Organization and Summary of Significant Accounting Policies	12 Months Ended
Dec. 31, 2012
Organization and Summary of Significant Accounting Policies	Note 1—Organization and Summary of Significant Accounting Policies Savient Pharmaceuticals, Inc., and its wholly-owned Subsidiaries (“Savient” or “the Company”), is a specialty biopharmaceutical company focused on commercializing KRYSTEXXA^® (pegloticase) in and outside of the United States, including the European Union. KRYSTEXXA was approved for marketing by the U.S. Food and Drug Administration (the “FDA”) on September 14, 2010 and became commercially available in the United States by prescription on December 1, 2010, when the Company commenced sales and shipments to its network of specialty and wholesale distributors. The Company completed a promotional launch of KRYSTEXXA in the United States during the first quarter of 2011 with its sales force commencing field promotion to health care providers on February 28, 2011. On January 7, 2013, the Company’s wholly owned subsidiary, Savient Pharma Ireland Ltd., announced that the European Commission granted a marketing authorization for KRYSTEXXA in the European Union (“EU”), for the treatment of severe debilitating chronic tophaceous gout in adult patients who may also have erosive joint involvement and who have failed to normalize serum uric acid with xanthine oxidase inhibitors at the maximum medically appropriate dose or for whom these medicines are contraindicated. The Company also sells and distributes branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss. The Company launched its authorized generic version of oxandrolone in December 2006 in response to the approval and launch of generic competition to Oxandrin^®. The introduction of oxandrolone generics has led to significant decreases in demand for Oxandrin and the Company’s authorized generic version of oxandrolone. In response to the generic competition, the Company has scaled back its business activities and eliminated its sales force related to these products. As a result, Oxandrin has become a less significant product for the Company’s operating results. In addition, the Company’s contract agreement with its third-party manufacturer has expired and the Company no longer actively markets these products. The Company has and will continue to explore divestiture or out-license opportunities for these products. Savient was founded in 1980 to develop, manufacture and market products through the application of genetic engineering and related biotechnologies. The Company currently operates within one “Specialty Pharmaceutical” segment which includes sales of KRYSTEXXA, Oxandrin and oxandrolone, and the research and development activities of KRYSTEXXA. The Company conducts its administration, finance, business development, clinical development, sales, marketing, quality assurance and regulatory affairs activities primarily from its corporate headquarters in Bridgewater, New Jersey. *Basis of consolidation* The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Savient Pharma Holdings, Inc. and Savient Pharma Ireland Limited and its wholly owned subsidiary, Savient International Limited. *Reclassifications* Certain prior period amounts have been reclassified to conform to current year presentations. *Use of estimates in preparation of financial statements* The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to investments, accounts receivable, reserve for product returns, inventories, rebates, property and equipment, share-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Results may differ from these estimates due to actual outcomes differing from those on which the Company bases its assumptions. *Cash and cash equivalents* Cash and cash equivalents are highly liquid investments, which include cash on hand and money market funds with weighted-average maturities at the date of purchase of 90 days or less. The Company invests its excess cash in short-term investments primarily in highly liquid, interest-bearing, U.S. Treasury money market funds and bank certificates of deposit with maturities of less than one year, in order to preserve principal. *Restricted cash* The Company’s restricted cash of $2.4 million and $2.6 million at December 31, 2012 and 2011, respectively, represents required security deposits in connection with the Company’s lease arrangements for its administrative offices. *Fair value of financial instruments* Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. See Note 3 to the consolidated financial statements for further discussion of the fair value of financial instruments. *Investments* The Company classifies investments as “available-for-sale securities,” “held-to-maturity securities” or “trading securities.” Investments that are purchased and held principally for the purpose of selling them in the near-term are classified as trading securities and marked to fair value through earnings. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments not classified as trading securities or held-to-maturity securities are considered to be available-for-sale securities. Changes in the fair value of available-for-sale securities are reported as a component of accumulated other comprehensive income in the consolidated statements of stockholders’ equity and are not reflected in the consolidated statements of operations until a sale transaction occurs or when declines in fair value are deemed to be other-than-temporary (“OTT”). The Company did not carry any available-for-sale securities at December 31, 2012 and 2011. The Company’s held-to-maturity securities presented in the Company’s consolidated balance sheets as short-term investments at December 31, 2012 and 2011, consist of certificates-of-deposit of $45.9 million and $55.7 million, respectively. The Company’s held-to-maturity securities had maturity dates of less than one year at December 31, 2012 and 2011. Cost is equal to estimated fair value. There were no sales of investments for the years ended December 31, 2012, 2011 and 2010. *Other-Than-Temporary Impairment Losses on Investments* The Company regularly monitors its available-for-sale portfolio to evaluate the necessity of recording impairment losses for OTT declines