interrelated or interdependent deliverables, there are no provisions in any of these agreements that are essential to
the other agreement, and the payment terms and fees under each agreement are independent of each other. We
also evaluated the deliverables in each of these agreements to determine whether they met the criteria to be
accounted for as separate units of accounting or whether they should be combined with other deliverables and
accounted for as a single unit of accounting. For all four of these agreements, we determined that the options did
not have stand-alone value because Biogen Idec cannot pursue the development or commercialization of the
drugs resulting from these collaborations until it exercises the respective option or options. As such, for each
agreement we considered the deliverables to be a single unit of accounting and we are recognizing the upfront
payment for each of the agreements over the respective estimated period of our performance.
Our collaborations often include contractual milestones, which typically relate to the achievement of
pre-specified development, regulatory and commercialization events. These three categories of milestone events
reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following
paragraph.
Prior to the first stage in the life-cycle of our drugs, we perform a significant amount of work using our
proprietary antisense technology to design chemical compounds that interact with specific genes that are good
targets for drug discovery. From these research efforts, we hope to identify a development candidate. The
designation of a development candidate is the first stage in the life-cycle of our drugs. Adevelopment candidate
is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to
warrant further study in humans.
During the first step of the development stage, we or our partners study our drugs in IND-enabling studies,
which are animal studies intended to support an IND application and/or the foreign equivalent. An approved IND
allows us or our partners to study our development candidate in humans. If the regulatory agency approves the
IND, we or our partners initiate Phase 1 clinical trials in which we typically enroll a small number of healthy
volunteers to ensure the development candidate is safe for use in patients. If we or our partners determine that a
development candidate is safe based on the Phase 1 data, we or our partners initiate Phase 2 studies that are
generally larger scale studies in patients with the primary intent of determining the efficacy of the development
candidate.
The final step in the development stage is Phase 3 studies to gather the necessary safety and efficacy data to
request marketing approval from the FDA, and/or foreign equivalents. The Phase 3 studies typically involve large
numbers of patients and can take up to several years to complete. If the data gathered during the trials
demonstrates acceptable safety and efficacy results, we or our partner will submit an application to the FDA
and/or its foreign equivalents for marketing approval. This stage of the drug’s life-cycle is the regulatory stage.
If a drug achieves marketing approval, it moves into the commercialization stage, during which we or our
partner will market and sell the drug to patients. Although our partner will ultimately be responsible for
marketing and selling the partnered drug, our efforts to discover and develop a drug that is safe, effective and
reliable contributes significantly to our partner’s ability to successfully sell the drug. The FDAand its foreign
equivalents have the authority to impose significant restrictions on an approved drug through the product label
and on advertising, promotional and distribution activities. Therefore, our efforts designing and executing the
necessary animal and human studies are critical to obtaining claims in the product label from the regulatory
agencies that would allow us or our partner to successfully commercialize our drug. Further, the patent protection
afforded our drugs as a result of our initial patent applications and related prosecution activities in the United
States and foreign jurisdictions are critical to our partner’s ability to sell our drugs without competition from
generic drugs. The potential sales volume of an approved drug is dependent on several factors including the size
of the patient population, market penetration of the drug, and the price charged for the drug.
Generally, the milestone events contained in our partnership agreements coincide with the progression of our
drugs from development, to regulatory approval and then to commercialization. The process of successfully
discovering a new development candidate, having it approved and ultimately sold for a profit is highly uncertain.
As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve.
Therefore, as a drug progresses through the stages of its life-cycle, the value of the drug generally increases.
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