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Revenues

3 Months Ended

Mar. 31, 2012

(4) REVENUES

We operate in one segment, specialty pharmaceutical products. Management has chosen to organize the Company based on the type of products sold. All of our assets are located in the United States. We had no sales to non-U.S. customers for the three months ended March 31, 2012, and sales of $0.1 million for the three months ended March 31, 2011.

The Company’s net revenues consisted of the following for the three months ended March 31, 2012 and 2011:


	Three Months Ended March 31,
	2012		2011
Products:
Acetadote	$	7,351,084	$	8,544,593
Kristalose		2,256,273		2,070,381
Caldolor		99,079		11,954
Other		549,776		39,999

Total net revenues	$	10,256,212	$	10,666,927

In the first quarter of 2012, we entered into an exclusive licensing agreement for Acetadote and Caldolor with Harbin Gloria Pharmaceuticals Co., Ltd., a Chinese pharmaceutical company that has expertise in developing, registering, manufacturing and commercializing products in the China market. In connection with the agreement, we received a nonrefundable, up-front payment of $0.7 million in exchange for the transfer of certain intellectual property, including our product dossiers. We also have certain protective rights, including the right to review and approve all documents submitted to the Chinese State Drug Administration. We determined the agreement contains two units of accounting—the transfer of certain rights, including the product dossier, for Acetadote and Caldolor, separately. As of March 31, 2012, we have delivered these items for Caldolor to the licensee, and have recognized revenue of approximately $0.5 million as other revenue. The remaining up-front payment of $0.2 million related to Acetadote is deferred and will be recognized when the intellectual property, including the dossier, is provided to the licensee. The deferred revenue balance is included in other long-term obligations in the condensed consolidated balance sheet at March 31, 2012.

The licensing agreement provides for us to receive milestone payments of $0.7 million when the licensee receives notice from the regulatory authority granting approval to conduct clinical trials, or stating that no clinical trials are necessary. In addition, we will receive milestone payments of $1.1 million upon receiving regulatory approval for both Acetadote and Caldolor in China. We will recognize revenue for these substantive milestones using the milestone method. We use the milestone method of recognizing revenue for substantive milestones if (1) it is commensurate with either the performance to achieve the milestone or the enhancement of the value of the delivered item, (2) it relates solely to past performance and (3) it is reasonable relative to the other milestones. As of March 31, 2012 and 2011, we have not recognized any revenue related to milestones.