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allocated a portion of the proceeds under the debt to the warrants based upon their relative fair values.
The warrants are recorded in Stockholders' Deficit with the offset to debt discount. The debt discount is
being amortized from the respective draw dates to the end of the term of the Deerfield credit facilities
using the effective interest method and recorded as Interest Expense in the accompanying Statements of
Operations and Comprehensive Loss.
Transaction fees paid in connection with our long-term debt arrangements that qualify for capitalization
are recorded as Other Long-Term Assets in the Balance Sheets and amortized to Interest Expense in the
accompanying Statements of Operations and Comprehensive Loss using the effective interest method
over the term of the underlying debt agreement.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued FASB ASU No. 2011-04, Fair
Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS. This ASU provides a consistent definition of fair value
between U.S. GAAP and International Financial Reporting Standards. Additionally, the ASU changes
certain fair value measurement principles and expands the disclosures for fair value measurements. ASU
2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is to be
applied prospectively. We adopted this disclosure standard in the third quarter of fiscal 2012 and adoption
of this standard did not have a material impact on our financial condition or results of operations.
In June 2011, the FASB issued FASB ASU No. 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income in U.S. GAAP and IFRS. This ASU provides companies the
option to present the components of net income and other comprehensive income either as one
continuous statement of comprehensive income or as two separate but consecutive statements. It
eliminates the option to present components of other comprehensive income as part of the statement of
changes in stockholders' equity. The provisions of this new guidance are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. The adoption of this new
guidance will not impact our financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task
Force) and the Securities Exchange Commission did not or are not believed by management to have a
material impact on our present or future financial statements.
Results of Operations
License and Milestone Revenue
License and Milestone Revenue consists of up-front license fees and ongoing milestone payments from
collaborators.
Below is a summary of our License and Milestone Revenue (dollars in thousands):
Years Ended June 30,
Change 2012 vs. 2011
Change 2011 vs. 2010
2012
2011
2010
$
%
$
%
License revenue
$ 52,006
$ 42,477
$ 27,489
$
9,529
22.4%
$ 14,988
54.5%
Milestone revenue
19,243
10,949
4,996
8,294
75.8%
5,953
119.2%
Total license and milestone revenue $ 71,249
$ 53,426
$ 32,485
$ 17,823
33.4%
$ 20,941
64.5%
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Fiscal 2012 compared to Fiscal 2011 License revenue increased by $9.5 million, or 22.4%, in fiscal
2012 compared to the prior year. We recognized increased license revenue of $20.9 million during the
current fiscal year due to our new licensing agreement with Genentech for our Chk-1 program,
ARRY-575. There was no corresponding revenue for the Chk-1 program in fiscal 2011. Partially offsetting
this increase was reduced revenue from the suspended amortization of the up-front license fees
previously received from Celgene following temporary suspension of the associated research activities
(
see Note 6 Deferred Revenue Celgene Corporation to the accompanying financial statements).
Milestone revenue increased $8.3 million, or 75.8%, over the prior year primarily due to the recognition of
$7.2 million of the $8.5 million milestone payment we received from Amgen during the fourth quarter of
fiscal 2012 for enrollment of patients in a Phase 2 study of AMG 151 / ARRY-403. During fiscal 2012, we
also recognized $1.3 million additional revenue related to a full year of amortization for the $10.0 million
Celgene milestone payment received in fiscal 2011.
Fiscal 2011 compared to Fiscal 2010 During fiscal 2011, license revenue increase by approximately
$15.0 million, or 54.5%. We recognized $9.0 million and $8.0 million during the current fiscal year in
additional license revenue under our collaborations with Amgen and Novartis, respectively. The fiscal
2011 amounts represented a full year of revenue compared to only six and three months of revenue,
respectively, recognized under the these collaborations during fiscal 2010 as the collaborations were not
in place for the full year. This increased revenue was partially offset by decreased revenue of $1.6 million
recognized under our collaboration with Celgene due to the longer period over which revenue is
recognized following our conclusion that the remaining estimated performance period under the
collaboration with Celgene extended from September 2011 to March 2012 effective October 1, 2010 (
see
Note 6 Deferred Revenue Celgene Corporation to the accompanying financial statements).
Milestone revenue increased in fiscal 2011 by $6.0 million, or 119.2%, over the prior year. This increase
consisted of $4.0 million in additional revenue from our collaboration with Novartis resulting from the
$10.0 million milestone payment received in the fourth quarter of fiscal 2011 and from additional
milestone revenue recognized under the full year of the agreement in fiscal 2011. We also recognized an
additional $2.5 million in revenue under our collaboration with Celgene from the $10.0 million milestone
payment received in the second quarter of fiscal 2011.
Collaboration Revenue
Collaboration Revenue consists of revenue for our performance of drug discovery and development
activities in collaboration with partners, which include co-development of proprietary drug candidates we
out-license as well as screening, lead generation and lead optimization research, custom synthesis and
process research and to a small degree the development and sale of chemical compounds.
Below is a summary of our Collaboration Revenue (dollars in thousands):
Years Ended June 30,
Change 2012 vs. 2011
Change 2011 vs. 2010
2012
2011
2010
$
%
$
%
Collaboration revenue
$ 13,886
$ 18,475
$ 21,395
$ (4,589)
(24.8%)
$ (2,920)
(13.6%)
Fiscal 2012 compared to Fiscal 2011 Collaboration Revenue decreased by $4.6 million, or 24.8%, due
to fewer scientists engaged on our collaborations with Genentech and Amgen during the second half of
fiscal 2012 compared to the same period in the prior year. The decrease was partially offset by revenue
for FTEs working on our collaborations with Celgene and DNA BioPharma for which there was no
corresponding revenue in fiscal 2011.
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