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Collaboration Agreements | 9 Months Ended
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Sep. 28, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
COLLABORATION AGREEMENTS | COLLABORATION AGREEMENTS From time to time, we enter into collaborative arrangements for the development, manufacture and/or commercialization of products and/or product candidates. These collaborations generally provide for non-refundable up-front license fees, development and commercial performance milestone payments, payments for product supply services, development cost reimbursements, royalty payments and/or profit sharing. See “Note 2. Revenues” for information on collaboration revenues recognized during the three and nine months ended September 30, 2018 and 2017. Ipsen Collaboration In February 2016, we entered into a collaboration and license agreement with Ipsen for the commercialization and further development of cabozantinib. Pursuant to the terms of the collaboration agreement, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S., Canada and Japan. The collaboration agreement was subsequently amended in December 2016 to include commercialization rights in Canada. We have also agreed to collaborate with Ipsen on the development of cabozantinib for current and potential future indications. The parties’ efforts are governed through a joint steering committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction; provided, however, that we retain final decision-making authority with respect to cabozantinib’s ongoing development. In consideration for the exclusive license and other rights contained in the collaboration agreement, including commercialization rights in Canada, Ipsen paid us aggregate upfront payments of $210.0 million. As of December 31, 2017 we had achieved various milestones totaling $125.0 million. During the nine months ended September 30, 2018 we achieved an additional $50.0 million milestone upon the EMA’s approval of cabozantinib as a first-line treatment of advanced RCC, a $25.0 million commercial milestone upon Ipsen’s achievement of $100.0 million of net sales cumulatively over four consecutive quarters, a $10.0 million milestone upon Ipsen’s filing with the EMA for cabozantinib as a treatment for patients with previously-treated advanced HCC and a $5.0 million milestone on the approval by Health Canada of cabozantinib for the treatment of adults with advanced RCC. The timing and amount of revenue recognized during the three and nine months ended September 30, 2018 for those milestones is described below. We are also eligible to receive future development and regulatory milestone payments, totaling up to an additional $194.0 million, including a $40.0 million milestone upon the EMA’s approval of cabozantinib as a treatment for patients with previously-treated advanced HCC, and additional milestone payments for other future indications and/or jurisdictions. T he collaboration agreement also provides that we will be eligible to receive contingent payments of up to $520.3 million associated with sales volume milestones. We will also receive royalties on net sales of cabozantinib by Ipsen outside of the U.S. and Japan. We were entitled to receive a tiered royalty of 2% to 12% on the initial $150.0 million of net sales, which was reached in the three months ended June 30, 2018. As of September 30, 2018, we are entitled to receive a tiered royalty of 22% to 26% of annual net sales, with separate tiers for Canada. These tiers reset each calendar year. We are primarily responsible for funding cabozantinib-related development costs for those trials in existence at the time we entered into the collaboration agreement with Ipsen; global development costs for additional trials are shared between the parties, with Ipsen reimbursing us for 35% of such costs, provided Ipsen chooses to opt into such trials. In accordance with the collaboration agreement, Ipsen has opted into and is co-funding: CheckMate 9ER, the phase 3 pivotal trial evaluating the combination of cabozantinib with nivolumab versus sunitinib in patients with previously-untreated, advanced or metastatic RCC being conducted in collaboration with Bristol-Myers Squibb Company (“BMS”); CheckMate 040, the phase 1/2 study evaluating the combination of cabozantinib with nivolumab in patients with both previously-treated and previously-untreated advanced HCC being conducted in collaboration with BMS (though Ipsen will not be co-funding the triplet arm of the study evaluating cabozantinib with nivolumab and ipilimumab); and eight cohorts of the COSMIC-021 phase 1b trial evaluating cabozantinib in combination with atezolizumab in locally advanced or metastatic solid tumors being conducted in collaboration with the Roche Group. We remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration agreement. In connection with the collaboration agreement, we entered into a supply agreement with Ipsen to supply finished, labeled drug product to Ipsen for distribution in the territories outside of the U.S. and Japan for the term of the collaboration agreement. The product will be supplied at our cost, as defined in the agreement, which excludes the 3% royalty we are required to pay GlaxoSmithKline (“GSK”) on Ipsen’s net sales of any product incorporating cabozantinib. Unless terminated earlier, the collaboration agreement has a term that continues, on a product-by-product and country-by-country basis, until the latter of (i) the expiration of patent claims related to cabozantinib, (ii) the expiration of regulatory exclusivity covering cabozantinib or (iii) ten years after the first commercial sale of cabozantinib, other than COMETRIQ. The supply agreement will continue in effect until expiration or termination of the collaboration agreement. The collaboration agreement may be terminated for cause by either party based on uncured material breach of either the collaboration agreement or the supply agreement by the other party, bankruptcy of the other party or for safety reasons. We may terminate the collaboration agreement if Ipsen challenges or opposes any patent covered by the collaboration agreement. Ipsen may terminate the collaboration agreement if the U.S. Food and Drug Administration or EMA orders or requires substantially all cabozantinib clinical trials to be terminated. Ipsen also has the right to terminate the collaboration agreement on a region-by-region basis after the first commercial sale of cabozantinib in advanced RCC in the given region. Upon termination by either party, all licenses granted by us to Ipsen will automatically terminate, and, except in the event of a termination by Ipsen for our material breach, the licenses granted by Ipsen to us shall survive such termination and shall automatically become worldwide, or, if Ipsen were to terminate only for a particular region, then for the terminated region. Following termination by us for Ipsen’s material breach, or termination by Ipsen without cause or because we undergo a change of control by a party engaged in a competing program, Ipsen is prohibited from competing with us for a period of time. We identified the following performance obligations under the collaboration agreement with Ipsen: (1) the transfer of an exclusive license for the commercialization and further development of cabozantinib, as described above; and (2) r esearch and development services, which includes certain committed studies for the development of cabozantinib, p harmacovigilance services and participation on the joint steering and development committees (as defined in the collaboration agreement). We evaluated the collaboration agreement with Ipsen under Topic 606 as of January 1, 2018. Based on the evaluation as of that date, the up-front, nonrefundable fees, the milestones earned and royalties earned as of December 31, 2017, the $10.0 million milestone we expected to achieve during the three months ended March 31, 2018 upon Ipsen’s filing with the EMA for cabozantinib as a treatment for patients with previously-treated advanced HCC, and the estimated reimbursements for our research and development services performance obligation constituted the amount of the consideration to be included in the transaction price as of December 31, 2017. The transaction price was allocated to the performance obligations identified based on our best estimate of the relative standalone selling price: for our license, the estimate was determined using a discounted cash flow valuation utilizing forecasted revenues and costs, and a discount rate and for r esearch and development services the estimate was determined using an adjusted market assessment approach that relies on internal and external costs and market factors. Other than the $10.0 million HCC filing milestone discussed above, variable consideration related to regulatory and development milestones not previously recognized was constrained due to the fact that it was not probable that a significant reversal of cumulative revenue would not occur, given the inherent uncertainty of success with these milestones. Any variable consideration related to sales-based milestones and royalties will be recognized when the related sales occur as these amounts have been determined to relate to the license transferred to Ipsen and therefore is recognized at the later of when the performance obligation is satisfied or the related sales occur. We re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. Revenues related to our license performance obligation are recorded immediately as our license represents functional intellectual property that was transferred at a point in time, upon execution of the collaboration agreement in February 2016. Revenues for our research and development services performance obligation are being recognized using the inputs method based on our internal development projected cost estimates through the current estimated patent expiration of cabozantinib in the European Union, which is early 2030. As of September 30, 2018, $53.4 million of the transaction price allocated to our research and development services performance obligation had not been satisfied. Collaboration revenues for both the three and nine months ended September 30, 2018 included $36.9 million in revenue related to a $40.0 million milestone from Ipsen we expect to earn during the three months ending December 31, 2018 for the approval by the European Commission (“EC”) of cabozantinib for previously-treated HCC. We determined recognition of the