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Collaboration Arrangements | 12 Months Ended
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Dec. 31, 2011
Collaboration Arrangements |
Collaboration Arrangements |
3. Collaboration Arrangements GSK LABA collaboration with GSK In November 2002, the Company entered into its long-acting beta2 agonist (LABA) collaboration with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disease (COPD) and asthma. For the treatment of COPD, the collaboration is developing combination products, RELOVAIR™ and the LAMA/LABA (GSK573719/vilanterol or '719/VI). For the treatment of asthma, the collaboration is developing RELOVAIR™. RELOVAIR™ is an investigational once-daily combination medicine consisting of a LABA, VI, previously referred to as GW642444 or '444, and an inhaled corticosteroid (ICS), fluticasone furoate (FF). The LAMA/LABA, '719/VI, is an investigational once-daily combination medicine consisting of the long-acting muscarinic antagonist (LAMA) '719, and the LABA, VI. The current lead product candidates in the LABA collaboration, VI and FF, were discovered by GSK. In the event that VI is successfully developed and commercialized, the Company will be obligated to make milestone payments to GSK which could total as much as $220.0 million if both a single-agent and a combination product or two different combination products are launched in multiple regions of the world. If global regulatory authorities accept the applications for RELOVAIR™, which the Company anticipates will be filed by GSK beginning in mid-2012, a portion of these potential milestone payments could be payable to GSK within the next two years. The Company is entitled to annual royalties from GSK of 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion. Sales of single-agent LABA medicines and combination medicines would be combined for the purposes of this royalty calculation. For other products combined with a LABA from the LABA collaboration, such as '719/VI, royalties are upward tiering and range from the mid-single digits to 10%. However, if GSK is not selling a LABA/ICS combination product at the time that the first other LABA combination is launched, then the royalties described above for the LABA/ICS combination medicine would be applicable. In connection with the LABA collaboration, in 2002, Glaxo Group Limited, an affiliate of GSK, purchased shares of the Company's Series E preferred stock for an aggregate purchase price of $40.0 million. 2004 Strategic Alliance with GSK In March 2004, the Company entered into its strategic alliance with GSK. Under this alliance, GSK received an option to license exclusive development and commercialization rights to product candidates from certain of the Company's discovery programs on pre-determined terms and on an exclusive, worldwide basis. Upon GSK's decision to license a program, GSK is responsible for funding all future development, manufacturing and commercialization activities for product candidates in that program. In addition, GSK is obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses. If the program is successfully advanced through development by GSK, the Company is entitled to receive clinical, regulatory and commercial milestone payments and royalties on any sales of medicines developed from the program. If GSK chooses not to license a program, the Company retains all rights to the program and may continue the program alone or with a third party. In 2005, GSK licensed the Company's bifunctional muscarinic antagonist-beta2 agonist (MABA) program for the treatment of COPD, and in October 2011, the Company and GSK expanded the MABA program by adding six additional Theravance-discovered preclinical MABA compounds (the "Additional MABAs"). GSK's development, commercialization, milestone and royalty obligations under the strategic alliance remain the same with respect to '081, the lead compound in the MABA program. GSK is obligated to use diligent efforts to develop and commercialize at least one MABA within the MABA program, but may terminate progression of any or all Additional MABAs at any time and return them to the Company, at which point the Company may develop and commercialize such Additional MABAs alone or with a third party. Both GSK and the Company have agreed not to conduct any MABA clinical studies outside of the strategic alliance so long as GSK is in possession of the Additional MABAs. If a single-agent MABA medicine containing '081 is successfully developed and commercialized, the