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Related Party License Agreements
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Jun. 30, 2012
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Dec. 31, 2011
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| Related Party Transactions Disclosure [Text Block] |
5.
Related
Party License Agreements
License
and development agreements have been entered into with
affiliates of BSC. Because an affiliate of BSC is a
stockholder of the Company and such affiliate of BSC has a
representative that has been elected to serve on the
Company’s board of directors, management has deemed
all transactions with BSC and its affiliates to be of a
related party nature.
BSC
Neuro Agreement
On
December 30, 2005, the Company entered into definitive
license and development agreements (collectively, as
amended, the “BSC Neuro Agreement”) with
Advanced Bionics Corporation, an affiliate of BSC. Advanced
Bionics Corporation subsequently changed its name to Boston
Scientific Neuromodulation Corporation (“BSC
Neuro”). Under the BSC Neuro Agreement, the Company
granted BSC Neuro an exclusive commercial license with
respect to certain of the Company’s owned and
licensed intellectual property, in the neuromodulation
field, to make, use, import, lease and sell neuro-related
leads, neuro-related lead extensions, and neuro-related
lead-type devices, such as implantable pulse
generators.
In
connection with the February 2012 modification of the BSC
Notes (see Note 6), the Company and BSC Neuro also amended
the terms of the BSC Neuro Agreement. The
amended terms included a reduction in the amount BSC Neuro
could be required to pay the Company in future
milestone-based payments associated with successful
development and regulatory approval of the leads, from an
original maximum amount of $1,600,000 to an amended maximum
amount of $800,000. Under the BSC Neuro Agreement, BSC
Neuro is obligated to pay royalties to the Company based on
BSC Neuro’s net sales of licensed products, as
defined by the agreement. In addition to the reduction in
potential milestone-based payments, the amendment to the
BSC Neuro Agreement also reduced by half the royalty rates
used in calculating such royalty payments due to the
Company. Furthermore, the amended BSC Neuro
Agreement requires the Company to meet certain net working
capital targets, be current on its payroll obligations, and
not suffer an event of default under any indebtedness for
borrowed money, in each case while the BSC Notes remain
outstanding (see Note 6). If the Company does
not meet those requirements while the BSC Notes are
outstanding, the Company will be required to assign certain
patents and patent applications to BSC
Neuro. However, upon any such assignment to BSC
Neuro, BSC Neuro will grant to the Company an exclusive,
royalty-free, perpetual worldwide license to the same
patents and patent applications in all fields of use other
than neuromodulation and implantable medical leads for
cardiac applications.
The
Company did not receive any up-front license payments
pursuant to the BSC Neuro Agreement. In addition to other
potential payments under the agreement as described above,
the Company could receive over $500,000 in incentive
payments for incremental development work, but only if and
to the extent BSC Neuro requests the Company to perform
such work. The BSC Neuro Agreement requires specified
milestones in the development of an MRI-safe implantable
lead to be achieved by December 31, 2012. If the milestones
are not achieved by that date and this failure is not the
result of BSC Neuro’s failure to reasonably cooperate
with the Company in pursuing the milestones, the Company
will be required to repay BSC Neuro certain amounts,
including any development expenses and milestone payments
previously made to the Company under this agreement and any
patent prosecution costs incurred by BSC Neuro with respect
to the intellectual property licensed under this agreement.
As of June 30, 2012, the Company has received approximately
$750,000 of payments from BSC Neuro which would be subject
to the repayment obligation described above. In addition,
the Company would be responsible to reimburse BSC Neuro for
out of pocket costs incurred by BSC Neuro in prosecuting
patent applications and maintaining issued patents for the
licensed technologies. As discussed in Note 2, Revenue
Recognition, all amounts received have been recorded as
deferred revenue.
BSC
Cardiac Agreement
Effective
March 19, 2008, the Company entered into definitive license
and development agreements (collectively the “BSC
Cardiac Agreement”) with Cardiac Pacemakers, Inc.
(“BSC Cardiac”), an affiliate of BSC. Under the
BSC Cardiac Agreement, the Company granted BSC Cardiac an
exclusive commercial license with respect to certain of the
Company’s owned and licensed intellectual property
rights, in the field of implantable medical leads for
cardiac applications, to make, have made, use, promote,
market, import, distribute, lease, sell, offer for sale and
commercialize products in the licensed field of use. The
Company is required to continue to investigate the
feasibility of its technology and, upon successful
completion of feasibility studies, to work with BSC Cardiac
to develop this technology for different types of
MRI-compatible and MRI-safe implantable cardiac
leads.
Pursuant
to the BSC Cardiac Agreement, in addition to prospective
royalty payments on net sales of licensed products, the
Company received non-refundable licensing fees totaling
$13,000,000 in 2008, and the Company could receive up to
$20,000,000 in future milestone-based payments associated
with the successful development and regulatory approval of
the implantable cardiac leads, subject to certain patents
being issued on patent applications licensed to BSC
Cardiac. The Company initially recorded the payment of
up-front licensing fees as deferred revenue and is
recognizing revenue over the five year estimated period of
continuing involvement (see Note 2, Revenue Recognition).
The Company determined the five year estimated period of
continuing involvement based upon the Company’s
internal development plan and projected timeline for the
different implantable cardiac leads. The Company
reevaluates its estimated remaining period of continuing
involvement at each reporting period, and any changes will
be incorporated into the determination of revenue
recognition on a prospective basis.
