This excerpt taken from the NPSP 10-K filed Mar 14, 2007.
(h) Revenue Recognition
The Company earns revenue from research and development support payments, license fees, milestone payments, royalty payments and product sales. The Company recognizes revenue from its research and
NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements(Continued)
December 31, 2006, 2005, and 2004
development support agreements as related research and development costs are incurred and from milestone payments, as agreed-upon events representing the achievement of substantive steps in the development process are achieved and where the amount of the milestone payment approximates the value of achieving the milestone. The Company recognizes revenue from up-front nonrefundable license fees on a straight-line basis over the period wherein the Company has continuing involvement in the research and development project. The Company recognizes revenue from up-front nonrefundable license fees upon receipt when there is no continuing involvement in the research and development project. The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer is reasonably assured and the Company has no further performance obligations. All revenues from product sales are recorded net of the applicable provision for returns in the same period the related sales are recorded. Royalties from licensees are based on third-party sales of licensed products and are recorded in accordance with contract terms when third-party results are reliably measurable and collectibility is reasonably assured. Cash received in advance of the performance of the related research and development support and for nonrefundable licensee fees in which the Company has continuing involvement is recorded as deferred revenue.
The Company applies the provisions of Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, to all revenue transactions. Additionally, the Company analyzes its new arrangements to determine whether the elements should be separated and accounted for individually or as a single unit of accounting in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Allocation of revenue to individual elements which qualify for separate accounting is based on the estimated fair value of the respective elements.