in the fair value of investments. The impairment of a debt security is considered OTT if an entity concludes that it intends to sell the impaired security, that it is more likely than not that it will be required to sell the security before the recovery of its cost basis or that it does not otherwise expect to recover the entire cost basis of the security. Management makes this determination through the consideration of various factors such as management’s intent and ability to retain an investment for a period of time sufficient to allow for any anticipated recovery in market value. OTT impairment losses result in a permanent reduction of the cost basis of an investment. *Accounts receivable, net* The Company extends credit to customers based on its evaluation of the customer’s financial condition. The Company generally does not require collateral from its customers when credit is extended. Accounts receivable are usually due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company assesses the need for an allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer’s current ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to recovery of accounts written off. In general, the Company has experienced minimal collection issues with its large customers. At December 31, 2012 and 2011, the balance of the Company’s allowance for doubtful accounts was zero and $28,000, respectively. *Inventories, net* The Company states inventories at the lower of cost or market. Cost is determined based on actual cost. The Company reviews the composition of inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of expected demand, or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the decline in value is first recognized. These valuation adjustments are recorded based upon various factors for the Company’s products, including the level of product manufactured by the Company, the level of product in the distribution channel, current and projected product demand, the expected shelf life of the product and firm inventory purchase commitments. *Property and equipment, net of accumulated depreciation and amortization* Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years. Leasehold improvements are amortized over the lives of the respective leases, which are shorter than the useful lives. Maintenance and repairs are charged to operations as incurred, while expenditures for improvements which extend the life of an asset are capitalized. *Impairment of Long-Lived Assets* The Company assesses changes in economic, regulatory and legal conditions and makes assumptions regarding estimated future cash flows in evaluating the value of its property, plant and equipment. The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. *Long-Term Obligations* The Company accounts for its senior secured notes due 2019 (the “2019 Notes”) and its 4.75% convertible notes due 2018 (the “2018 Convertible Notes”) in accordance with the guidance as set forth in FASB ASC 470, Debt and ASC 815 Derivatives and Hedging. On May 9, 2012, holders of the Company’s currently outstanding 2018 Convertible Notes exchanged approximately $108.0 million (principal amount) of such notes for Units, comprised of 2019 Notes, having a principal amount upon full accretion equivalent to the principal amount of the corresponding exchanged 2018 Convertible Notes, and warrants to purchase approximately 4.0 million shares of our common stock at an exercise price of $1.863 per share. Accordingly, the Company recorded a gain of $21.8 million upon the extinguishment of the 2018 Convertible Notes. The gain results from the carrying value of the 2018 Convertible Notes exceeding its fair value. The debt issuance costs related to the 2018 Convertible Notes that were exchanged in the amount of approximately $2.2 million are netted against the gain. The 2019 Notes were recorded at fair value and contain certain redemption features that are considered to be embedded derivatives under ASC 815 and require bifurcation from the host debt. In accordance with FASB ASC 815, Derivatives and Hedging, the Company has separately accounted for the redemption features as embedded derivatives, which are measured at fair value and included as a component of other liabilities on the Company’s consolidated balance sheets. Changes in the fair value of the embedded derivatives are recognized in earnings. See Note 7 to the consolidated financial statements for further discussion of the Company’s 2019 Notes. The debt and equity components of the Company’s 2018 Convertible Notes are bifurcated and accounted for separately based on the authoritative accounting guidance as set forth in ASC 470-20, Debt with Conversion and Other Options, as the 2018 Convertible Notes can be cash settled upon the occurrence of specific corporate events. The debt component of the 2018 Convertible Notes, which excludes the associated equity conversion feature, was recorded at fair value on the issuance date. The equity component, representing the difference between the amount allocated to the debt component and the proceeds received upon issuance of the 2018 Convertible Notes, is recorded in additional paid-in-capital in the consolidated balance sheets. The discounted carrying value of the 2018 Convertible Notes resulting from the bifurcation is subsequently accreted back to its principal amount through the recognition of non-cash interest expense. See Note 7 to the consolidated financial statements for further discussion of the Company’s 2018 Convertible Notes. *Debt Issuance Costs, net* Debt issuance costs are capitalized as incurred and amortized using the effective interest method over the expected life of the Company’s debt. The amortization of debt issuance costs is included in interest expense (see note 7). The unamortized debt issuance costs balance at December 31, 2012 and 2011 was $5.8 million and $4.8 million, respectively. *Revenue recognition* The Company generates revenue from product sales. Revenue is not recognized until it is realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the buyer is fixed and determinable, and (iv) collectability is reasonably assured. Given the Company’s limited sales history for KRYSTEXXA coupled with the product