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We assesswhether a substantivemilestone exists at the inception of our agreements. When a substantivemilestone is
achieved, we recognize revenue related to themilestone payment. For our existing licensing and collaboration agreements inwhich
we are involved in the discovery and/or development of the relateddrugor provide the partnerwith access tonew technologieswe
discover, we have determined that all future development, regulatory and commercializationmilestones are substantive. For example,
for our strategic alliancewithBiogen Idec, we are usingour antisense drugdiscovery platform to discover and developnew drugs
against targets for neurological diseases. Alternatively, we provide access toour technology toAlnylamPharmaceuticals, Inc. to
develop and commercializeRNA interference, or RNAi, therapeutics. We considermilestones for bothof these collaborations tobe
substantive. In evaluating if amilestone is substantivewe considerwhether:
Substantive uncertainty exists as to the achievement of themilestone event at the inception of the arrangement;
The achievement of themilestone involves substantive effort and canonlybe achievedbased inwhole or inpart onour
performance or the occurrence of a specific outcome resulting fromour performance;
The amount of themilestone payment appears reasonable either in relation to the effort expendedor to the enhancement
of the value of the delivered items;
There is no future performance required to earn themilestone; and
The consideration is reasonable relative to all deliverables andpayment terms in the arrangement.
If anyof these conditions are notmet, we donot consider themilestone to be substantive andwe defer recognitionof the
milestone payment and recognize it as revenue over the estimated periodof performance, if any. We considermilestone payments
related toprogressionof a drug through the development and regulatory stages of its life cycle to be substantivemilestones because
the level of effort and inherent risk associatedwith these events is high. All of themilestone paymentswe earned in2013were
substantive. Therefore, we recognized the entire amount of thosemilestone payments in 2013, including a $25millionmilestone
payment fromGenzymewe recognized in the first quarter of 2013when theFDA approved theKYNAMRONDA. Further
information about our collaborative arrangements canbe found inNote 7,
CollaborativeArrangements andLicensingAgreements,
in
theNotes to theConsolidatedFinancial Statements.
Licensingand royalty revenue
We often enter into agreements to license our proprietarypatent rights on an exclusive or non-exclusive basis in exchange for
license fees and/or royalties.We generally recognize as revenue immediately those licensing fees and royalties forwhichwe have no
significant future performance obligations and are reasonably assured of collecting the resulting receivable.
Valuationof Investments
We consider all liquid investmentswithmaturities of 90days or lesswhenwe purchase them to be cash equivalents. Our
short-term investments have initialmaturities of greater than90days fromdate of purchase.We classifyour short-term investments as
“available-for-sale” and carry them at fairmarket value baseduponprices for identical or similar items on the last dayof the fiscal
period.We recordunrealizedgains and losses as a separate component of comprehensive loss and include net realizedgains and
losses ingain (loss) on investments.We use the specific identificationmethod todetermine the cost of securities sold.
We use a three-tier fair value hierarchy to prioritize the inputs used inour fair valuemeasurements. These tiers include:
Level 1, defined as observable inputs such as quotedprices in activemarkets for identical assets, which includes ourmoneymarket
funds and treasury securities classified as available-for-sale securities andour investment in equity securities in a publicly-held
biotechnology company; Level 2, defined as inputs other thanquoted prices in activemarkets that are either directly or indirectly
observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; andLevel 3,
defined as unobservable inputs inwhich little or nomarket data exists, therefore requiring an entity to develop its own assumptions.
Our Level 3 investments include investments in the equity securities of publicly-heldbiotechnology companies forwhichwe
calculated a lackofmarketability discount because therewere restrictions onwhenwe could trade the securities. Themajorityof our
securities have been classified asLevel 2.We obtain the fair value of our Level 2 investments fromour custodianbankor from a
professional pricing service. We validate the fair value of our Level 2 investments byunderstanding the pricingmodel usedby the
custodianbanks or professional pricing service provider and comparing that fair value to the fair value basedonobservablemarket
prices.
As ofDecember 31, 2012, we classified the fair valuemeasurements of our investment in the equity securities of Regulus and
SareptaTherapeutics, Inc. asLevel 3.We calculated a lackofmarketabilitydiscount on the fair value of these securities because there
were restrictions onwhenwe could trade the securities. In the first quarter of 2013, we sold all of the common stockof Sarepta that
we owned resulting in a realizedgainof $1.1million. In the fourthquarter of 2013, we re-classifiedour investment inRegulus to a
Level 1 investment becausewe are no longer subject to contractual trading restrictions on theRegulus shareswe own.
