Revenue Recognition

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements [Abstract]

Revenue Recognition

2.  Revenue Recognition

We recognize revenue from all sources based on the provisions of the U.S. SEC's Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition. In October 2009, the FASB updated ASC 605 Revenue Recognition by specifying how to separate deliverables in multiple-deliverable arrangements, and how to measure and allocate arrangement consideration to one or more units of accounting. Under ASC 605, the delivered item(s) are separate units of accounting, provided (i) the delivered item(s) have value to a collaborator on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We adopted this update on January 1, 2011. In April 2010, the FASB issued a separate update to ASC 605 which provides guidance on the criteria that should be met when determining whether the milestone method of revenue recognition is appropriate. This method is effective on a prospective basis for milestones achieved after January 1, 2011. We did not achieve any milestones between that date and September 30, 2011; after a milestone is achieved, we will determine whether or not to make a policy election to adopt the milestone method.

There have been no other changes to our revenue recognition accounting policies as of and for the nine months ended September 30, 2011, which policies are disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.

License Agreement with Salix - February 2011

Under our license agreement, as described above, Salix is responsible for continuing development and commercialization of subcutaneous RELISTOR, including completing clinical development necessary to support regulatory marketing approvals for potential new indications and formulations. We have granted Salix an exclusive license of relevant know-how, patent rights and technology, assigned relevant third-party contracts, and performed substantially all of our other transition-related activities as of June 30, 2011. During the second quarter of 2011, we and Salix completed a number of tasks involved in enabling Salix to distribute RELISTOR in the U.S. and the European Union, as well as clinical and regulatory development related activities, and have agreed with Salix on research and development services we are to perform at Salix's direction. We have not performed any significant research and development activities during the third quarter.

 In consideration of the $60.0 million upfront payment from Salix, we are responsible for delivering to Salix an exclusive license of relevant know-how, patent rights and technology and serving on joint committees provided for in the License Agreement. These deliverables, which have stand-alone value and represent separate units of accounting, include (i) the exclusive license which was delivered for revenue recognition purposes during the 2011 second quarter, (ii) performing reimbursable development services at Salix's direction during the 2011 second quarter, the period in which we and Salix finalized the development plan, and (iii) joint committee services, which we expect to perform through 2013. We determined that the license has stand-alone value as the license was delivered to Salix for revenue recognition purposes in the second quarter of 2011 and Salix is responsible for continuing research and development.

We developed a best estimate of selling price for each deliverable as vendor-specific objective evidence and third-party evidence was not available. We allocated the best estimate of selling price, on a relative basis, to each of the three units of accounting as the $60.0 million upfront payment was the only payment from Salix which was fixed and determinable at the inception of the arrangement. As a result, $58.4 million, $1.1 million and $0.5 million was allocated to the license, reimbursable development services and our participation in the joint committees as provided in the License Agreement, respectively. We recognized $58.4 million for the license and relevant know-how, patent rights and technology and $1.1 million for the reimbursable development services, respectively, during the second quarter of 2011, the period in which we delivered these items and performed the development services.

During the third quarter of 2011, we performed joint committee services which resulted in the recognition of $0.1 million and the remaining $0.4 million for these services is recognized in collaboration revenue as such activities are performed in the future. In addition, we received $0.2 million during the third quarter in respect of Salix ex-U.S. sublicensee revenue, which was recognized in collaboration revenue.

Transition Agreement with Wyeth - October 2009

Under the Transition Agreement, Wyeth's license of Progenics' technology under the original 2005 collaboration was terminated except as necessary for performance of its obligations during the transition period, and Wyeth returned the rights to RELISTOR that we had previously granted. During the transition, Wyeth was obligated to pay all costs of commercialization of subcutaneous RELISTOR, including manufacturing costs, and retained all proceeds from its sale of the products, subject to royalties that were due to us for sales made prior to September 30, 2010. Decisions with respect to commercialization of the product during the transition period were made solely by Wyeth. As of the beginning of the fourth quarter of 2011, Salix has assumed substantially all of Wyeth's remaining ex-U.S. development and commercialization activities for RELISTOR worldwide ex-Japan.

Ono Agreement - October 2008

Ono is responsible for developing and commercializing subcutaneous RELISTOR in Japan, including conducting clinical development necessary to support regulatory marketing approval. Ono will own the filings and approvals related to subcutaneous RELISTOR in Japan. Ono may request us to perform activities related to its development and commercialization responsibilities, beyond our participation in joint committees and specified technology transfer-related tasks, at its expense payable at the time we perform such services. Revenue earned from activities we perform for Ono is recorded in collaboration revenue.

Collaboration Revenue

During the three and nine months ended September 30, 2011, we recognized revenue of $2,854 and $74,738, respectively ($71,884 in the second quarter) under the Salix License Agreement; $0 and $1,630, respectively, under the Wyeth Transition Agreement; and $1 and $30, respectively, under the Ono Agreement. Of the $60.0 million in deferred revenue as of March 31, 2011, we have recognized $0.1 million and $59.6 million in collaboration revenue during the three and nine months ended September 30, 2011, as described above. As of September 30, 2011, $204 and $213 is recorded in deferred revenue - current and long-term, respectively, which is attributable to joint committee services remaining to be completed under the License Agreement and is recognized in collaboration revenue as such activities are performed in the future, as described above.

RELISTOR Royalties

Under the terms of the Wyeth transition, no royalties have been due to us during 2011 in respect of RELISTOR sales reported by Wyeth. During the three and nine months ended September 30, 2011, we recognized royalty income of $1,240 and $1,767, respectively, based on net U.S. sales of RELISTOR reported by Salix. During the three and nine months ended September 30, 2010, we recognized royalty income of $620 and $1,826, respectively, based on net sales of subcutaneous RELISTOR reported by Wyeth. We incurred $147 and $274, respectively, of royalty expenses during the three and nine months ended September 30, 2011 and $62 and $182, respectively during the three and nine months ended September 30, 2010.