Select Customer Agreements
|9 Months Ended|
Mar. 31, 2012
|Select Customer Agreements [Abstract]|
|Select Customer Agreements||
Note 4 – Select Customer Agreements
The following are select customer agreements not otherwise discussed elsewhere in the notes to the Condensed Consolidated Financial Statements.
St. Jude Medical, Inc.
The License Agreements – Under license agreements with St. Jude Medical, Inc. (St. Jude Medical), St. Jude Medical has exclusive worldwide rights to manufacture and market the Angio-SealTM Vascular Closure Device (the Angio-Seal), for which the Company receives a royalty from St. Jude Medical, which is reported within Royalty income.
Royalty income from St. Jude Medical reported by the Company in prior periods through its second quarter of fiscal 2012 ended December 31, 2011 was based on a royalty percentage on end-user product sales by St. Jude Medical and was recorded by the Company when the relevant net total end-user product sales were reported by St. Jude Medical to the Company and at the rate at which St. Jude Medical was actually paying royalties.
Effective November 2011, the rate at which St. Jude Medical paid royalties to the Company with respect to the Angio-Seal was reduced from 6% to 2% for U.S. and certain outside-U.S. end-user Angio-Seal sales. Furthermore, St. Jude Medical informed the Company that they intended to continue to pay the royalty at this reduced rate. Such actions indicated that St. Jude Medical intended to assert that its obligation to pay any royalties to the Company would end in April 2014. On December 16, 2011, the Company announced that it had agreed with St. Jude Medical to enter into non-binding mediation in an attempt to resolve disputes over royalty payments to the Company relating to the Angio-Seal device, as well as other related claims.
On March 16, 2012, the Company entered into a settlement agreement (the Settlement Agreement) with St. Jude Medical, pursuant to which the Company will receive a fixed amount of future royalties totaling $39.0 million from St. Jude Medical, payable in 12 equal quarterly payments beginning March 31, 2012. Royalty income for the three months ended March 31, 2012 includes royalty income pursuant to the Settlement Agreement. The Company is recognizing the $39.0 million from the Settlement Agreement as royalty income on a straight line basis from January 2012 through April 2014, which is the expiration date of the last to expire of patents exclusively licensed by the Company to St. Jude Medical, which equates to royalty income of $4,179 on a quarterly basis. The Company evaluated the fair value of the total royalties to be received in connection with the Settlement Agreement and determined the total royalties of $39.0 million from the Settlement Agreement are consistent with royalties the Company would have expected to earn had the royalty continued to be based upon end-user product sales through April 2014.
The 2012 Collagen Supply Agreement - Effective March 16, 2012, as part of the Settlement Agreement, the Company entered into a new collagen supply agreement (the 2012 Collagen Supply Agreement), replacing and effectively extending the previous collagen supply agreement between the parties which was set to expire on December 31, 2012. Pursuant to the 2012 Collagen Supply Agreement, the Company will continue to be the exclusive outside supplier of collagen plugs to St. Jude Medical for the Angio-Seal through December 2017.
The 2012 Collagen Supply Agreement expands the minimum order levels to be provided over the contract term to 5.0 million cumulative units, with a minimum of 400,000 units to be provided each calendar year, beginning with calendar year 2013, over the contract term, unless the cumulative total units under the 2012 Collagen Supply Agreement have been met. In addition, pursuant to the 2012 Collagen Supply Agreement, of the 5.0 million cumulative units, St. Jude Medical has committed to purchase 400,000 units to be shipped in the Company's first half of fiscal 2013 and 1.5 million units to be shipped during calendar year 2013.
The Company's previous collagen supply agreement (the Previous Collagen Supply Agreement) was entered into on June 23, 2010, with an initial term from January 1, 2011 to December 31, 2012, and provided for contractual minimum order levels of collagen plugs for calendar years 2011 and 2012. Under the Previous Collagen Supply Agreement, St. Jude Medical fulfilled its calendar year 2011 contractual minimum order levels during the Company's third and fourth quarters of fiscal 2011, resulting in approximately $4.0 million of collagen plug sales for the Company. Further, under the Previous Collagen Supply Agreement, St. Jude Medical had placed its calendar year 2012 order for approximately $6.4 million of collagen plugs, which includes approximately $4.0 million of orders expected to be shipped in the second half of fiscal 2012 and the remainder, along with the additional 400,000 units under the 2012 Collagen Supply Agreement, as described above, expected to be shipped in the first half of fiscal 2013. The Company recorded $2.2 million of collagen plug sales in the third quarter ended March 31, 2012. Collagen plug sales are recognized when the Company ships the product.