being a new entry into its market, the Company has determined that the shipments of KRYSTEXXA made to specialty distributors do not meet the criteria for revenue recognition at the time of shipment, and, accordingly, such shipments are accounted for using the sell-through method. Under the sell-through method, the Company does not recognize revenue upon shipment of KRYSTEXXA to specialty distributors. For these product sales, the Company invoices the specialty distributor and records deferred revenue equal to the gross invoice price. The Company then recognizes revenue when KRYSTEXXA is sold through, or upon shipment of the product from the specialty distributors to their customers, including doctors and infusion sites. Because of the price of KRYSTEXXA, the short period from sale of product to patient infusion and limited product return rights, KRYSTEXXA distributors and their customers generally carry limited inventory. The Company also sells KRYSTEXXA to wholesalers whereby the Company drop ships the product directly to hospitals. As there is limited risk of returns from hospitals as infusions will be taking place in their facilities, revenue is recorded when KRYSTEXXA has been received at the hospital and title has transferred in accordance with the terms of sale. Oxandrin product sales are generally recognized when title to the product has transferred to customers in accordance with the terms of the sale. The Company ships its authorized generic, oxandrolone, to its distributor and accounts for these shipments on a consignment basis until product is sold into the retail market. The Company defers the recognition of revenue related to these shipments until it confirms that the product has been sold into the retail market and all other revenue recognition criteria have been met. *Gross to Net Sales Accruals.* The Company’s net product revenues represent gross product revenues less allowances for returns, Medicaid rebates, other government rebates and chargebacks, discounts, and distribution fees. *Allowance for Product returns* Upon sale of Oxandrin and oxandrolone, the Company estimates an allowance for future returns. In order to reasonably estimate future returns, the Company analyzes both quantitative and qualitative information including, but not limited to, actual return rates by lot productions, the level of product manufactured by the Company, the level of product in the distribution channel, expected shelf life of the product, current and projected product demand, the introduction of new or generic products that may erode current demand, and general economic and industry-wide indicators. *Allowances for Medicaid, other government rebates and other rebates* The Company’s contracts with Medicaid and other government agencies such as the Federal Supply System commit the Company to providing those agencies with its most favorable pricing. This ensures that the Company’s products remain eligible for purchase or reimbursement under these government-funded programs. Based upon the Company’s contracts and the most recent experience with respect to sales of KRYSTEXXA, Oxandrin and oxandrolone through each of these channels, the Company provides an allowance for rebates. The Company monitors the sales trends and adjusts the rebate percentages on a regular basis to reflect the most recent rebate experience. *Chargeback Accruals* Chargeback accruals are based on two types of transactions. The first type of chargeback accrual would be reflective of the difference between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Additionally, we record chargeback accruals relating to special distributors, to price protect doctors and infusion suites who administer in office infusions of KRYSTEXXA to Medicare patients, due to the delay in governmental reporting of KRYSTEXXA price increases which impacts reimbursement. *Sales Discount Accruals* Sales discount accruals are based on prompt pay incentive discounts extended to customers. *Distributor Fee Accruals* Distributor service fee accruals are based on contractual fees to be paid to Company’s wholesale distributors for services provided. *Free Goods* The Company records the cost of free goods relating to its Patient Assistance Program (“PAP”) in Cost of Goods Sold. *Research and Development* The Company’s research and development expense includes costs associated with the research and development of the Company’s KRYSTEXXA product prior to regulatory approval and regulatory authority-related post-marketing commitments for approved products (KRYSTEXXA post-approval). Prior to the regulatory approval of KRYSTEXXA, manufacturing costs associated with third-party contractors for validation and commercial batch production, process technology transfer, quality control and stability testing, raw material purchases, overhead expenses and facilities costs were recorded as research and development and expensed as incurred as future use could not be determined, and there was uncertainty surrounding regulatory approval. Following regulatory approval of KRYSTEXXA by the FDA and European Commission, the Company capitalizes certain manufacturing costs as inventory. Clinical trial costs have been another significant component of research and development expenses and all 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 and include other costs relating to the administration of the clinical trials including s CRO services, 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. *Selling, General and Administrative* The Company’s selling, general and administrative expense primarily includes expenses associated with the commercialization of approved products (primarily KRYSTEXXA) and general and administrative costs to support the Company’s operations. *Share-based compensation* The Company has share-based compensation plans in place and records the associated stock-based compensation expense over the requisite service period. These share-based compensation plans and related compensation expense are discussed more fully in Note 11 to the consolidated financial statements. Compensation expense for service-based stock options is charged against operations on a straight-line basis between the grant date for the option and the