Collaborative Agreements	6 Months Ended
Jun. 30, 2014
Collaborative Agreements
Collaborative Agreements	O. Collaborative Agreements Our commercial strategy includes the formation of collaborations with other pharmaceutical companies to facilitate the sale and distribution of Feraheme/Rienso, primarily outside of the U.S., as well as expanding our portfolio through the in-license or acquisition of additional pharmaceutical products or companies, including revenue-generating commercial products and late-stage development assets. As of June 30, 2014, we were a party to the following collaborations: Takeda In March 2010, we entered into the Takeda Agreement with Takeda under which we granted exclusive rights to Takeda to develop and commercialize Feraheme/Rienso as a therapeutic agent in Europe, certain Asia-Pacific countries (excluding Japan, China and Taiwan), the Commonwealth of Independent States, Canada, India and Turkey. In June 2012, we entered into an amendment to the Takeda Agreement, or the Amended Takeda Agreement, which removed the Commonwealth of Independent States from the territories under which Takeda has the exclusive rights to develop and commercialize Feraheme/Rienso. In addition, the Amended Takeda Agreement modified the timing and pricing arrangements for a supply agreement to be entered into between us and Takeda, and which was entered into in February 2014 and discussed below, the terms related to primary and secondary manufacturing for drug substance and drug product, certain patent-related provisions, and the re-allocation of certain of the agreed-upon milestone payments. We analyzed the Amended Takeda Agreement and determined that the amended terms did not result in a material modification of the original Takeda Agreement (and thus did not require us to change our accounting model) because (a) there were no changes to the deliverables under the original Takeda Agreement as a result of the amendment, and (b) the change in arrangement consideration as a result of the amendment was not quantitatively material in relation to the total arrangement consideration. In connection with the execution of the original Takeda Agreement, we received a $60.0 million upfront payment from Takeda in April 2010, which we recorded as deferred revenue, as well as approximately $1.0 million reimbursed to us during 2010 for certain expenses incurred prior to entering the agreement, which we considered an additional upfront payment. Because we cannot reasonably estimate the total level of effort required to complete the obligations under the combined deliverable, we are recognizing the entire $60.0 million upfront payment, the $1.0 million reimbursed to us in 2010, as well as any non-substantive milestone payments that are achieved into revenues on a straight-line basis over a period of ten years from March 31, 2010, the date on which we originally entered the Takeda Agreement, which represents the then-current patent life of Feraheme/Rienso and our best estimate of the period over which we will substantively perform our obligations. We continue to believe that the then-current patent life of Feraheme/Rienso is our best estimate of the period over which we will substantively perform our obligations under this agreement. In addition, the remaining milestone payments we may be entitled to receive under the Amended Takeda Agreement could over time equal up to $186.0 million. For any milestone payments we may receive based upon the approval by certain regulatory agencies, we have determined that these will be deemed substantive milestones and, therefore, will be accounted for as revenue in the period in which they are achieved. We have also determined that any non-substantive milestone payments will be accounted for in accordance with our revenue attribution method for the upfront payment, as described above. During the three and six months ended June 30, 2014, we recorded $2.0 million and $3.9 million, respectively, in revenues associated with the amortization of the upfront payments in license fee and other collaboration revenues in our condensed consolidated statement of operations. As of June 30, 2014, we had approximately $45.4 million remaining in deferred revenues related to the $61.0 million in upfront payments and the $18.0 million in non-substantive milestone payments previously received from Takeda, of which $7.9 million was classified as short-term and $37.5 million was classified as long-term. Any potential non-substantive milestone payments that may be received in the future will be recognized as revenue on a cumulative catch up basis when they become due and payable. Under the terms of the Amended Takeda Agreement, Takeda is responsible for reimbursing us for certain out-of-pocket regulatory and clinical trial supply costs associated with carrying out our regulatory and clinical research activities under the collaboration agreement. Because we are acting as the principal in carrying out these services, any reimbursement payments received from Takeda are recorded in license fee and other collaboration revenues in our condensed consolidated statement of operations to match the costs that we incur during the period in which we perform those services. We recorded $0.1 million and $0.3 million for the three and six months ended June 30, 2014, respectively, associated with other reimbursement revenues