milestone during the three months ended September 30, 2018 was appropriate following Ipsen’s receipt of the Committee for Medicinal Products for Human Use’s (“CHMP”) positive opinion of cabozantinib for previously-treated HCC. The positive CHMP opinion is being reviewed by the EC as part of their approval process. Our determination that we expected to earn the $40.0 million milestone resulted in a change in the overall transaction price of the collaboration agreement, as it was probable that a significant reversal of cumulative revenue would not occur. The $36.9 million in revenue in the three months ended September 30, 2018 represents the portion of the milestone that was allocated to the previously satisfied performance obligations for the transfer of an intellectual property license and research and development services. The remainder of the milestone was allocated to research and development services which will be recognized in future periods as those services are delivered through early 2030. Collaboration revenues for both the three and nine months ended September 30, 2018 also included $5.0 million in revenue for a milestone from Ipsen on the approval by Health Canada of cabozantinib for the treatment of adults with advanced RCC. We have determined the milestone relates entirely to the previously satisfied performance obligations for the transfer of an intellectual property license and therefore recognized the entire milestone in the three months ended September 30, 2018 when the milestone was achieved. Collaboration revenues for the nine months ended September 30, 2018 included $46.2 million in revenue for a $50.0 million milestone from Ipsen for the approval of cabozantinib for the first-line treatment of advanced RCC by the EC, of which $45.8 million was recognized during the three months ended March 31, 2018. We determined recognition of the milestone during the three months ended March 31, 2018 was appropriate following the CHMP positive opinion of cabozantinib for the first-line treatment of advanced RCC. The $45.8 million in revenue during the three months ended March 31, 2018 represents the portion of the milestone that was allocated to the previously satisfied performance obligations for the transfer of an intellectual property license and research and development services. The remainder of the milestone was allocated to research and development services to be recognized in future periods as those services are delivered through early 2030, which included an additional $0.2 million in revenue recognized during the three months ended September 30, 2018. Collaboration revenues for the nine months ended September 30, 2018 also included $25.0 million in revenue for a commercial milestone from Ipsen that we earned during the three months ended June 30, 2018 upon Ipsen’s achievement of $100.0 million of net sales cumulatively over four consecutive quarters. We have determined that sales-based milestones relate entirely to the previously satisfied performance obligations for the transfer of an intellectual property license and therefore recognized the entire milestone in the quarter the milestone was achieved. As of September 30, 2018, the net contract asset for the collaboration agreement with Ipsen was $24.5 million, which was included in Unbilled collaboration revenue in the accompanying Condensed Consolidated Balance Sheets. Collaboration revenues under the collaboration agreement with Ipsen were as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Ipsen collaboration revenues | $ | 57,186 |  |  | $ | 50,679 |  |  | $ | 145,038 |  |  | $ | 60,703 |
Takeda Collaboration In January 2017, we entered into a collaboration and license agreement with Takeda for the commercialization and further clinical development of cabozantinib in Japan. Pursuant to the terms of the collaboration agreement, Takeda has exclusive commercialization rights for current and potential future cabozantinib indications in Japan. The parties have also agreed to collaborate on the future clinical development of cabozantinib in Japan. The operation and strategic direction of the parties’ collaboration is governed through a joint executive committee and appropriate subcommittees. In consideration for the exclusive license and other rights contained in the collaboration agreement, we received a $50.0 million upfront nonrefundable payment from Takeda. In May 2018, we amended the collaboration agreement to modify the milestones we are eligible to receive under the agreement. As of September 30, 2018, we were eligible to receive development, regulatory and first-sale milestone payments of up to $100.0 million related to second-line RCC, first-line RCC and second-line HCC, as well as additional development, regulatory and first-sale milestone payments for potential future indications. The collaboration agreement also provides that we are eligible to receive pre-specified payments of up to $83.0 million associated with sales volume milestones. We consider the contingent payments due to us upon the achievement of specified sales volumes to be similar to royalty payments. We will also receive royalties on net sales of cabozantinib in Japan. We are entitled to receive a tiered royalty of 15% to 24% on the initial $300.0 million of