vesting period, which is generally four years. The Company estimates the fair value of all service-based stock option awards as of the grant date by applying the Black-Scholes option pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. Compensation cost is adjusted for estimated pre-vesting forfeitures. Options granted have a term of 10 years from the grant date. Restricted stock and restricted stock units (“RSU’s”) that are service-based are recorded as deferred compensation and amortized into compensation expense on a straight-line basis over the vesting period, which ranges from three to four years in duration. Compensation cost for service-based restricted stock and RSU’s is based on the grant date fair value of the award, which is the closing market price of the Company’s common stock on the grant date multiplied by the number of shares awarded. Compensation expense for restricted stock and stock option awards that contain performance conditions, the vesting of which is contingent upon the achievement of various sales and other specific strategic objectives for senior management, is based on the grant date fair value of the award. The grant date fair value of restricted stock awards that contain performance conditions is equal to the closing market price of the Company’s common stock on the grant date multiplied by the number of shares awarded. Compensation expense for restricted stock and stock option awards that contain performance conditions is recorded over the implicit or explicit requisite service period based on management’s assumptions of when the awards are expected to vest. Previously recognized compensation expense for restricted stock and stock option awards that contain performance conditions is fully reversed if performance targets are not satisfied. The Company continually assesses the probability of the attainment of performance conditions and adjusts compensation expense accordingly over the remainder of the requisite service period. Compensation cost for restricted stock awards and stock options that contain a market condition is based on the grant date fair value of the award. The Company utilizes a Monte Carlo simulation model to estimate the grant date fair value of these awards. Compensation expense is recorded over the implicit, explicit requisite or derived service period. *Income taxes* Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2012, based on the net operating loss generated in 2012 and historical losses and the uncertainty of profitability in the near future, the Company concluded that it would maintain a full valuation allowance on its deferred tax assets net of deferred tax liabilities and those assets that are reserved by a liability for unrecognized tax benefits. The Company maintained a valuation allowance as of December 31, 2012 of $227.8 million. The increase in valuation allowance in 2012 compared to 2011 of $46.3 million is primarily due to an increase in net operating loss carry forwards and tax credits and the uncertainty that these additional deferred tax assets will be realized. The Company uses judgment in determining income tax provisions and in evaluating its tax positions. Additional provisions for income taxes are established when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the applicable taxing authority. The Company is examined by Federal and state tax authorities. The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known. *Earnings (loss) per common share* The Company accounts for and discloses net earnings (loss) per share using the treasury stock method. Net earnings (loss) per common share, or basic earnings (loss) per share, is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Net earnings (loss) per common share assuming dilutions, or diluted loss per share, is computed by reflecting the potential dilution from the exercise of in-the-money stock options and non-vested restricted stock and restricted stock units. See Note 10 to the Company’s consolidated financial statements for further discussion of the Company’s earnings (loss) per common share. *Concentration of credit risk* Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short-term and long-term investments and accounts receivable. We place our cash and cash equivalents and short-term investments with high quality financial institutions, which limits the amount of credit exposure to any one institution. In addition, the Company’s cash balances held at any one institution are within the insured and guaranteed Federal Deposit Insurance Corporation (“FDIC”) limits. A portion of our cash is held outside the United States. As a result, we are subject to limited market risk associated with changes in foreign exchange rates. The cash maintained in foreign based commercial banks is insured by the governments where the foreign banking institutions are based and within insurable limits. At December 31, 2012 and 2011, cash held by our foreign subsidiary located in Ireland totaled approximately $1.0 million and $0.5 million, respectively. This cash is included in total cash and cash equivalents in our consolidated balance sheets. Consequently, it is not available for United States activities. Generally, we do not require collateral from our customers; however, collateral or other security for accounts receivable may be obtained in certain circumstances when considered. Concentration of credit risk with respect to accounts receivable is discussed further in Note 15 to our consolidated financial statements. *Foreign Currency Translation/Transactions* The Company has determined that the functional currency for its Irish foreign subsidiary is the local currency which is the Euro. For financial reporting purposes, assets and liabilities denominated in foreign currencies are translated at current exchange rates and profit and loss accounts are translated at weighted-average exchange rates. Resulting translation gains and losses are included as a separate component of stockholders’ equity as accumulated other comprehensive income or loss. Gains or losses resulting from transactions entered into in other than the functional currency are recorded as foreign exchange gains and losses in the consolidated statements of operations.

