AGREEMENT WITH GEDEON RICHTER	3 Months Ended
Sep. 30, 2014
Notes to Financial Statements
AGREEMENT WITH GEDEON RICHTER	In August 2014, the Company entered into a license, co-development and commercialization agreement with Gedeon Richter on bremelanotide for FSD in Europe and selected countries. In August 2013, the Company received an initial payment of $1.0 million from Gedeon Richter as a non-refundable option fee on the license, co-development and commercialization agreement, and in September 2014, the Company received €6.7 ($8.8 million) on execution of the definitive agreement. Under the agreement, Gedeon Richter will pay the Company a milestone payment of €2.5 million ($3.2 million as of September 30, 2014) upon the initiation of the Company’s Phase 3 clinical trial program in the United States. The Company has the potential to receive up to €80 million ($101.2 million as of September 30, 2014) in regulatory and sales related milestones, and will receive low double-digit royalties on net sales in the licensed territory. Under the agreement the Company will contribute, with Gedeon Richter, to the costs of co-development activities for obtaining regulatory approval in Europe. Gedeon Richter will exclusively market bremelanotide for FSD in the licensed territory, and will be responsible for all sales, marketing and commercial activities, including associated costs, in the licensed territory. The agreement remains in effect as long as Gedeon Richter is selling bremelanotide on which a royalty is owed. The agreement may be terminated by either party upon notice in the event of a material breach or insolvency. In the event Gedeon Richter terminates the agreement because the Company breached the agreement or is insolvent, Gedeon Richter’s license becomes fully paid-up, royalty free, perpetual and irrevocable. If the Company fails to initiate its Phase 3 program on or before December 31, 2014, Gedeon Richter at its option may elect to terminate the license and receive a payment equal to one-half of the total upfront payments of €7.5 million ($9.8 million). We view the delivery of the license for bremelanotide as a revenue generating activity that is part of our ongoing and central operations. The other elements of the agreement with Gedeon Richter are considered non-revenue activities associated with the collaborative arrangement. We believe the license has standalone value from the other elements of the collaborative arrangement because it conveys all of the rights necessary to develop and commercialize the bremelanotide compound. As of September 30, 2014, the portion of the license payment that is contingent and refundable was recorded as deferred revenue in the consolidated balance sheet. During the three months ended September 30, 2014, the portion of the license payment that is non-contingent and non-refundable was recorded as license revenue in the consolidated statements of operations. In the event that we terminate the agreement because Gedeon Richter breached the agreement or is insolvent, upon timely request all regulatory approvals for bremelanotide in the licensed territory will be transferred to us or our designee. As a result of fluctuations in the conversion rates between the Euro and the U.S. Dollar between the transaction date and the settlement date, the Company has recorded a foreign exchange transaction loss of $101,283 for the three months ended September 30, 2014.

AGREEMENT WITH GEDEON RICHTER

3 Months Ended

Sep. 30, 2014

In August 2014, the Company entered into a license, co-development and commercialization agreement with Gedeon Richter on bremelanotide for FSD in Europe and selected countries. In August 2013, the Company received an initial payment of $1.0 million from Gedeon Richter as a non-refundable option fee on the license, co-development and commercialization agreement, and in September 2014, the Company received €6.7 ($8.8 million) on execution of the definitive agreement. Under the agreement, Gedeon Richter will pay the Company a milestone payment of €2.5 million ($3.2 million as of September 30, 2014) upon the initiation of the Company’s Phase 3 clinical trial program in the United States. The Company has the potential to receive up to €80 million ($101.2 million as of September 30, 2014) in regulatory and sales related milestones, and will receive low double-digit royalties on net sales in the licensed territory. Under the agreement the Company will contribute, with Gedeon Richter, to the costs of co-development activities for obtaining regulatory approval in Europe. Gedeon Richter will exclusively market bremelanotide for FSD in the licensed territory, and will be responsible for all sales, marketing and commercial activities, including associated costs, in the licensed territory. The agreement remains in effect as long as Gedeon Richter is selling bremelanotide on which a royalty is owed. The agreement may be terminated by either party upon notice in the event of a material breach or insolvency. In the event Gedeon Richter terminates the agreement because the Company breached the agreement or is insolvent, Gedeon Richter’s license becomes fully paid-up, royalty free, perpetual and irrevocable. If the Company fails to initiate its Phase 3 program on or before December 31, 2014, Gedeon Richter at its option may elect to terminate the license and receive a payment equal to one-half of the total upfront payments of €7.5 million ($9.8 million).

We view the delivery of the license for bremelanotide as a revenue generating activity that is part of our ongoing and central operations. The other elements of the agreement with Gedeon Richter are considered non-revenue activities associated with the collaborative arrangement. We believe the license has standalone value from the other elements of the collaborative arrangement because it conveys all of the rights necessary to develop and commercialize the bremelanotide compound. As of September 30, 2014, the portion of the license payment that is contingent and refundable was recorded as deferred revenue in the consolidated balance sheet. During the three months ended September 30, 2014, the portion of the license payment that is non-contingent and non-refundable was recorded as license revenue in the consolidated statements of operations. In the event that we terminate the agreement because Gedeon Richter breached the agreement or is insolvent, upon timely request all regulatory approvals for bremelanotide in the licensed territory will be transferred to us or our designee.

As a result of fluctuations in the conversion rates between the Euro and the U.S. Dollar between the transaction date and the settlement date, the Company has recorded a foreign exchange transaction loss of $101,283 for the three months ended September 30, 2014.