Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2011

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recently Issued Accounting Standards

12.   Recently Issued Accounting Standards

Multiple-deliverable revenue arrangements

During the first quarter of 2011 the Company adopted amended authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on multiple-deliverable revenue arrangements.  The amended guidance provides greater ability to separate and allocate consideration to be received in a multiple-deliverable revenue arrangement by requiring the use of estimated selling prices to allocate the consideration, thereby eliminating the use of the residual method of allocation.  The amended guidance also requires expanded qualitative and quantitative disclosures surrounding multiple-deliverable revenue arrangements.  The Company is applying this amended guidance prospectively for new or materially modified arrangements, of which there were none during the nine months ended September 30, 2011.  The adoption of this guidance did not have a material impact on the Company’s financial statements.

Milestone method of revenue recognition

During the first quarter of 2011, the Company adopted amended authoritative guidance issued by the FASB codifying the milestone method of revenue recognition as an acceptable revenue recognition model when a milestone is deemed to be substantive.  Since the Company has historically accounted for milestones under the milestone method, the adoption of this guidance did not have a material impact on the Company’s financial statements.

In accordance with the Company’s accounting policy for recognition of revenue in connection with collaboration agreements, as previously disclosed in the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, payments which are based on achieving a specific performance milestone, involving a degree of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone.  Substantive performance milestones typically consist of significant achievements in the development life-cycle of the related product candidate, such as completion of clinical trials, filing for approval with regulatory agencies, and receipt of approvals by regulatory agencies.  In determining whether a payment is deemed to be a substantive performance milestone, the Company takes into consideration (i) the nature, timing, and value of significant achievements in the development life-cycle of the related development product candidate, (ii) the relative level of effort required to achieve the milestone, and (iii) the relative level of risk in achieving the milestone, taking into account the high degree of uncertainty in successfully advancing product candidates in a drug development program and in ultimately attaining an approved drug product.  Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period.

The Company earns substantive performance milestone payments in connection with its collaboration agreements to develop and commercialize product candidates with Sanofi and Bayer HealthCare.  Descriptions of these collaboration agreements, including various financial terms and conditions, were provided in the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Under the Company’s collaboration agreement with Sanofi to jointly develop and commercialize ZALTRAP® (aflibercept, also known as VEGF Trap), the Company may receive up to $400 million in substantive milestone payments upon receipt of specified marketing approvals, including up to $360 million in milestone payments related to the receipt of marketing approvals for up to eight ZALTRAP® oncology and other indications in the U.S. or the European Union and up to $40 million related to the receipt of marketing approvals for up to five ZALTRAP® oncology indications in Japan.  Under the Company’s global, strategic collaboration with Sanofi to discover, develop, and commercialize fully human monoclonal antibodies, for each drug candidate identified under the collaboration’s Discovery and Preclinical Development Agreement, Sanofi has the option to license rights to the candidate under the collaboration’s License and Collaboration Agreement and co-develop the drug candidate with the Company through product approval.  Under certain defined circumstances, upon exercising its option to license rights to particular candidates, Sanofi must make a $10 million substantive milestone payment to the Company.  Under the Company’s license and collaboration agreement with Bayer HealthCare to globally develop, and commercialize outside the U.S., EYLEATM, the Company is eligible to receive up to $50 million in future substantive milestone payments related to marketing approvals of EYLEATM in major market countries outside the U.S.

Fees paid to the federal government by pharmaceutical manufacturers

In December 2010, the FASB provided authoritative guidance on how pharmaceutical manufacturers should recognize and classify in their income statement annual fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act.  This guidance became effective for calendar years beginning after December 31, 2010.  The adoption of this guidance did not have an impact on the Company’s financial statements as the fee does not currently apply to the Company.  The Company’s marketed product, ARCALYST® for the treatment of CAPS, has been approved as an orphan drug and orphan drugs are not subject to this annual fee.

Presentation of comprehensive income

In June 2011, the FASB amended its authoritative guidance on the presentation of comprehensive income.  Under the amendment, an entity will have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  This amendment, therefore, eliminates the currently available option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendment does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The Company will adopt this amended guidance for the fiscal year beginning January 1, 2012.  As this guidance relates to presentation only, the adoption of this guidance will not have any other effect on the Company's financial statements.