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Note 5 - Related Party License Agreements
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9 Months Ended |
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Sep. 30, 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
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 September 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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