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Note 5 - Related Party License Agreements
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12 Months Ended |
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Dec. 31, 2012
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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
In
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 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. 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 Company does not expect such a
request to be made.
The
BSC Neuro Agreement required specified milestones in the
development of an MRI-safe implantable lead to be
achieved by December 31, 2012. The BSC Neuro Agreement
provided that, if the milestones were not achieved by
that date and such failure was not the result of BSC
Neuro’s failure to reasonably cooperate with the
Company in pursuing the milestones, the Company would be
required to repay BSC Neuro certain amounts, including
any development expenses and milestone payments
previously made to the Company under the agreement and
any patent prosecution costs incurred by BSC Neuro with
respect to the intellectual property licensed under the
agreement. However, BSC Neuro assumed responsibility from
the Company for the lead development efforts under the
agreement, and, consequently, BSC Neuro wholly controlled
the pace and progress of the development
efforts. BSC Neuro has acknowledged that the
repayment provision will not be triggered, consequently,
the Company recognized revenue of approximately $746,000
during the year ended December 31, 2012 which had been
previously recorded as deferred revenue.
BSC
Cardiac Agreement
Effective
in 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 a non-refundable licensing fee of
$13,000,000 in 2008, and the Company could receive future
milestone-based payments associated with the successful
development and regulatory approval of the various
implantable cardiac leads that incorporate the
Company’s technology, subject to certain patents
being issued on patent applications licensed to BSC
Cardiac. However, there can be no assurance of the amount
of milestone-based payments the Company ultimately will
receive under the BSC Cardiac Agreement, if
any. The Company believes that BSC Cardiac
does not intend to incorporate the Company’s
technology into each of the different types of
implantable cardiac leads addressed by the agreement,
which reduces the potential milestone-based payments the
Company could receive. The Company recorded the
$13,000,000 payment received in 2008 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.
The
remaining related party deferred license revenue under
the BSC Cardiac Agreement of $650,000 at December 31,
2012 is expected to be recognized as revenue during
2013.
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