Note 1—Organization and Summary of Significant Accounting Policies

Savient Pharmaceuticals, Inc., and its wholly-owned Subsidiaries (“Savient” or “the Company”), is a specialty biopharmaceutical company focused on commercializing KRYSTEXXA^® (pegloticase) in and outside of the United States, including the European Union. KRYSTEXXA was approved for marketing by the U.S. Food and Drug Administration (the “FDA”) on September 14, 2010 and became commercially available in the United States by prescription on December 1, 2010, when the Company commenced sales and shipments to its network of specialty and wholesale distributors. The Company completed a promotional launch of KRYSTEXXA in the United States during the first quarter of 2011 with its sales force commencing field promotion to health care providers on February 28, 2011. On January 7, 2013, the Company’s wholly owned subsidiary, Savient Pharma Ireland Ltd., announced that the European Commission granted a marketing authorization for KRYSTEXXA in the European Union (“EU”), for the treatment of severe debilitating chronic tophaceous gout in adult patients who may also have erosive joint involvement and who have failed to normalize serum uric acid with xanthine oxidase inhibitors at the maximum medically appropriate dose or for whom these medicines are contraindicated.

The Company also sells and distributes branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss. The Company launched its authorized generic version of oxandrolone in December 2006 in response to the approval and launch of generic competition to Oxandrin^®. The introduction of oxandrolone generics has led to significant decreases in demand for Oxandrin and the Company’s authorized generic version of oxandrolone. In response to the generic competition, the Company has scaled back its business activities and eliminated its sales force related to these products. As a result, Oxandrin has become a less significant product for the Company’s operating results. In addition, the Company’s contract agreement with its third-party manufacturer has expired and the Company no longer actively markets these products. The Company has and will continue to explore divestiture or out-license opportunities for these products.

Savient was founded in 1980 to develop, manufacture and market products through the application of genetic engineering and related biotechnologies.

The Company currently operates within one “Specialty Pharmaceutical” segment which includes sales of KRYSTEXXA, Oxandrin and oxandrolone, and the research and development activities of KRYSTEXXA. The Company conducts its administration, finance, business development, clinical development, sales, marketing, quality assurance and regulatory affairs activities primarily from its corporate headquarters in Bridgewater, New Jersey.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Savient Pharma Holdings, Inc. and Savient Pharma Ireland Limited and its wholly owned subsidiary, Savient International Limited.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentations.

Use of estimates in preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to investments, accounts receivable, reserve for product returns, inventories, rebates, property and equipment, share-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Results may differ from these estimates due to actual outcomes differing from those on which the Company bases its assumptions.

Cash and cash equivalents

Cash and cash equivalents are highly liquid investments, which include cash on hand and money market funds with weighted-average maturities at the date of purchase of 90 days or less. The Company invests its excess cash in short-term investments primarily in highly liquid, interest-bearing, U.S. Treasury money market funds and bank certificates of deposit with maturities of less than one year, in order to preserve principal.

Restricted cash

The Company’s restricted cash of $2.4 million and $2.6 million at December 31, 2012 and 2011, respectively, represents required security deposits in connection with the Company’s lease arrangements for its administrative offices.

Fair value of financial instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. See Note 3 to the consolidated financial statements for further discussion of the fair value of financial instruments.

Investments

The Company classifies investments as “available-for-sale securities,” “held-to-maturity securities” or “trading securities.” Investments that are purchased and held principally for the purpose of selling them in the near-term are classified as trading securities and marked to fair value through earnings. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments not classified as trading securities or held-to-maturity securities are considered to be available-for-sale securities. Changes in the fair value of available-for-sale securities are reported as a component of accumulated other comprehensive income in the consolidated statements of stockholders’ equity and are not reflected in the consolidated statements of operations until a sale transaction occurs or when declines in fair value are deemed to be other-than-temporary (“OTT”). The Company did not carry any available-for-sale securities at December 31, 2012 and 2011. The Company’s held-to-maturity securities presented in the Company’s consolidated balance sheets as short-term investments at December 31, 2012 and 2011, consist of certificates-of-deposit of $45.9 million and $55.7 million, respectively. The Company’s held-to-maturity securities had maturity dates of less than one year at December 31, 2012 and 2011. Cost is equal to estimated fair value. There were no sales of investments for the years ended December 31, 2012, 2011 and 2010.