Company is entitled to receive royalties from GSK of between 10% and 20% of annual global net sales up to $3.5 billion, and 7.5% for all annual global net sales above $3.5 billion. If a MABA medicine containing '081 is commercialized only as a combination product, such as a MABA/ICS, the royalty rate is 70% of the rate applicable to sales of the single-agent MABA medicine. For single-agent MABA medicines containing an Additional MABA, the Company is entitled to receive royalties from GSK of between 10% and 15% of annual global net sales up to $3.5 billion, and 10% for all annual global net sales above $3.5 billion. For combination products containing an Additional MABA, such as a MABA/ICS, the royalty rate is 50% of the rate applicable to sales of the single-agent MABA medicine. If a MABA medicine containing '081 is successfully developed and commercialized in multiple regions of the world, the Company could earn total milestone payments up to $125.0 million for a single-agent medicine and up to $250.0 million for both a single-agent and a combination medicine. If a MABA medicine containing an Additional MABA is successfully developed and commercialized in multiple regions of the world, the Company could earn total milestone payments up to $129.0 million. In May 2004, GlaxoSmithKline LLC, an affiliate of GSK, purchased 6,387,096 shares of the Company's Class A common stock for an aggregate purchase price of $108.9 million and, upon the closing of the Company's initial public offering on October 8, 2004, GlaxoSmithKline LLC purchased an additional 433,757 shares of Class A common stock for an aggregate purchase price of $6.9 million. In November 2010 Glaxo Group Limited, an affiliate of GSK, purchased 5,750,000 shares of the Company's Common Stock for an aggregate purchase price of $129.4 million. GSK Conversion of the Company's Class A Common Stock and Purchases of Common Stock under the Company's Governance Agreement with GSK In July 2011, GSK converted all of the shares of the Company's Class A common stock held by its affiliates into 9,401,499 shares of the Company's common stock on a one share-for-one share basis in accordance with the terms of the Company's restated certificate of incorporation. In addition, Glaxo Group Limited purchased shares of the Company's common stock pursuant to its periodic "top-up" rights under the Company's governance agreement with GSK dated June 4, 2004, as amended, as follows:
|  | Through December 31, 2011 |
--- | --- | --- | ---
|  | Common Stock Shares Purchased |  | Aggregate Amounts (in thousands) |
Purchase dates |  |  |  |  |  |  |
February 24, 2011 |  |  | 152,278 |  | $ | 3,609 |
May 3, 2011 |  |  | 261,299 |  | $ | 6,689 |
August 2, 2011 |  |  | 102,466 |  | $ | 2,020 |
November 1, 2011 |  |  | 58,411 |  | $ | 1,298 |
GSK Upfront License Fees, Milestone Payments and Revenue Upfront license fees and milestone payments received from GSK under the LABA collaboration and strategic alliance agreements were as follows:
|  | Through December 31, 2011 |
--- | --- | --- | ---
(in thousands) |  | Upfront License Fees |  | Milestone Payments |  | Total |
GSK Collaborations |  |  |  |  |  |  |  |  |  |
LABA/RELOVAIR™ collaboration(1) |  | $ | 10,000 |  | $ | 50,000 |  | $ | 60,000 |
Strategic alliance agreement |  |  | 20,000 |  |  | — |  |  | 20,000 |
Strategic alliance—LAMA license(2) |  |  | 5,000 |  |  | 3,000 |  |  | 8,000 |
Strategic alliance—MABA program license |  |  | 6,000 |  |  | 16,000 |  |  | 22,000 |
Total |  | $ | 41,000 |  | $ | 69,000 |  | $ | 110,000 |
(1) The Company does not currently expect to be eligible for any additional milestones under this collaboration. (2) In August 2004, GSK exercised its right to license the Company's LAMA program pursuant to the terms of the strategic alliance. In 2009, GSK returned the program to the Company. In August 2011, the Company received a $3.0 million milestone payment from GSK for the initiation of the Phase 1 combination study in the Company's MABA program. In October 2011, the Company received an upfront license payment of $1.0 million from GSK related to the Additional MABAs, which is being accounted for as a new arrangement under the updated multiple element arrangement accounting guidance. The Company allocated revenue from this upfront license payment and will allocate any potential contingent payments related to the Additional MABAs under the MABA program, as discussed above in the section entitled Note 1, "Description of Operations and Summary of Significant Accounting