received from Takeda. At the time of shipment, we defer recognition of all revenue for Feraheme/Rienso sold to Takeda in our condensed consolidated balance sheets. We recognize revenues from product sales to Takeda, the related cost of goods sold, and any royalty revenues due from Takeda, in our condensed consolidated statement of operations at the time Takeda reports to us that sales have been made to its customers. During the three and six months ended June 30, 2014, we recognized $0.2 million and $0.4 million, respectively, in product sales and royalty revenue related to the Amended Takeda Agreement and we have included this revenue in other product sales and royalties in our condensed consolidated statement of operations. As of June 30, 2014, we had approximately $2.2 million in deferred revenue related to product shipped to Takeda but not yet sold through to Takeda’s customers, of which $1.3 million was classified as short-term and $0.9 million was classified as long-term. In addition, we had $2.0 million in deferred cost of product sales, of which $1.2 million was classified as short-term and $0.8 million was classified as long-term. These deferred revenue and deferred cost of product sales are recorded in our condensed consolidated balance sheet as of June 30, 2014. In February 2014, we entered into a Supply Agreement with Takeda pursuant to which we will sell Feraheme/Rienso to Takeda to meet Takeda’s requirements for commercial use of Feraheme/Rienso in the licensed territory. Under the Supply Agreement, Takeda is obligated to periodically provide us with demand forecasts of Takeda’s future Feraheme/Rienso requirements, which will direct the forecasting and ordering process as well as our supply obligations. Takeda may order Feraheme/Rienso for commercial use in excess of the forecasts, which we agreed to use commercially reasonable efforts to supply. In addition, the Supply Agreement provides the minimum quantity of Feraheme/Rienso that shall be ordered in each purchase order for commercial supply. Takeda shall have the right to use the Feraheme/Rienso ordered under the Supply Agreement for clinical use, provided that the product be subject to all of the terms of the Supply Agreement, including commercial specifications. Takeda shall be solely responsible for labeling and packaging vials of the product in accordance with the terms of the Supply Agreement and the Amended Takeda Agreement. If we are unable, for any reason beyond our reasonable control (including an unanticipated increase in demand beyond the production capacity of the manufacturing sites), to supply sufficient quantities of Feraheme/Rienso, we agree to promptly establish an allocation procedure with respect to the available supply of Feraheme/Rienso for the licensed territory and outside the licensed territory. Takeda may obtain Feraheme/Rienso from a designated second source established by us if necessary to meet increased demand, or upon the occurrence of certain defined insolvency events. If we are unable to perform our supply obligations under the Supply Agreement after a negotiated period of time following an insolvency event, Takeda can seek permanent alternative supply sources and the parties’ supply and purchase obligations under the Supply Agreement will terminate. The Supply Agreement provides that it will otherwise remain in place for the duration of the Amended Takeda Agreement. In addition, the Supply Agreement provides pricing terms and provides that Takeda will reimburse us for certain capital expenditures and shall pay us a per-vial manufacturing fee. The Supply Agreement also specifies cost-sharing arrangements relating to future process changes or improvements to the manufacturing process for Feraheme/Rienso. We generally agree to indemnify Takeda and its affiliates for damages resulting from the willful misconduct or gross negligence by us or a designated second source with respect to the manufacture of Feraheme/Rienso, or resulting from our breach of the Supply Agreement. Takeda generally agrees to indemnify us, our affiliates and any designated second source for damages resulting with respect to the manufacture of Feraheme/Rienso by Takeda or its affiliates, or resulting from Takeda’s breach of the Supply Agreement. The Supply Agreement includes quality control and testing terms, representations and warranties of the parties and other provisions customary for an agreement of this type. 3SBio, Inc. In 2008, we entered into a Collaboration and Exclusive License Agreement with 3SBio Inc., or 3SBio, for the development and commercialization of Feraheme as an IV iron replacement therapeutic agent in China. In consideration of the grant of the license, we received an upfront payment of $1.0 million. In January 2014, we mutually terminated the agreement with 3SBio, effective immediately, due to the fact that, despite the best efforts of the parties, regulatory approval in China could not be obtained within the agreed upon time period. During the six months ended June 30, 2014, we recognized the $1.0 million upfront payment into revenue as we have no future continuing obligations and have included it in license fee and other collaboration revenues in our condensed consolidated statement of operations. Access Please refer to Note H, “Business Combinations,” for a detailed description of the Access License Agreement.

