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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2011
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

9.    Commitments and Contingencies

The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales. Because of the contingent nature of these payments, they are not included in the table of contractual obligations shown below (see also Note 15).

These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give the Company the discretion to unilaterally terminate development of the product, which would allow the Company to avoid making the contingent payments; however, the Company is unlikely to cease development if the compound successfully achieves clinical testing objectives. The Company’s contractual obligations that will require future cash payments as of December 31, 2011 are as follows (in thousands):

 

                                         
    Operating
Leases(1)		     Non-Cancelable
Employment
Agreements(2)		     Subtotal     Cancelable
License
Agreements(3)		     Total  

2012

   $ 139     $ 1,774     $ 1,914     $ 578     $ 2,492  

2013

     25       1,006       1,031       453       1,484  

2014

     3       413       415       463       878  

2015

     3       300       303       538       841  

2016

     2       100       102       988       1,090  

2017 and Thereafter

     —       —       —       7,173       7,173  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 172     $ 3,593     $ 3,765     $ 10,193     $ 13,958  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Operating leases are primarily facility and equipment related obligations with third party vendors. Operating lease expenses during the years ended December 31, 2011 and 2010 were approximately $233,000 and $274,000, respectively.

 

(2) Employment agreement obligations include management contracts, as well as scientific advisory board member compensation agreements. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the discretion of the Compensation Committee, as well as for minimum bonuses that are payable.

 

(3) License agreements generally relate to the Company’s obligations with The Board of Regents, University of Texas and Henry Jackson Foundation for our oncology therapies and UMMS associated with RNAi and, for future periods, represent minimum annual royalty and milestone payment obligations, of the total amount due. The Company continually assesses the progress of its licensed technology and the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. In the event these licenses are terminated, no amounts will be due.

The Company applies the disclosure provisions FASB ASC Topic 460 (“ASC 460”), “ Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, to its agreements that contain guarantee or indemnification clauses. The Company provides (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims and (ii) indemnifications of varying scope and size to officers and directors against third party claims arising from the services they provide to us. These indemnifications give rise only to the disclosure provisions of ASC 460. To date, the Company has not incurred costs as a result of these obligations and does not expect to incur material costs in the future. Accordingly, the Company has not accrued any liabilities in its financial statements related to these indemnifications.

 

On November 21, 2011, Hudson Bay Master Fund, Ltd. (“Hudson Bay”) filed a Complaint against the Company in the United States District Court for the Southern District of New York (the “Court”), captioned Hudson Bay Master Fund, Ltd. v. Galena Biopharma, Inc., 11 Civ. 8432 (JPO), alleging that the Company’s plan to partially spin off RXi and related actions taken in preparation for the spin-off gives Hudson Bay the right to require us to repurchase the warrants acquired by Hudson Bay in our April 2011 underwritten public offering. Hudson Bay also seeks related declaratory and injunctive relief. On January 12, 2012, three other warrant holders affiliated with each other filed a Complaint in the Court, captioned Tenor Opportunity Fund, Ltd., Aria Opportunity Fund, Ltd., and Parsoon Opportunity Fund, Ltd. v. Galena Biopharma, Inc., 12 CIV 0260, and on January 20, 2012 and February 2, 2012, respectively, two other warrant holders filed their own Complaints in the Court, captioned Cranshire Capital Master Fund, Ltd. v. Galena Biopharma, Inc., 12 CIV 0493 and Iroquois Master Fund, Ltd. v. Galena Biopharma, Inc., 12 CIV 0839, respectively. In these latest Complaints, which are substantially identical to the previous Complaints filed in the Court, the various warrant holders also claim that the planned spin-off of RXi and related actions give them the right to require the Company to repurchase the Company’s outstanding warrants held by them. According to the allegations in the Complaints, the repurchase price of the plaintiffs’ warrants would amount to approximately $5.2 million in the aggregate.

On March 21, 2012, the Company received letters from each of the plaintiff-warrant holders withdrawing their repurchase demands with respect to their warrants covering an aggregate of 6,350,000 shares out of a total of 6,850,000 shares of common stock purchasable under their warrants (the “Withdrawal Notices”). After giving effect to the Withdrawal Notices, the plaintiff-warrant holders continued to demand that the Company repurchase their warrants covering the balance of 500,000 shares of common stock in the aggregate. Based on the plaintiff-warrant holders’ claims in their Complaints, the Company believes that the repurchase price for these warrants is $0.71 per underlying share, or an aggregate of $355,000. On March 27, 2012, the Company tendered to the plaintiff-warrant holders an aggregate of $355,000 as payment in full of the repurchase price for those warrants. The Company believes that the Withdrawal Notices and the Company’s tender of payment as described above render moot the majority of claims of the plaintiff-warrant holders in their Complaints, although the Withdrawal Notices purport to reserve all rights of the plaintiff-warrant holders under the Complaints.

If the Company were to become liable to repurchase the plaintiffs’ warrants, the Company may not have on hand sufficient funds to satisfy the liability and to meet its other obligations as they come due, which could raise doubts as to the Company’s ability to continue as a going concern.