Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

16. Commitments and Contingencies

Contingent liabilities

We are currently involved in various claims and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.   Because of uncertainties related to claims and litigation, accruals are based on our best estimates based on available information.  On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation or settlement of claims, we may reassess the potential liability related to these matters and may revise these estimates, which could result in a material adverse adjustment to our operating results.

 On January 26, 2011, Novartis Vaccines & Diagnostics, Inc. (Novartis) filed a civil action against us and other biopharmaceuticals companies in the U.S. District Court for the District of Delaware.   Novartis claims willful infringement by us of U.S. Patent No. 5,688,688. Novartis seeks, among other things, monetary damages.   If it is finally determined that we infringe the Novartis patent, we may be required to pay royalties to Novartis on sales of Soliris regarding certain manufacturing technology.  Although we do not believe that the manufacture of Soliris infringes a valid patent claim owned by Novartis, we cannot guarantee that we will be successful in defending against such action.   Given the early stages of this litigation, management does not currently believe that a loss related to this matter is probable or that the potential magnitude of such loss or range of loss, if any, can be reasonably estimated.

In addition to Novartis's claim, other third parties may claim that the manufacture, use or sale of Soliris or other drugs under development infringes patents owned or granted to such third parties.  We are aware of broad patents owned by others relating to the manufacture, use and sale of recombinant humanized antibodies, recombinant human antibodies, and recombinant human single chain antibodies.  Soliris and many of our product candidates are genetically engineered antibodies, including recombinant humanized antibodies, recombinant human antibodies, or recombinant human single chain antibodies. In addition to the action described above, we have received notices from the owners of some of these patents claiming that their patents may be infringed by the development, manufacture or sale of Soliris or some of our drug candidates.  We are also aware of other patents owned by third parties that might be claimed by such third parties to be infringed by the development and commercialization of Soliris and some of our drug candidates.  In respect to some of these patents, we have obtained licenses, or expect to obtain licenses.   We estimate our obligations for probable contingent liabilities based on our assessment of estimated royalties potentially owed to other third parties.  A costly license, or inability to obtain a necessary license, could have a material adverse effect on our business.  However the amount of such loss or a range of loss, if any, beyond amounts currently accrued cannot be reasonably estimated.

As of June 30, 2011 and December 31, 2010, we have recorded $64,671 and $50,133, respectively, in accrued expenses for royalties. Our cost of sales for the three and six months ended June 30, 2011 and 2010 includes amounts recorded for both changes in contingent liabilities described above and for existing royalty agreements.