Other-Than-Temporary Impairment Losses on Investments

The Company regularly monitors its available-for-sale portfolio to evaluate the necessity of recording impairment losses for OTT declines in the fair value of investments. The impairment of a debt security is considered OTT if an entity concludes that it intends to sell the impaired security, that it is more likely than not that it will be required to sell the security before the recovery of its cost basis or that it does not otherwise expect to recover the entire cost basis of the security. Management makes this determination through the consideration of various factors such as management’s intent and ability to retain an investment for a period of time sufficient to allow for any anticipated recovery in market value. OTT impairment losses result in a permanent reduction of the cost basis of an investment.

Accounts receivable, net

The Company extends credit to customers based on its evaluation of the customer’s financial condition. The Company generally does not require collateral from its customers when credit is extended. Accounts receivable are usually due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company assesses the need for an allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer’s current ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to recovery of accounts written off. In general, the Company has experienced minimal collection issues with its large customers. At December 31, 2012 and 2011, the balance of the Company’s allowance for doubtful accounts was zero and $28,000, respectively.

Inventories, net

The Company states inventories at the lower of cost or market. Cost is determined based on actual cost. The Company reviews the composition of inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of expected demand, or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the decline in value is first recognized. These valuation adjustments are recorded based upon various factors for the Company’s products, including the level of product manufactured by the Company, the level of product in the distribution channel, current and projected product demand, the expected shelf life of the product and firm inventory purchase commitments.

Property and equipment, net of accumulated depreciation and amortization

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years. Leasehold improvements are amortized over the lives of the respective leases, which are shorter than the useful lives. Maintenance and repairs are charged to operations as incurred, while expenditures for improvements which extend the life of an asset are capitalized.

Impairment of Long-Lived Assets

The Company assesses changes in economic, regulatory and legal conditions and makes assumptions regarding estimated future cash flows in evaluating the value of its property, plant and equipment. The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value.

Long-Term Obligations

The Company accounts for its senior secured notes due 2019 (the “2019 Notes”) and its 4.75% convertible notes due 2018 (the “2018 Convertible Notes”) in accordance with the guidance as set forth in FASB ASC 470, Debt and ASC 815 Derivatives and Hedging. On May 9, 2012, holders of the Company’s currently outstanding 2018 Convertible Notes exchanged approximately $108.0 million (principal amount) of such notes for Units, comprised of 2019 Notes, having a principal amount upon full accretion equivalent to the principal amount of the corresponding exchanged 2018 Convertible Notes, and warrants to purchase approximately 4.0 million shares of our common stock at an exercise price of $1.863 per share. Accordingly, the Company recorded a gain of $21.8 million upon the extinguishment of the 2018 Convertible Notes. The gain results from the carrying value of the 2018 Convertible Notes exceeding its fair value. The debt issuance costs related to the 2018 Convertible Notes that were exchanged in the amount of approximately $2.2 million are netted against the gain. The 2019 Notes were recorded at fair value and contain certain redemption features that are considered to be embedded derivatives under ASC 815 and require bifurcation from the host debt. In accordance with FASB ASC 815, Derivatives and Hedging, the Company has separately accounted for the redemption features as embedded derivatives, which are measured at fair value and included as a component of other liabilities on the Company’s consolidated balance sheets. Changes in the fair value of the embedded derivatives are recognized in earnings. See Note 7 to the consolidated financial statements for further discussion of the Company’s 2019 Notes.

The debt and equity components of the Company’s 2018 Convertible Notes are bifurcated and accounted for separately based on the authoritative accounting guidance as set forth in ASC 470-20, Debt with Conversion and Other Options, as the 2018 Convertible Notes can be cash settled upon the occurrence of specific corporate events. The debt component of the 2018 Convertible Notes, which excludes the associated equity conversion feature, was recorded at fair value on the issuance date. The equity component, representing the difference between the amount allocated to the debt component and the proceeds received upon issuance of the 2018 Convertible Notes, is recorded in additional paid-in-capital in the consolidated balance sheets. The discounted carrying value of the 2018 Convertible Notes resulting from the bifurcation is subsequently accreted back to its principal amount through the recognition of non-cash interest expense. See Note 7 to the consolidated financial statements for further discussion of the Company’s 2018 Convertible Notes.

Debt Issuance Costs, net

Debt issuance costs are capitalized as incurred and amortized using the effective interest method over the expected life of the Company’s debt. The amortization of debt issuance costs is included in interest expense (see note 7). The unamortized debt issuance costs balance at December 31, 2012 and 2011 was $5.8 million and $4.8 million, respectively.

Revenue recognition

The Company generates revenue from product sales. Revenue is not recognized until it is realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the buyer is fixed and determinable, and (iv) collectability is reasonably assured.

