Commitments and Contingencies
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Dec. 31, 2012
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Commitments and Contingencies |
9. Commitments and Contingencies
Leasing Arrangements
The Company’s headquarters facility is located in Bedford,
Massachusetts, where the Company leases approximately 134,000
square feet of administrative, manufacturing, and research and
development (“R&D”) space. This lease was entered
into on January 4, 2007, and the lease commenced on
May 1, 2007 for an initial term of ten and one-half years. The
Company has an option under the lease to extend its terms for up to
four additional periods beyond the original expiration date subject
to the condition that we notify the landlord that we are exercising
each option at least one year prior to the expiration of the
original or current term thereof. The first three renewal options
each extend the term an additional five years with the final
renewal option extending the term six years.
The Company’s administrative and R&D personnel moved into
the Bedford facility in November of 2007. The build-out of the
Bedford facility, including the required validation process for the
manufacturing space, was substantially completed during 2011. The
Bedford facility was fully validated and approved by applicable
regulatory authorities in 2012.
As part of the acquisition of Anika S.r.l., the Company now leases
approximately 26,000 square feet of laboratory, warehouse and
office space in Abano Terme, Italy. The lease commenced on December
30, 2009 for an initial term of six (6) years.
Rental expense in connection with the various facility leases
totaled $2,486,849, $3,479,632 and $2,888,277, for the years ended
December 31, 2012, 2011, and 2010, respectively.
The Company’s future lease commitments as of
December 31, 2012 are as follows:
Warranty and Guarantor
Arrangements
In certain of our contracts, the Company warrants to its customers
that the products it manufactures conform to the product
specifications as in effect at the time of delivery of the specific
product. The Company may also warrant that the products it
manufactures do not infringe, violate, or breach any U.S. patent or
intellectual property rights, trade secret, or other proprietary
information of any third party. On occasion, the Company
contractually indemnifies its customers against any and all losses
arising out of, or in any way connected with, any claim or claims
of breach of its warranties or any actual or alleged defect in any
product caused by the negligence or acts or omissions of the
Company. The Company maintains a products liability insurance
policy that limits its exposure to these risks. Based on the
Company’s historical activity, in combination with its
liability insurance coverage, the Company believes the estimated
fair value of these indemnification agreements is immaterial. The
Company has no accrued warranties at December 31, 2012 and 2011,
respectively, and has no history of claims paid.
Legal Proceedings
On
July 7, 2010, Genzyme Corporation filed a complaint against the
Company in the United States District Court for the District of
Massachusetts seeking unspecified damages and equitable relief. The
Complaint alleges that the Company has infringed U.S. Patent No.
5,143,724 by manufacturing MONOVISC in the United States for sale
outside the United States and will infringe U.S. Patent Nos.
5,143,724 and 5,399,351 if the Company begins manufacture and
sale of MONOVISC in the United States. On August 30, 2010, the
Company filed an answer denying liability. On April 26, 2011,
Genzyme filed a motion to add its newly-issued U.S. Patent No.
7,931,030 to this litigation and also filed a separate new
complaint in the District of Massachusetts alleging that the
Company’s manufacture and sales of MONOVISC in the United
States will infringe that patent. On May 23, 2011, the Court
entered orders permitting Genzyme to file its supplement complaint
adding its newly-issued U.S. Patent No. 7,931,030 to this
litigation and requiring Genzyme to withdraw its separately filed
complaint. On July 14, 2011, the Company filed an answer to the
supplemental complaint, denying liability. On May 10, 2012, Genzyme
dismissed its claim of infringement of U.S. Patent No. 5,399,351
and is no longer asserting that patent against the Company. The
Company believes that neither MONOVISC, nor its manufacture, does
or will infringe any valid and enforceable claim of the asserted
patents. Management has assessed and determined that contingent
losses related to this matter are not probable. Therefore, pursuant
to ASC 450, Contingencies, an
accrual has not been recorded for this loss contingency. Pursuant
to the terms of the licensing and supply agreement entered into
with DePuy Mitek, Inc. in December 2011, DePuy Mitek agreed to
assume certain obligations of the Company related to this
litigation. On August 3, 2012, a jury in the United States District
Court for the District of Massachusetts held U.S. Patent No.
7,931,030 invalid as obvious and not infringed in litigation
between Genzyme and Seikagaku Corporation, Zimmer Holdings Inc.,
Zimmer, Inc. and Zimmer U.S., Inc. concerning the Gel-One product.
On September 19, 2012, Genzyme and the Company jointly requested
that the Court stay Genzyme’s lawsuit against the Company
pending the full resolution of the Seikagaku/Zimmer lawsuit,
including through any appeal of the judgment entered in that
lawsuit. The District Court granted the motion on September 28,
2012.
In
2011, Merogel Injectable was withdrawn from the market due to a
labeling error on the product’s packaging, discovered by the
Company. We settled the matter related to this dispute with
Medtronic in August, 2012. This labeling error relates to conduct
that initially occurred prior to our acquisition of Anika
S.r.l. from Fidia Farmaceutici S.p.A. and we have made claims
against Fidia for indemnification for Anika’s losses related
to this issue. Fidia has informed us that it does not believe
that it has liability for this matter, and has asserted a
counterclaim against Anika for failing to consent to the release of
the remaining shares held in escrow upon the closing of the Anika
S.r.l. acquisition. We have begun an arbitration process with Fidia
in the London Court of International Arbitration to resolve the
matter. Management has assessed Fidia’s claims and determined
that contingent losses related to this matter are not probable.
Therefore, pursuant to ASC 450, Contingencies, an
accrual has not been recorded for this loss
contingency.
We are also involved in various other legal proceedings arising in
the normal course of business. Although the outcomes of
these other legal proceedings are inherently difficult to predict,
we do not expect the resolution of these other legal proceedings to
have a material adverse effect on our financial position, results
of operations or cash flow.
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