Quarterly report pursuant to Section 13 or 15(d)

Research and Development Agreements

v3.19.3
Research and Development Agreements
9 Months Ended
Sep. 30, 2019
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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Japan

 

$

2,903

 

 

$

1,914

 

 

$

14,527

 

 

$

3,009

 

United States

 

 

284

 

 

 

117

 

 

 

284

 

 

 

197

 

Total research and development revenue

 

$

3,187

 

 

$

2,031

 

 

$

14,811

 

 

$

3,206

 

 

 

Related Party Collaboration Agreement - Takeda Pharmaceuticals, Inc.

Research and development revenue from related party relates to revenue from research and development agreements with Takeda Pharmaceuticals, Inc (“Takeda”) and were as follows (in thousands):

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Takeda Collaboration Agreement

$

 

 

$

 

 

$

 

 

$

92

 

Takeda Individual Project Agreement

 

 

 

 

1,246

 

 

 

54

 

 

 

1,909

 

Takeda Development and License Agreement

 

2,581

 

 

 

253

 

 

 

13,707

 

 

 

253

 

Takeda Multi-Target Agreement

 

322

 

 

 

415

 

 

 

766

 

 

 

755

 

Total research and development revenue

$

2,903

 

 

$

1,914

 

 

$

14,527

 

 

$

3,009

 

 

Deferred revenue and accounts receivable balances from the research and development agreements with Takeda were as follows (in thousands):

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Unbilled revenue

 

$

 

 

$

240

 

Liabilities

 

 

 

 

 

 

 

 

Deferred revenue, current

 

$

11,735

 

 

$

26,231

 

Deferred revenue, non-current

 

 

1,236

 

 

 

2,670

 

Total deferred revenue

 

$

12,971

 

 

$

28,901

 

 

Takeda Development and License Agreement

On September 18, 2018, the Company entered into a Development and License Agreement with Takeda (“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, may choose to exercise its co-development option, which requires the Company to fund its share of development costs. If exercised, the Company 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.

If the Company does not exercise its co-development option, it is eligible to receive development milestone payments of up to $162.5 million upon the achievement of certain development milestones and regulatory approvals, and sales milestone payments of up to $175.0 million upon the achievement of certain sales milestone events.

The Company exercised the co-development option in July 2019 and 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 if the Company exercises its option to co-develop, and from high-single digits to low teens if the Company does not exercise its option to co-develop.

The Company identified one performance obligation at the inception of the Takeda Development and License Agreement, the research and development services for the CD38 ETBs, 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 $29.3 million consists of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment that is deemed probable of being achieved, (3) minus $10.7 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 September 30, 2019, 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 September 30, 2019.

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.

Concurrent with the exercise of the Company’s co-development option in July 2019, 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.  Any cost sharing reimbursements received from Takeda will be recorded as collaboration revenue, consistent with the Company’s accounting policy for collaboration agreements.

For the three months ended September 30, 2019 and 2018, the Company recognized research and development revenue under the Takeda Development and License Agreement of $2.6 million and $0.3 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company recognized research and development revenue under the Takeda Development and License Agreement of $13.7 million and $0.3 million, respectively. This revenue is deemed to be revenue from a related party (as discussed further in Note 4, Related Party Transactions). At September 30, 2019 and December 31, 2018, total deferred revenue related to the performance obligation was $9.7 million and $24.8 million, respectively.

Takeda Multi-Target Agreement

In June 2017, The Company entered into a Multi-Target Collaboration and License Agreement with Takeda (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.

At April 2018, 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:

 

 

$25.0 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 the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement may be terminated sooner by Takeda for convenience or upon a material change of control, 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, with a specified notice period.

The Company evaluated the contract termination clause and concluded that it was a non-substantive termination provision. As such, an initial contract term was defined as 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.

During the three months ended September 30, 2019 and 2018, the Company recognized $0.3 million and $0.4 million, respectively, in research and development revenue under the Takeda Multi-Target Agreement. During the nine months ended September 30, 2019 and 2018, the Company recognized $0.8 million, for both periods, in research and development revenue under the Takeda Multi-Target Agreement. This revenue is deemed to be revenue from a related party (as discussed further in Note 4, Related Party Transactions). At September 30, 2019 and December 31, 2018, deferred revenue related to the performance obligation was $3.3 million and $4.1 million, respectively.

Takeda Collaboration Agreement

In October 2016, the Company entered into a collaboration and option agreement (the “Takeda Collaboration Agreement”) with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda, to discover and develop CD38-targeting engineered toxin bodies (“ETBs”), which includes TAK-169 for evaluation by Takeda. All research and development services under the Takeda Collaboration Agreement were performed at December 31, 2018.  

The Company recognized no research and development revenue under the Takeda Collaboration Agreement for the three and nine months ended September 30, 2019. The Company recognized no revenue for the three months ended September 30, 2018. The Company recognized revenue of $0.1 million for the nine months ended September 30, 2018. This revenue is deemed to be revenue from a related party (as discussed further in Note 4, Related Party Transactions).

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 Takeda in June 2018, that was subsequently amended 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 will receive up to $2.2 million in compensation that includes 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, no associated research and development revenue was recognized for the three months ended September 30, 2019. The Company recognized $1.2 million of research and development revenue for the three months ended September 30, 2018. The Company recognized $0.1 million and $1.9 million of research and development revenue for the nine months ended September 30, 2019 and 2018, respectively.  

Other Collaboration Agreements

In September 2016, the Company entered into a collaboration agreement with an undisclosed pharmaceutical company (“Other Collaboration Agreement”) to generate ETBs and provide the customer (i) new ETBs generated using the customer’s materials and (ii) ETB study molecules for testing and evaluation. The customer exercised an option under the Other Collaboration Agreement for the manufacture of additional quantities of ETB molecules in November 2017.

Under the Other Collaboration Agreement, the Company recognized $0.3 million and $0.1 million of research and development revenue for the three months ended September 30, 2019 and 2018, respectively. Under the Other Collaboration Agreement, the Company recognized $0.3 million and $0.2 million of research and development revenue for the nine months ended September 30, 2019 and 2018, respectively. All research and development services under the Other Collaboration Agreement were performed at December 31, 2018.

Grant Agreements

In September 2018, the Company entered into a cancer research agreement (“CD38 CPRIT Agreement”) with CPRIT, 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 November 2011, the Company entered into a cancer research agreement (“CPRIT Agreement”) with CPRIT under which CPRIT awarded a $10.6 million product development grant for the CD20-targeting ETB MT-3724.

During the three months ended September 30, 2019 and 2018, the Company recognized $0.4 million and $4.7 million, respectively, in grant revenue under these awards. During the nine months ended September 30, 2019 and 2018, the Company recognized $1.3 million and $5.4 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 September 30, 2019 and December 31, 2018, the Company had $5.6 million and $4.3 million, respectively, recorded in Grants revenue receivable.