled $5,000 and $19,000 for the three months ended March 31, 2013 and 2012, respectively, as well as $44,000 and $73,000 for the nine months ended March 31, 2013 and 2012, respectively.

Pfizer

In April 2007, the Company entered into a worldwide Collaborative Research and License Agreement with Pfizer (the “Original Pfizer Agreement”) for the use of certain of the Company’s technologies in ophthalmic applications that were not licensed to others. Commencing in 2008, Pfizer paid the Company $500,000 quarterly in consideration of the Company’s costs in performing research under the agreement.

In June 2011, the Company and Pfizer entered into an Amended and Restated Collaborative Research and License Agreement (the “Restated Pfizer Agreement”) to focus solely on the development of the Latanoprost Product, a sustained-release bioerodible micro-insert designed to deliver latanoprost for human ophthalmic disease or conditions other than uveitis. The Original Pfizer Agreement was effectively terminated, including the cessation of Pfizer’s $500,000 quarterly research funding. Pfizer made an upfront payment of $2.3 million and the Company assumed Pfizer’s agreement with respect to an investigator-sponsored Phase I/II dose-escalation study to assess the safety and efficacy of this insert for patients with ocular hypertension and glaucoma. The Company agreed to use commercially reasonable efforts to fund development of the Latanoprost Product, with technical assistance from Pfizer, for at least one year and, thereafter, at the Company’s option, through completion of Phase II clinical trials, designated as Proof-of-Concept (“POC”). Within 90 days following receipt of the Company’s final report demonstrating POC, Pfizer may exercise its option for an exclusive, worldwide license to develop and commercialize the Latanoprost Product in return for a $20.0 million payment, double-digit sales-based royalties and additional development, regulatory and sales performance milestone payments of up to $146.5 million. If the Company elects to cease development of the Latanoprost Product after one year, but prior to completion of Phase II clinical trials, Pfizer would then have the right to exercise an option for an exclusive worldwide license to develop and commercialize the Latanoprost Product upon payment of a lesser option fee, with comparable reductions in future sales-based royalties and other designated milestones. If Pfizer does not exercise its option, the Restated Pfizer Agreement will automatically terminate, provided, however, that the Company will retain the right to develop and commercialize the Latanoprost Product on its own or with a partner.

Based upon the significant changes to the terms of the Original Pfizer Agreement, which included (i) changes in the consideration payable by Pfizer; (ii) changes in the deliverables; and (iii) changes in the research program, which now is solely related to the Latanoprost Product, the Company considered the Restated Pfizer Agreement a material modification and applied the applicable accounting guidance to this arrangement.

The Company’s deliverables under the Restated Pfizer Agreement include conducting the research and development program for the Latanoprost Product through completion of Phase II clinical trials (the “R&D program”) and participation on a Joint Steering Committee (“JSC”). Having determined that the JSC does not have stand-alone value from the R&D program, the Company combined these deliverables into a single unit of accounting. The performance period is the expected period over which the services of the combined unit are performed.

The total arrangement consideration of the Restated Pfizer Agreement totaled $10.05 million, which consisted of $7.75 million of deferred revenue on the Company’s balance sheet at the effective date plus the $2.3 million upfront payment. The difference between the total arrangement consideration and the estimated selling price of the combined deliverables, or $3.3 million, was recognized as collaborative research and development revenue in the quarter ended June 30, 2011, the period of the modification. To determine the estimated selling price, the Company applied an estimated margin to its cost projections for the combined deliverable. The estimated selling price of $6.7 million is being recognized as collaborative research and development revenue over the expected performance period using the proportional performance method. During the quarter ended December 31, 2012, the Company increased its estimate of the performance period from 4 years to 5.5 years to provide for additional research under the agreement prior to commencement of Phase II clinical trials. As a result, the Company reclassified $1.5 million of deferred revenue from current to non-current liabilities at December 31, 2012. The Company recorded revenue of $85,000 and $336,000 for the three and nine months ended March 31, 2013, respectively, as well as $89,000 and $559,000 for the three and nine months ended March 31, 2012, respectively. At March 31, 2013 and June 30, 2012, the Company recorded deferred revenue of $5.6 million and $6.0 million, respectively, classified between current and non-current deferred revenue. Costs associated with conducting the R&D program are reflected in operating expenses in the period in which they are incurred.

If any subsequent payments are received from Pfizer, including option exercise, milestone and sales-based royalty consideration, which would occur after completion of the Company’s performance period under the Restated Pfizer Agreement, such payments would be recognized as revenue when all the revenue criteria are met.

Bausch & Lomb

The Company’s Retisert product is commercialized under a licensing and development agreement with Bausch & Lomb. Pursuant to the agreement, as amended, Bausch & Lomb has a worldwide exclusive license to make and sell the Company’s first-generation products (as defined in the agreement, including Retisert) in return for sales-based royalties. Historically, Bausch & Lomb also sold Vitrasert, approved by the FDA in 1996, under this agreement; however, royalty payments on Vitrasert sales have ceased in the quarter ended March 31, 2013.

Royalty income totaled $274,000 and $380,000 for the three months ended March 31, 2013 and 2012, respectively, as well as $1.0 million for each of the nine month periods ended March 31, 2013 and 2012. Accounts receivable from Bausch & Lomb totaled $331,000 and $442,000 at March 31, 2013 and June 30, 2012, respectively.

Enigma Therapeutics

In December 2012, as further amended and restated in March 2013, the Company entered into an exclusive, worldwide royalty-bearing license agreement with Enigma Therapeutics Limited (“Enigma”) for the development of BrachySil, a BioSilicon product candidate for the treatment of pancreatic and other types of cancer. The Company received an upfront fee of $100,000, included in collaborative research and development revenue, and is entitled to an 8% sales-based royalty, 20% of sublicense consideration and milestones based on aggregate product sales. Enigma is obligated to pay an annual license maintenance fee of $100,000, creditable during the ensuing twelve months against reimbursable patent maintenance costs and sales-based royalties. The Company has no consequential performance obligations under the Enigma license agreement and, accordingly, all arrangement proceeds will be recognized as revenue upon receipt or at such earlier date, if applicable, on which any such amount is both fixed and determinable and reasonably assured of collectibility. There are no amounts of deferred revenue recorded at March 31, 2013.

Intrinsiq

In July 2011, the Company consummated an asset purchase agreement, in which it acquired porous BioSilicon-related capital equipment assets of Intrinsiq Materials Cayman Limited (“Intrinsiq”) for $223,000, and employed four former Intrinsiq employees. The fair value of the tangible assets acquired approximated the total acquisition consideration. Coincident with the transaction, Intrinsiq terminated the agreements underlying its 2008 field-of-use license to develop and commercialize nutraceutical and food science applications of BioSilicon. The license termination resulted in the recognition of collaborative research and development revenue of $1.1 million in the three months ended September 30, 2011, representing the total Intrinsiq deferred revenue balance at June 30, 2011.