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License Agreements | 3 Months Ended
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Mar. 31, 2013
License Agreements | Note 12. License Agreements The Company has certain agreements with Fresenius which require the Company to pay royalties on future INTERCEPT Blood System product sales at royalty rates that vary by product: 10% of product sales for the platelet system, 3% of product sales for the plasma system, 5% of product sales for the red blood cell system, and 6.5% on sales of illuminators. During the three months ended March 31, 2013, and 2012, the Company made royalty payments to Fresenius of $0.8 million and $0.7 million, respectively. At March 31, 2013, and December 31, 2012, the Company owed Fresenius $0.7 million and $0.8 million, respectively, for royalties. In December 2008, the Company extended its agreement with Fresenius to manufacture finished INTERCEPT disposable kits for the platelet and plasma systems through December 31, 2013. Under the amended manufacturing and supply agreement, the Company pays Fresenius a set price per kit, which is established annually, plus a fixed surcharge per kit. In addition, volume driven manufacturing overhead is to be paid or refunded if actual manufacturing volumes are lower or higher than the estimated production volumes. The Company made payments to Fresenius of $3.9 million and $3.6 million relating to the manufacturing of the Company products during the three months ended March 31, 2013, and 2012, respectively. At March 31, 2013, and December 31, 2012, the Company owed Fresenius $3.9 million and $6.2 million, respectively, for INTERCEPT disposable kits manufactured. In connection with the warranty claims incurred by the Company and remediation of those claims during the year ended December 31, 2012 (see Note 1 in the Notes to Condensed Consolidated Financial Statements under “Guarantee and Indemnification Arrangements” for more detail), the Company filed a warranty claim against Fresenius. Fresenius accepted the warranty claim and has or will supply the Company with replacement product or credit notes. As a result, the Company recorded a current asset of $1.8 million on its consolidated balance sheets as of December 31, 2012 representing the full amount of the warranty claim against Fresenius as Fresenius will supply the Company with replacement products or credit notes for those defective or potentially defective products. The Company also wrote-down the value of certain unsalable inventory of $1.7 million related to these products as an offsetting warranty claim against Fresenius as of December 31, 2012. As of March 31, 2013 the Company’s warranty claim against Fresenius is $0.3 million and all unsalable inventory has been returned. During the three months ended March 31, 2013, the Company identified a production defect related to certain lots of Fresenius manufactured INTERCEPT Plasma Processing sets, caused by defective valves purchased by Fresenius. The Company and Fresenius agreed that Fresenius is fully liable for the impacted inventory and that Fresenius will re-inspect, re-work, re-package and return all inventory to the Company at Fresenius’ expense. At March 31, 2013 the Company had not sold any of the affected inventory to customers, nor had any of the inventory been returned to Fresenius. Accordingly, at March 31, 2013 the Company reclassified from inventory approximately $0.4 million and $0.5 million to prepaid expenses and accounts payable, respectively, to properly reflect impacted units that the Company had either paid Fresenius for or had received invoices for. The Company and Fresenius do not believe that any additional product lots are impacted by this defect.

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