View:
1/10/2008
Securities
and Exchange Commission
100
F
Street, NE
Washington,
D.C. 20549
Attn:
Brian R. Cascio, Accounting Branch Chief, Division of Corporation
Finance
RE: Response
to SEC Comment Letter dated 12/21/07
Dear
Mr.
Cascio,
We
received a letter from you dated December 21, 2007 with an additional comment
to
our response letter filed on October 18, 2007. (File No.
0-32501).
We
are
pleased to provide the following response to your comment.
SEC
Comment:
Form
10-K for the fiscal year ended December 31, 2006
We
refer
to your response to comment 3 from our letter dated September 27,
2007. Please expand the future filings to further
explain:
|
·
|
Why
you believe the proportional performance methodology is appropriate
in
your circumstances.
|
|
·
|
How
you identified the milestones, how they are consistent with the underlying
agreements and why you believe they are
substantive.
|
|
·
|
Why
you believe the relative values assigned to those milestones are
appropriate, including a description of the objective evidence you
considered in measuring those
values.
|
|
·
|
Why
you believe the costs to be incurred in achieving the various milestones
are subject to reasonable
estimation.
|
You
indicate that the values assigned to the milestones involved substantial
judgment. Please provide clear disclosure of all significant
assumptions and judgments on which these subjective allocations were
based.
Company
response:
We
will
expand our future filings to include language consistent with the following
(in
addition to the disclosure language noted in our previous response to Comment
#3
dated October 18, 2007):
Proportional
performance methodology was elected due to the nature of our development
obligations and efforts in support of the Joint Venture (“JV”), including
product development activities, and regulatory efforts to support the
commercialization of the JV products. The application of this methodology uses
the achievement of R&D milestones as outputs of value to the
JV. We received up-front, non-refundable payments in connection with
these development obligations, which we have broken down into specific R&D
milestones that are definable and substantive in nature, and which will result
in value to the JV when achieved. Revenue will be recognized as the
above mentioned R&D milestones are completed.
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We
established the R&D milestones based upon our development obligations to the
JV and the specific R&D support activities to be performed to achieve these
obligations. Our R&D milestones consist of the following primary
performance categories: product development, regulatory approvals,
and generally associated pre-clinical and clinical
trials. Within each category are milestones that take
substantive effort to complete and are critical pieces of the overall progress
towards completion of the next generation product, which we are obligated to
support within the agreements entered into with Olympus.
To
determine whether substantive effort was required to achieve the milestones,
we
considered the external costs, required personnel and relevant skill levels,
the
amount of time required to complete each milestone, and the interdependent
relationships between the milestones, in that the benefits associated with
the
completion of one milestone generally support and contribute to the achievement
of the next.
Determination
of the relative values assigned to each milestone involved substantial
judgment. The assignment process was based on discussions with
persons responsible for the development process and the relative costs of
completing each milestone. We considered the costs of completing the
milestones in allocating the portion of the “deferred revenues, related party”
account balance to each milestone. Management believes that, while
the costs incurred in achieving the various milestones are subject to
estimation, due to the high correlation of such costs to outputs achieved,
the
use of external contract research organization (“CRO”) costs and internal labor
costs as the basis for the allocation process provides management the ability
to
accurately and reasonably estimate such costs.
You
may
contact us at (858) 458-0900 if you have any questions regarding our
responses.
Sincerely,
/s/
Christopher J. Calhoun
Christopher
J. Calhoun
Chief
Executive Officer
/s/
Mark E. Saad
Mark
E.
Saad
Chief
Financial Officer
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