O. Collaborative Agreements

Our commercial strategy includes the formation of collaborations with other pharmaceutical companies to facilitate the sale and distribution of Feraheme/Rienso, primarily outside of the U.S., as well as expanding our portfolio through the in-license or acquisition of additional pharmaceutical products or companies, including revenue-generating commercial products and late-stage development assets. As of June 30, 2014, we were a party to the following collaborations:

Takeda

In March 2010, we entered into the Takeda Agreement with Takeda under which we granted exclusive rights to Takeda to develop and commercialize Feraheme/Rienso as a therapeutic agent in Europe, certain Asia-Pacific countries (excluding Japan, China and Taiwan), the Commonwealth of Independent States, Canada, India and Turkey. In June 2012, we entered into an amendment to the Takeda Agreement, or the Amended Takeda Agreement, which removed the Commonwealth of Independent States from the territories under which Takeda has the exclusive rights to develop and commercialize Feraheme/Rienso. In addition, the Amended Takeda Agreement modified the timing and pricing arrangements for a supply agreement to be entered into between us and Takeda, and which was entered into in February 2014 and discussed below, the terms related to primary and secondary manufacturing for drug substance and drug product, certain patent-related provisions, and the re-allocation of certain of the agreed-upon milestone payments. We analyzed the Amended Takeda Agreement and determined that the amended terms did not result in a material modification of the original Takeda Agreement (and thus did not require us to change our accounting model) because (a) there were no changes to the deliverables under the original Takeda Agreement as a result of the amendment, and (b) the change in arrangement consideration as a result of the amendment was not quantitatively material in relation to the total arrangement consideration.

In connection with the execution of the original Takeda Agreement, we received a $60.0 million upfront payment from Takeda in April 2010, which we recorded as deferred revenue, as well as approximately $1.0 million reimbursed to us during 2010 for certain expenses incurred prior to entering the agreement, which we considered an additional upfront payment. Because we cannot reasonably estimate the total level of effort required to complete the obligations under the combined deliverable, we are recognizing the entire $60.0 million upfront payment, the $1.0 million reimbursed to us in 2010, as well as any non-substantive milestone payments that are achieved into revenues on a straight-line basis over a period of ten years from March 31, 2010, the date on which we originally entered the Takeda Agreement, which represents the then-current patent life of Feraheme/Rienso and our best estimate of the period over which we will substantively perform our obligations. We continue to believe that the then-current patent life of Feraheme/Rienso is our best estimate of the period over which we will substantively perform our obligations under this agreement.

In addition, the remaining milestone payments we may be entitled to receive under the Amended Takeda Agreement could over time equal up to $186.0 million. For any milestone payments we may receive based upon the approval by certain regulatory agencies, we have determined that these will be deemed substantive milestones and, therefore, will be accounted for as revenue in the period in which they are achieved. We have also determined that any non-substantive milestone payments will be accounted for in accordance with our revenue attribution method for the upfront payment, as described above. During the three and six months ended June 30, 2014, we recorded $2.0 million and $3.9 million, respectively, in revenues associated with the amortization of the upfront payments in license fee and other collaboration revenues in our condensed consolidated statement of operations. As of June 30, 2014, we had approximately $45.4 million remaining in deferred revenues related to the $61.0 million in upfront payments and the $18.0 million in non-substantive milestone payments previously received from Takeda, of which $7.9 million was classified as short-term and $37.5 million was classified as long-term. Any potential non-substantive milestone payments that may be received in the future will be recognized as revenue on a cumulative catch up basis when they become due and payable.

Under the terms of the Amended Takeda Agreement, Takeda is responsible for reimbursing us for certain out-of-pocket regulatory and clinical trial supply costs associated with carrying out our regulatory and clinical research activities under the collaboration agreement. Because we are acting as the principal in carrying out these services, any reimbursement payments received from Takeda are recorded in license fee and other collaboration revenues in our condensed consolidated statement of operations to match the costs that we incur during the period in which we perform those services. We recorded $0.1 million and $0.3 million for the three and six months ended June 30, 2014, respectively, associated with other reimbursement revenues received from Takeda.

