Research And Development

6 Months Ended

Jun. 30, 2011

Research And Development

Research And Development

Note 8—Research and Development

Research and development costs are expensed as incurred and include salaries and benefits, stock-based compensation, and costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials.

Manufacturing costs are a significant component of research and development expenses and includes costs associated with third-party contractors for validation batch production, process technology transfer, quality control and stability testing, raw material purchases, overhead expenses and facilities costs. The Company previously recorded these manufacturing-related expenses, as research and development as incurred because these costs do not meet the definition of an inventory asset. Inventories include owned items that are held for sale in the ordinary course of business, that are in process of production for sale, or that will be consumed in the production of goods or services that will be held for sale. Following regulatory approval by the U.S. Food and Drug Administration ("FDA") of KRYSTEXXA, the Company is capitalizing certain manufacturing costs as an inventory asset that would previously have been expensed as research and development costs in cases where the manufacturing costs meet the definition of an inventory asset. The Company will continue to record as research and development expenses those manufacturing costs incurred at third parties that the Company is in the process of qualifying as secondary source suppliers of pegloticase drug substance, or in jurisdictions that have not received regulatory approval for the commercialization of KRYSTEXXA.

Clinical trial cost is another significant component of research and development expenses. Most of the Company's clinical studies are performed by third-party contract research organizations ("CROs"). The Company accrues costs for clinical studies performed by CROs that are milestone or event driven in nature and based on reports and invoices submitted by the CRO. These expenses are based on patient enrollment as well as costs consisting primarily of payments made to the CRO, clinical sites, investigators, testing facilities and patients for participating in the Company's clinical trials.

Non-refundable advance payments for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed. As a result of the FDA approval of KRYSTEXXA for marketing in the United States, the Company now defers and capitalizes all future fees incurred to reserve manufacturing capacity at its third-party service providers. The Company had no deferred research and development costs as of June 30, 2011 or December 31, 2010, respectively, and had no amortization expense for the six months ended June 30, 2011 and 2010, respectively, based on services performed.