Policies—Revenue Recognition," to each non-contingent element based upon the relative selling price of each element. The Company determined the license has standalone value because the license can be used for its intended purpose and may be developed, commercialized and manufactured for its intended purpose without any remaining participation from the Company's. As a result, the Company recognized $936,000 of the upfront license payment and the remaining amount was deferred and will be amortized over the estimated development period over which we will be performing services. The eligible potential contingent payments related to the MABA program, which includes the Additional MABAs, are not deemed substantive due to the fact that the achievement of the event underlying the payment predominantly relates to GSK's performance of future development, manufacturing and commercialization activities for product candidates after licensing the program. Revenue recognized from GSK under the LABA collaboration and strategic alliance agreements was as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
(in thousands) |  | 2011 |  | 2010 |  | 2009 |
LABA/RELOVAIR™ collaboration(1) |  | $ | 4,718 |  | $ | 5,081 |  | $ | 5,081 |
Strategic alliance agreement |  |  | 1,858 |  |  | 2,738 |  |  | 2,738 |
Strategic alliance—LAMA license |  |  | — |  |  | — |  |  | 4,240 |
Strategic alliance—MABA program license(2) |  |  | 3,082 |  |  | 2,007 |  |  | 3,014 |
Total revenue |  | $ | 9,658 |  | $ | 9,826 |  | $ | 15,073 |
(1) In the fourth quarter of 2011, the Company revised the estimated performance period for the LABA program based on its progress. The Company does not expect that the revisions will have a material impact on future revenue recognized under this program. (2) In the fourth quarter of 2011 and the first quarter of 2010, the Company revised the estimated performance period for the MABA program based on its progress. The Company does not expect that the revisions will have a material impact on future revenue recognized under this program. Astellas In November 2005, the Company entered into a global collaboration arrangement with Astellas for the development and commercialization of VIBATIV®. On January 6, 2012, Astellas exercised its right to terminate this agreement. The rights granted to Astellas ceased upon termination of the agreement and Astellas has stopped promotional sales efforts. Pursuant to the terms of the agreement, there are no termination payments required by either party and Astellas is entitled to a ten-year, 2% royalty on future net sales of VIBATIV®. To support the transition, Astellas will sell inventory to the Company, manage certain clinical and regulatory activities and respond to medical inquiries with respect to VIBATIV® until no later than March 31, 2012. The Company is evaluating global commercialization alternatives for VIBATIV® either alone or with partners. Through December 31, 2011, the Company received $191.0 million in upfront license, milestone and other fees from Astellas. The Company recorded these payments as deferred revenue and is amortizing them ratably over its estimated performance period (development and commercialization period). As a result of the termination of the VIBATIV® collaboration agreement, the Company is no longer eligible to receive any further milestone payments. Net revenue recognized under this collaboration agreement was as follows:
|  | December 31, |
--- | --- | --- | ---
(in thousands) |  | 2011 |  | 2010 |  | 2009 |
Amortization of deferred revenue |  | $ | 12,975 |  | $ | 12,975 |  | $ | 11,338 |
Royalties from net sales of VIBATIV® |  |  | 2,422 |  |  | 1,123 |  |  | 766 |
Proceeds from VIBATIV® delivered to Astellas |  |  | 1,171 |  |  | 2,058 |  |  | — |
Cost of VIBATIV® delivered to Astellas |  |  | (1,177 | ) |  | (938 | ) |  | (1,629 | )
Cost of unrealizable VIBATIV® inventory |  |  | (537 | ) |  | (821 | ) |  | (1,175 | )
Total net revenue |  | $ | 14,854 |  | $ | 14,397 |  | $ | 9,300 |

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- Definition The entire disclosure for collaborative arrangements in which the entity is a participant, including a) information about the nature and purpose of such arrangements; b) its rights and obligations thereunder; c) the accounting policy for collaborative arrangements; and d) the income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 07-1 -Paragraph 21 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 + Details
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