Given the Company’s limited sales history for KRYSTEXXA coupled with the product being a new entry into its market, the Company has determined that the shipments of KRYSTEXXA made to specialty distributors do not meet the criteria for revenue recognition at the time of shipment, and, accordingly, such shipments are accounted for using the sell-through method. Under the sell-through method, the Company does not recognize revenue upon shipment of KRYSTEXXA to specialty distributors. For these product sales, the Company invoices the specialty distributor and records deferred revenue equal to the gross invoice price. The Company then recognizes revenue when KRYSTEXXA is sold through, or upon shipment of the product from the specialty distributors to their customers, including doctors and infusion sites. Because of the price of KRYSTEXXA, the short period from sale of product to patient infusion and limited product return rights, KRYSTEXXA distributors and their customers generally carry limited inventory. The Company also sells KRYSTEXXA to wholesalers whereby the Company drop ships the product directly to hospitals. As there is limited risk of returns from hospitals as infusions will be taking place in their facilities, revenue is recorded when KRYSTEXXA has been received at the hospital and title has transferred in accordance with the terms of sale.

Oxandrin product sales are generally recognized when title to the product has transferred to customers in accordance with the terms of the sale. The Company ships its authorized generic, oxandrolone, to its distributor and accounts for these shipments on a consignment basis until product is sold into the retail market. The Company defers the recognition of revenue related to these shipments until it confirms that the product has been sold into the retail market and all other revenue recognition criteria have been met.

Gross to Net Sales Accruals.

The Company’s net product revenues represent gross product revenues less allowances for returns, Medicaid rebates, other government rebates and chargebacks, discounts, and distribution fees.

Allowance for Product returns

Upon sale of Oxandrin and oxandrolone, the Company estimates an allowance for future returns. In order to reasonably estimate future returns, the Company analyzes both quantitative and qualitative information including, but not limited to, actual return rates by lot productions, the level of product manufactured by the Company, the level of product in the distribution channel, expected shelf life of the product, current and projected product demand, the introduction of new or generic products that may erode current demand, and general economic and industry-wide indicators.

Allowances for Medicaid, other government rebates and other rebates

The Company’s contracts with Medicaid and other government agencies such as the Federal Supply System commit the Company to providing those agencies with its most favorable pricing. This ensures that the Company’s products remain eligible for purchase or reimbursement under these government-funded programs. Based upon the Company’s contracts and the most recent experience with respect to sales of KRYSTEXXA, Oxandrin and oxandrolone through each of these channels, the Company provides an allowance for rebates. The Company monitors the sales trends and adjusts the rebate percentages on a regular basis to reflect the most recent rebate experience.

Chargeback Accruals

Chargeback accruals are based on two types of transactions. The first type of chargeback accrual would be reflective of the difference between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Additionally, we record chargeback accruals relating to special distributors, to price protect doctors and infusion suites who administer in office infusions of KRYSTEXXA to Medicare patients, due to the delay in governmental reporting of KRYSTEXXA price increases which impacts reimbursement.

Sales Discount Accruals

Sales discount accruals are based on prompt pay incentive discounts extended to customers.

Distributor Fee Accruals

Distributor service fee accruals are based on contractual fees to be paid to Company’s wholesale distributors for services provided.

Free Goods

The Company records the cost of free goods relating to its Patient Assistance Program (“PAP”) in Cost of Goods Sold.

Research and Development

The Company’s research and development expense includes costs associated with the research and development of the Company’s KRYSTEXXA product prior to regulatory approval and regulatory authority-related post-marketing commitments for approved products (KRYSTEXXA post-approval).

Prior to the regulatory approval of KRYSTEXXA, manufacturing costs associated with third-party contractors for validation and commercial batch production, process technology transfer, quality control and stability testing, raw material purchases, overhead expenses and facilities costs were recorded as research and development and expensed as incurred as future use could not be determined, and there was uncertainty surrounding regulatory approval. Following regulatory approval of KRYSTEXXA by the FDA and European Commission, the Company capitalizes certain manufacturing costs as inventory.

Clinical trial costs have been another significant component of research and development expenses and all 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 and include other costs relating to the administration of the clinical trials including s CRO services, 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.

Selling, General and Administrative

The Company’s selling, general and administrative expense primarily includes expenses associated with the commercialization of approved products (primarily KRYSTEXXA) and general and administrative costs to support the Company’s operations.

Share-based compensation

The Company has share-based compensation plans in place and records the associated stock-based compensation expense over the requisite service period. These share-based compensation plans and related compensation expense are discussed more fully in Note 11 to the consolidated financial statements.