Prior to the Previous Collagen Supply Agreement, the Company was party to a supply agreement with St. Jude Medical in 2005, which expired on December 31, 2010, pursuant to which the Company was the exclusive supplier of 100% of the collagen plugs and at least 30% of the bioresorbable polymer anchor components for the Angio-Seal.
Stryker Corporation / Orthovita, Inc.
The Company has a development, manufacturing and supply agreement with Orthovita, Inc. (Orthovita) under which the Company develops and commercializes products based on Orthovita's proprietary Vitoss™ Bone Graft Substitute Material in combination with the Company's proprietary biomaterials (the Orthovita Agreement). Under the Orthovita Agreement, the Company manufactures the products, while Stryker Corporation (Stryker), which acquired Orthovita in June 2011, markets and sells the products worldwide. Under the Orthovita Agreement, the Company receives royalty payments on co-developed Vitoss™, Vitoss™ Foam and Vitoss™ Bioactive Foam products based upon Stryker's net total end-user sales of such products.
In a separate transaction in August 2004, the Company entered into an agreement (the Assignment Agreement) whereby the Company acquired the intellectual property rights of a third party having rights in the Vitoss™ technology, an inventor of the Vitoss™ technology (the Inventor), for $2.6 million. Under the Assignment Agreement, the Company received all intellectual property rights of the Inventor that had not previously been assigned to Orthovita. Also under the Assignment Agreement, the Company received a royalty on the sale of all Orthovita products containing the Vitoss™ technology, up to a total cumulative royalty of $4,036, of which the Company received its final royalty payment in July 2011. The Company recognized $0 and $16 of royalty income during the three and nine months ended March 31, 2012, respectively. The entire cost of these proprietary rights was amortized over an 83-month period through July 2011.
On May 24, 2011, the closing date of the Company's Norian asset acquisition pursuant to an Asset Purchase Agreement (the Asset Purchase Agreement), the Company also entered into a Supply Agreement (the Supply Agreement) with Synthes USA Sales, LLC, a subsidiary of Synthes. This Supply Agreement provides for the Company to be the exclusive manufacturer and supplier of the Norian product lines acquired by the Company under the Asset Purchase Agreement. Pursuant to the Supply Agreement, Synthes will purchase all of its requirements for such products exclusively from the Company, on the terms set forth in the Supply Agreement. The Supply Agreement, which was effective on the date of acquisition, has a term of 10 years and will automatically renew for successive two-year terms. Also, on May 24, 2011, the Company entered into a research and development agreement with Synthes to develop certain related future products.
The Spectranetics Corporation
In connection with the Company's sale of its Endovascular business to The Spectranetics Corporation (Spectranetics) on May 30, 2008, the Company entered into various agreements that provided the Company with the opportunity for future milestone payments. In the second quarter ended December 31, 2011, the Company achieved a $6.0 million cumulative sales milestone payment in connection with Spectranetics reaching a cumulative $20.0 million in end-user sales from the product lines purchased by Spectranetics. The Company received the entire $6.0 million milestone cash payment in February 2012. In March 2012, the Company entered into an agreement with Spectranetics, pursuant to which the Company received in March 2012 a final upfront cash milestone payment of $1.7 million from Spectranetics in connection with the Company's product development efforts. Further, the agreement terminated the principal responsibilities of each party under the various agreements entered into in May 2008. The Company will recognize the $1.7 million payment as milestone revenue during its fourth quarter ended June 30, 2012 when the Company satisfies its performance obligations under the terms of the agreement entered into in March 2012 and the earnings process is deemed to be complete. Prior to fiscal 2012, the Company had received total cash milestone payments of $2.5 million for product development and regulatory efforts.
The Company recognized total milestone revenue and other product sales of $560 and $5,897 for the three and nine months ended March 31, 2012, respectively, and $144 and $433 for the three and nine months ended March 31, 2011, respectively, as a component of Net sales within the Condensed Consolidated Statements of Operations. The remaining deferred milestone payments of $2,610 will be recognized as revenue over the expected remaining period of performance within the next three months through June 30, 2012.