Except
as set forth below, the licensing provisions of the BSC
Cardiac Agreement will terminate upon the expiration of the
last issued patent that is licensed under the agreement,
and the development provisions of the BSC Cardiac Agreement
will expire upon FDA approval of a design for each of the
different lead types described in the agreement. BSC
Cardiac has the one-time option, within 60 days after
successful completion of the first cardiac lead feasibility
study, to cease further development work and to terminate
the provisions of the BSC Cardiac Agreement. If BSC Cardiac
elects to exercise its option under the BSC Cardiac
Agreement to terminate further development efforts, the
license the Company granted to BSC Cardiac will
automatically become non-exclusive with respect to certain
of the intellectual property, other intellectual property
will be removed from the scope of the license and revert to
the Company, and BSC Cardiac will not be
obligated to pay the Company any future royalties on net
sales of products containing intellectual property that
remains subject to the non-exclusive license. Likewise, any
unachieved future milestone-based payments will not be due
to the Company.
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5.
Related Party License Agreements
License
and development agreements have been entered into with
affiliates of BSC. Because an affiliate of BSC is a
stockholder of the Company and such affiliate of BSC has a
representative that has been elected to serve on the
Company’s board of directors, management has deemed
all transactions with BSC and its affiliates to be of a
related party nature.
BSC
Neuro Agreement
On
December 30, 2005, the Company entered into definitive
license and development agreements (collectively, as
amended, the “BSC Neuro Agreement”) with
Advanced Bionics Corporation, an affiliate of BSC. Advanced
Bionics Corporation subsequently changed its name to Boston
Scientific Neuromodulation Corporation (“BSC
Neuro”). Under the BSC Neuro Agreement, the Company
granted BSC Neuro an exclusive commercial license with
respect to certain of the Company’s owned and
licensed intellectual property, in the neuromodulation
field, to make, use, import, lease and sell neuro-related
leads, neuro-related lead extensions, and neuro-related
lead-type devices, such as implantable pulse
generators.
Under
the BSC Neuro Agreement, in addition to prospective royalty
payments on net sales of licensed products, the Company
could receive up to $1,600,000 in future milestone-based
payments associated with successful development and
regulatory approval of the leads (see Note 13 for
modification of these terms). The Company did not receive
any up-front license payments pursuant to this agreement.
In addition, the Company could receive over $500,000 in
incentive payments for incremental development work, but
only if and to the extent BSC Neuro requests the Company to
perform such work. This agreement requires specified
milestones in the development of an MRI-safe implantable
lead to be achieved by December 31, 2012. If the
milestones are not achieved by that date and this
failure is not the result of BSC Neuro’s failure to
reasonably cooperate with the Company in pursuing the
milestones, the Company will be required to repay BSC Neuro
certain amounts, including any development expenses and
milestone payments previously made to the Company under
this agreement and any patent prosecution costs incurred by
BSC Neuro with respect to the intellectual property
licensed under this agreement. As of December 31,
2011, the Company has received approximately $750,000 of
payments from BSC Neuro which would be subject to the
repayment obligation described above. In addition, the
Company would be responsible to reimburse BSC Neuro for out
of pocket costs incurred by BSC Neuro in prosecuting patent
applications and maintaining issued patents for the
licensed technologies. As discussed in Note 2, Revenue
Recognition, all amounts received have been recorded as
deferred revenue.
BSC
Cardiac Agreement
Effective
March 19, 2008, the Company entered into definitive
license and development agreements (collectively the
“BSC Cardiac Agreement”) with Cardiac
Pacemakers, Inc. (“BSC Cardiac”), an affiliate
of Boston Scientific Corporation. Under the BSC Cardiac
Agreement, the Company granted BSC Cardiac an exclusive
commercial license with respect to certain of the
Company’s owned and licensed intellectual property
rights, in the field of implantable medical leads for
cardiac applications, to make, have made, use, promote,
market, import, distribute, lease, sell, offer for sale and
commercialize products in the licensed field of use. The
Company is required to continue to investigate the
feasibility of its technology and, upon successful
completion of feasibility studies, to work with BSC Cardiac
to develop this technology for different types of
MRI-compatible and MRI-safe implantable cardiac
leads.
Pursuant
to the BSC Cardiac Agreement, in addition to prospective
royalty payments on net sales of licensed products, the
Company received non-refundable licensing fees totaling
$13,000,000 in 2008, and the Company could receive up to
$20,000,000 in future milestone-based payments associated
with the successful development and regulatory approval of
the implantable cardiac leads, subject to certain patents
being issued on patent applications licensed to BSC
Cardiac. The Company initially recorded the payment as
deferred revenue and is recognizing revenue over the five
year estimated period of continuing involvement (see Note
2, Revenue Recognition). The Company determined the five
year estimated period of continuing involvement based upon
the Company’s internal development plan and projected
timeline for the different implantable cardiac leads. The
Company reevaluates its estimated remaining period of
continuing involvement at each reporting period, and any
changes will be incorporated into the determination of
revenue recognition on a prospective basis.
Except
as set forth below, the licensing provisions of the BSC
Cardiac Agreement will terminate upon the expiration of the
last issued patent that is licensed under the agreement,
and the development provisions of the BSC Cardiac Agreement
will expire upon FDA approval of a design for each of the
different lead types described in the agreement. BSC
Cardiac has the one-time option, within 60 days after
successful completion of the first cardiac lead feasibility
study, to cease further development work and to terminate
the provisions of the BSC Cardiac Agreement. If BSC Cardiac
elects to exercise its option under the BSC Cardiac
Agreement to terminate further development efforts, the
license the Company granted to BSC Cardiac will
automatically become non-exclusive with respect to certain
of the intellectual property, other intellectual property
will be removed from the scope of the license and revert to
the Company, and BSC Cardiac will not be obligated to pay
the Company any future royalties on net sales of products
containing intellectual property that remains subject to
the non-exclusive license. Likewise, any unachieved future
milestone-based payments will not be due to the
Company.
Remaining
related party deferred revenue is presently expected to be
recognized as revenue as follows:
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