Compensation expense for service-based stock options is charged against operations on a straight-line basis between the grant date for the option and the vesting period, which is generally four years. The Company estimates the fair value of all service-based stock option awards as of the grant date by applying the Black-Scholes option pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. Compensation cost is adjusted for estimated pre-vesting forfeitures. Options granted have a term of 10 years from the grant date.

Restricted stock and restricted stock units (“RSU’s”) that are service-based are recorded as deferred compensation and amortized into compensation expense on a straight-line basis over the vesting period, which ranges from three to four years in duration. Compensation cost for service-based restricted stock and RSU’s is based on the grant date fair value of the award, which is the closing market price of the Company’s common stock on the grant date multiplied by the number of shares awarded.

Compensation expense for restricted stock and stock option awards that contain performance conditions, the vesting of which is contingent upon the achievement of various sales and other specific strategic objectives for senior management, is based on the grant date fair value of the award. The grant date fair value of restricted stock awards that contain performance conditions is equal to the closing market price of the Company’s common stock on the grant date multiplied by the number of shares awarded. Compensation expense for restricted stock and stock option awards that contain performance conditions is recorded over the implicit or explicit requisite service period based on management’s assumptions of when the awards are expected to vest. Previously recognized compensation expense for restricted stock and stock option awards that contain performance conditions is fully reversed if performance targets are not satisfied. The Company continually assesses the probability of the attainment of performance conditions and adjusts compensation expense accordingly over the remainder of the requisite service period.

Compensation cost for restricted stock awards and stock options that contain a market condition is based on the grant date fair value of the award. The Company utilizes a Monte Carlo simulation model to estimate the grant date fair value of these awards. Compensation expense is recorded over the implicit, explicit requisite or derived service period.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2012, based on the net operating loss generated in 2012 and historical losses and the uncertainty of profitability in the near future, the Company concluded that it would maintain a full valuation allowance on its deferred tax assets net of deferred tax liabilities and those assets that are reserved by a liability for unrecognized tax benefits. The Company maintained a valuation allowance as of December 31, 2012 of $227.8 million. The increase in valuation allowance in 2012 compared to 2011 of $46.3 million is primarily due to an increase in net operating loss carry forwards and tax credits and the uncertainty that these additional deferred tax assets will be realized.

The Company uses judgment in determining income tax provisions and in evaluating its tax positions. Additional provisions for income taxes are established when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold, which is a tax position that is more-likely-than-not to be sustained upon examination by the applicable taxing authority. The Company is examined by Federal and state tax authorities. The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.

Earnings (loss) per common share

The Company accounts for and discloses net earnings (loss) per share using the treasury stock method. Net earnings (loss) per common share, or basic earnings (loss) per share, is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Net earnings (loss) per common share assuming dilutions, or diluted loss per share, is computed by reflecting the potential dilution from the exercise of in-the-money stock options and non-vested restricted stock and restricted stock units. See Note 10 to the Company’s consolidated financial statements for further discussion of the Company’s earnings (loss) per common share.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short-term and long-term investments and accounts receivable. We place our cash and cash equivalents and short-term investments with high quality financial institutions, which limits the amount of credit exposure to any one institution. In addition, the Company’s cash balances held at any one institution are within the insured and guaranteed Federal Deposit Insurance Corporation (“FDIC”) limits. A portion of our cash is held outside the United States. As a result, we are subject to limited market risk associated with changes in foreign exchange rates. The cash maintained in foreign based commercial banks is insured by the governments where the foreign banking institutions are based and within insurable limits. At December 31, 2012 and 2011, cash held by our foreign subsidiary located in Ireland totaled approximately $1.0 million and $0.5 million, respectively. This cash is included in total cash and cash equivalents in our consolidated balance sheets. Consequently, it is not available for United States activities.

Generally, we do not require collateral from our customers; however, collateral or other security for accounts receivable may be obtained in certain circumstances when considered. Concentration of credit risk with respect to accounts receivable is discussed further in Note 15 to our consolidated financial statements.

Foreign Currency Translation/Transactions

The Company has determined that the functional currency for its Irish foreign subsidiary is the local currency which is the Euro. For financial reporting purposes, assets and liabilities denominated in foreign currencies are translated at current exchange rates and profit and loss accounts are translated at weighted-average exchange rates. Resulting translation gains and losses are included as a separate component of stockholders’ equity as accumulated other comprehensive income or loss. Gains or losses resulting from transactions entered into in other than the functional currency are recorded as foreign exchange gains and losses in the consolidated statements of operations.