Quarterly report pursuant to Section 13 or 15(d)

Research and Development Agreements

v3.20.1
Research and Development Agreements
3 Months Ended
Mar. 31, 2020
Research And Development [Abstract]  
Research and Development Agreements

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters.  Research and development revenues disaggregated by location were as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Japan

 

$

333

 

 

$

6,413

 

United States

 

 

1,467

 

 

 

 

Total research and development revenue

 

$

1,800

 

 

$

6,413

 

 

 

Related Party Collaboration Agreement - Takeda

Research and development revenue from related party relates to revenue from research and development agreements with Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) and were as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Takeda Individual Project Agreement

 

 

 

 

 

54

 

Takeda Development and License Agreement

 

 

147

 

 

 

6,114

 

Takeda Multi-Target Agreement

 

 

186

 

 

 

245

 

Total research and development revenue

 

$

333

 

 

$

6,413

 

 

At March 31, 2020 and December 31, 2019, the Company had $36.1 million and $36.7 million, respectively, of Deferred revenue related to research and development agreements. Deferred revenue, other liabilities for co-share payments and accounts receivable balances from the research and development agreements with Takeda, who is a related party, were as follows (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Accounts receivable

 

$

1,300

 

 

$

408

 

Liabilities

 

 

 

 

 

 

 

 

Other current liabilities

 

$

7,754

 

 

 

 

Deferred revenue, current

 

 

8,773

 

 

 

8,780

 

Deferred revenue, non-current

 

 

1,355

 

 

 

441

 

Other liabilities

 

 

1,746

 

 

 

 

Total liabilities

 

$

19,628

 

 

$

9,221

 

 

Takeda Development and License Agreement

On September 18, 2018, the Company entered into a Development Collaboration and Exclusive License Agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda Development and License Agreement”), for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

The Company, at its discretion, exercised its co-development option in July 2019 and as a result is eligible to receive pre-clinical and clinical development milestone payments of up to $307.5 million upon the achievement of certain development milestones and regulatory approvals, and sales milestone payments of up to $325.0 million upon the achievement of certain sales milestone events.

The Company may elect to end its co-development by providing Takeda with written notice of termination of the co-development. In the event the Company elects to end the co-development, the Company will be subject to reduced payments and royalty rates as set forth more specifically in the Takeda Development and License Agreement.

The Company will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties following the Company’s exercise of its option to co-develop, and from high-single digits to low teens if the Company elects to end its co-development.

The Company identified one performance obligation at the inception of the Takeda Development and License Agreement, the research and development services for the CD38-targeted SLT-A fusion protein, including manufacturing. The Company determined that research, development and commercialization license and the participation in the committee meetings are not distinct from the research and development services and therefore those promised services were combined into one combined performance obligation.

 

The total transaction price of $29.8 million consists of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment that was received in the first quarter of 2020, (3) minus $10.2 million in expected co-share payment payable to Takeda during Early Stage Development, as defined in the Takeda Development and License Agreement. The expected co-share payment is considered variable consideration, and the Company applied a constraint using the expected value method. Significant judgement was involved in determining transaction consideration, including the determination of the variable consideration, including the constraint on consideration.  

At March 31, 2020, the other potential development milestones and sales milestones are not currently deemed probable of being achieved, as they are dependent on factors outside the Companys control.  Therefore, these future development milestones and sales-based milestone payments have been fully constrained and are not included in the transaction price at March 31, 2020.

The Company recognizes revenue using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In July 2019, the Company exercised its co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. The Company evaluated the additional research and development services and concluded these services were distinct from services currently being provided and represented a cost sharing arrangement between the Company and Takeda.  As such, research and development expenses for this performance obligation will be expensed as incurred.

At March 31, 2020 and December 31, 2019, total deferred revenue related to the performance obligation was $7.2 million and $6.1 million, respectively.

Takeda Multi-Target Agreement

In June 2017, The Company entered into a Multi-Target Collaboration and License Agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (the “Takeda Multi-Target Agreement”), in which the Company agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and the Company agreed to work exclusively with Takeda with respect to the designated targets.

Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under the Company’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target.

The Company received cumulative payments of $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement. The Company may receive additional payments from the following:

 

 

$30.0 million in aggregate through the exercise of the option to license ETBs.

 

Clinical development milestone payments of up to approximately $397.0 million, for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement.

 

Commercial milestone payments of up to $150.0 million, for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement.

 

Tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

 

Up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of all option periods (three months after the completion of the evaluation of materials for the designated targets) for the designated targets if Takeda does not exercise its options, or, following exercise of any option, on the expiration of the last Royalty Term (the latest of the expiration of patent rights claiming the licensed ETB, expiration of regulatory exclusivity for the licensed ETB or ten years from first commercial sale of the licensed ETB). The Takeda Multi-Target Agreement may be terminated sooner by Takeda for convenience or upon a material change of control of the Company, or by either party for an uncured material breach of the agreement. Under the Takeda Multi-Target Agreement, both parties have the right to terminate the agreement immediately upon written notice, under certain defined circumstances.