At the time of shipment, we defer recognition of all revenue for Feraheme/Rienso sold to Takeda in our condensed consolidated balance sheets. We recognize revenues from product sales to Takeda, the related cost of goods sold, and any royalty revenues due from Takeda, in our condensed consolidated statement of operations at the time Takeda reports to us that sales have been made to its customers. During the three and six months ended June 30, 2014, we recognized $0.2 million and $0.4 million, respectively, in product sales and royalty revenue related to the Amended Takeda Agreement and we have included this revenue in other product sales and royalties in our condensed consolidated statement of operations. As of June 30, 2014, we had approximately $2.2 million in deferred revenue related to product shipped to Takeda but not yet sold through to Takeda’s customers, of which $1.3 million was classified as short-term and $0.9 million was classified as long-term. In addition, we had $2.0 million in deferred cost of product sales, of which $1.2 million was classified as short-term and $0.8 million was classified as long-term. These deferred revenue and deferred cost of product sales are recorded in our condensed consolidated balance sheet as of June 30, 2014.

In February 2014, we entered into a Supply Agreement with Takeda pursuant to which we will sell Feraheme/Rienso to Takeda to meet Takeda’s requirements for commercial use of Feraheme/Rienso in the licensed territory. Under the Supply Agreement, Takeda is obligated to periodically provide us with demand forecasts of Takeda’s future Feraheme/Rienso requirements, which will direct the forecasting and ordering process as well as our supply obligations. Takeda may order Feraheme/Rienso for commercial use in excess of the forecasts, which we agreed to use commercially reasonable efforts to supply. In addition, the Supply Agreement provides the minimum quantity of Feraheme/Rienso that shall be ordered in each purchase order for commercial supply. Takeda shall have the right to use the Feraheme/Rienso ordered under the Supply Agreement for clinical use, provided that the product be subject to all of the terms of the Supply Agreement, including commercial specifications. Takeda shall be solely responsible for labeling and packaging vials of the product in accordance with the terms of the Supply Agreement and the Amended Takeda Agreement. If we are unable, for any reason beyond our reasonable control (including an unanticipated increase in demand beyond the production capacity of the manufacturing sites), to supply sufficient quantities of Feraheme/Rienso, we agree to promptly establish an allocation procedure with respect to the available supply of Feraheme/Rienso for the licensed territory and outside the licensed territory. Takeda may obtain Feraheme/Rienso from a designated second source established by us if necessary to meet increased demand, or upon the occurrence of certain defined insolvency events. If we are unable to perform our supply obligations under the Supply Agreement after a negotiated period of time following an insolvency event, Takeda can seek permanent alternative supply sources and the parties’ supply and purchase obligations under the Supply Agreement will terminate. The Supply Agreement provides that it will otherwise remain in place for the duration of the Amended Takeda Agreement.

In addition, the Supply Agreement provides pricing terms and provides that Takeda will reimburse us for certain capital expenditures and shall pay us a per-vial manufacturing fee. The Supply Agreement also specifies cost-sharing arrangements relating to future process changes or improvements to the manufacturing process for Feraheme/Rienso. We generally agree to indemnify Takeda and its affiliates for damages resulting from the willful misconduct or gross negligence by us or a designated second source with respect to the manufacture of Feraheme/Rienso, or resulting from our breach of the Supply Agreement. Takeda generally agrees to indemnify us, our affiliates and any designated second source for damages resulting with respect to the manufacture of Feraheme/Rienso by Takeda or its affiliates, or resulting from Takeda’s breach of the Supply Agreement. The Supply Agreement includes quality control and testing terms, representations and warranties of the parties and other provisions customary for an agreement of this type.

3SBio, Inc.

In 2008, we entered into a Collaboration and Exclusive License Agreement with 3SBio Inc., or 3SBio, for the development and commercialization of Feraheme as an IV iron replacement therapeutic agent in China. In consideration of the grant of the license, we received an upfront payment of $1.0 million. In January 2014, we mutually terminated the agreement with 3SBio, effective immediately, due to the fact that, despite the best efforts of the parties, regulatory approval in China could not be obtained within the agreed upon time period. During the six months ended June 30, 2014, we recognized the $1.0 million upfront payment into revenue as we have no future continuing obligations and have included it in license fee and other collaboration revenues in our condensed consolidated statement of operations.

Access

Please refer to Note H, “Business Combinations,” for a detailed description of the Access License Agreement.