The Company evaluated the Takeda Multi-Target Agreement’s termination clause and concluded that it was a non-substantive termination provision. As such, the Company believes that an initial contract term is the length of the termination notice period, with a deemed renewal option to continue the research and development services over the remainder of the contract term as a material right.

The Company determined that the promised goods and services under the Takeda Multi-Target Agreement were the background IP license, the research and development services, manufacturing during the initial contract period, and a renewal option to continue the research and development services. The Company determined that there were two performance obligations: research and development services, and the renewal options. Since the background IP and manufacturing were not distinct from the research and development services, they were deemed to be one performance obligation. Transaction consideration was allocated to each of the performance obligations using an estimate of the standalone selling price, and revenues are recognized over the period that the research and development services occur. The Company also concluded that, since the option for the exclusive license is deemed to be at fair value, the option does not provide the customer with a material right and should be accounted for if and when the option is exercised.

At March 31, 2020 and December 31, 2019, deferred revenue related to the performance obligation was $2.9 million and $3.1 million, respectively.

Takeda Individual Project Agreement

In connection with the Takeda Collaboration Agreement, the Company entered into an Individual Project Agreement (the “Takeda Individual Project Agreement”) with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd., in June 2018, that was amended and restated in July 2018.  Under the Takeda Individual Project Agreement, the Company is responsible to perform certain research and development services relating to Chemistry, Manufacturing, and Controls (“CMC”) work for three potential lead ETBs targeting CD38.  In consideration of these services, the Company received $2.2 million in compensation that included an increase in transaction consideration of $1.1 million as a result of the amendment to the Takeda Individual Project Agreement in July 2018.  

All research and development services under the Takeda Collaboration Agreement were performed at March 31, 2019. As such, the Company recognized $0.0 million and less than $0.1 million of research and development revenue for the three months ended March 31, 2020 and March 31, 2019 respectively. This revenue is deemed to be revenue from a related party (as discussed further in Note 7, Related Party Transactions).  

Vertex Collaboration Agreement

In November 2019, the Company entered into a Master Collaboration Agreement (the “Vertex Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”), to perform strategic research leveraging the Company’s engineered toxin body (“ETB”) technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology.

Pursuant to the terms of the Vertex Collaboration Agreement, the Company granted Vertex an exclusive option to obtain an exclusive license under the Company’s licensed technology to exploit one or more ETB products that are discovered by the Company against up to two designated targets. Vertex has selected an initial target and has the option to designate one additional target within specified time limits.

Vertex payed the Company an upfront payment of $38 million, consisting of $23 million in cash and a $15 million equity investment pursuant to a Share Purchase Agreement (the “SPA”). In addition to the upfront payments, the Company may also receive an additional $22 million through the exercise of the options to license ETB products or to add an additional target. Additionally, Vertex will reimburse the Company for certain mutually agreed manufacturing technology transfer activities. The Company had $11.5 million of Deferred revenue, current, and $14.5 million of Deferred revenue, non-current, at March 31, 2020 related to the Vertex Collaboration Agreement. The Company had $8.5 million of Deferred revenue, current, and $19.0 million of Deferred revenue, non-current, at December 31, 2019 related to the Vertex Collaboration Agreement.

The Company may, for each target under the Vertex Collaboration Agreement, receive up to an additional $180 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70 million in milestone payments upon the achievement of certain sales milestone events. The Company will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the Vertex Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of all payment obligations under the Vertex Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the expiration of all payment obligations thereunder with respect to all licensed products in all countries or upon Vertex’s decision not to exercise any option on or prior to the applicable deadlines. Vertex has the right to terminate the Vertex Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the Vertex Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach.

The Company identified one performance obligation at the inception of the Vertex Collaboration Agreement consisting of research and development services. The Company recognizes revenue under the Vertex Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company will use actual costs incurred relative to budgeted costs expected to be incurred. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In connection with the Vertex Collaboration Agreement, the Company and Vertex entered into a SPA pursuant to which Vertex agreed to purchase 1,666,666 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $9.00. As the price per share was in excess of the fair value of the Company’s common stock, the Company allocated $4.5 million of this consideration to the Vertex Collaboration Agreement. The issuance of these shares were pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

In addition to the SPA, the Vertex Collaboration Agreement contemplates that the Company may enter into certain other ancillary arrangements with Vertex.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”).  The CD38 CPRIT Agreement was extended in November 2019, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

In 2011, the Company entered into a Cancer Research Agreement (the “CPRIT Agreement”) with CPRIT under which CPRIT awarded a $10.6 million product development grant for the CD20-targeting ETB MT-3724. This product development grant ended in November 2019. At March 31, 2020 the Company had received $9.6 million and has a remaining receivable of $1.0 million.

During the three months ended March 31, 2020 and March 31, 2019, the Company recognized $2.3 million and $0.6 million, respectively, in grant revenue under these awards. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in Grant revenue receivable. At March 31, 2020 and December 31, 2019, the Company had $9.4 million and $7.1 million, respectively, recorded in Grants revenue receivable.