net sales, and after the initial $300.0 million of net sales, we are then entitled to receive a tiered royalty of 20% to 30% on annual net sales. These tiers will reset each calendar year. Takeda is responsible for 20% of the costs associated with the global cabozantinib development plan’s current and future trials, provided Takeda opts into such trials, and 100% of costs associated with the cabozantinib development activities that are exclusively for the benefit of Japan. In accordance with the collaboration agreement, Takeda has opted into and is co-funding CheckMate 9ER. Pursuant to the terms of the collaboration agreement, we are responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration, and consequently, we entered into a clinical supply agreement covering the supply of cabozantinib to Takeda, as well as a quality agreement setting forth, in detail, the respective responsibilities pertaining to the quality requirements of the aforementioned supply to Takeda. We will record reimbursements for development costs as revenue as the development services represent a part of our ongoing major or central operations. Unless earlier terminated, the collaboration agreement has a term that continues, on a product-by-product basis, until the earlier of (i) two years after first generic entry with respect to such product in Japan or (ii) the later of (A) the expiration of patent claims related to cabozantinib and (B) the expiration of regulatory exclusivity covering cabozantinib in Japan. The collaboration agreement may be terminated for cause by either party based on uncured material breach by the other party, bankruptcy of the other party or for safety reasons. For clarity, Takeda’s failure to achieve specified levels of commercial performance, based upon sales volume and/or promotional effort, during the first six years of the collaboration shall constitute a material breach of the collaboration agreement. We may terminate the agreement if Takeda challenges or opposes any patent covered by the collaboration agreement. At any time prior to August 1, 2023, the parties may mutually agree to terminate the collaboration agreement if Japan’s Pharmaceuticals and Medical Devices Agency is unlikely to grant any approval of the marketing authorization application in any cancer indication in Japan. After the commercial launch of cabozantinib in Japan, Takeda may terminate the collaboration agreement upon twelve months’ prior written notice following the third anniversary of the first commercial sale of cabozantinib in Japan. Upon termination by either party, all licenses granted by us to Takeda will automatically terminate, and the licenses granted by Takeda to us shall survive such termination and shall automatically become worldwide. We identified the following performance obligations under the collaboration agreement with Takeda: (1) the transfer of an exclusive license for the commercialization and further development of cabozantinib, as described above; and (2) research and development services, which includes certain committed studies for the development of cabozantinib, p harmacovigilance services and participation on the joint executive and development committees (as defined in the collaboration agreement). We evaluated the collaboration agreement with Takeda under Topic 606 as of January 1, 2018. Based on the evaluation as of that date, the up-front, nonrefundable fee and the estimated reimbursements for our research and development services performance obligation constituted the amount of the consideration to be included in the transaction price as of December 31, 2017. The transaction price was allocated to the performance obligations identified based on our best estimate of the relative standalone selling price: for our license, the estimate was determined using a discounted cash flow valuation utilizing forecasted revenues and costs, and a discount rate and for r esearch and development services the estimate was determined using an adjusted market assessment approach that relies on internal and external costs and market factors. Variable consideration related to regulatory and development milestones not previously recognized was constrained due to the fact that it was not probable that a significant reversal of cumulative revenue would not occur, given the inherent uncertainty of success with these milestones. Any variable consideration related to sales-based milestones and royalties will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license transferred to Takeda and therefore is recognized at the later of when the performance obligation is satisfied or the related sales occur. We re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. Revenues related to our license performance obligation are recorded immediately as our license represents functional intellectual property that was transferred at a point in time, upon execution of the collaboration agreement in January 2017. Revenues for our research and development services performance obligation are being recognized using the inputs method based on our internal development projected cost estimates through the current estimated patent expiration of cabozantinib in Japan, which is early 2030. As of September 30, 2018, $28.5 million of the transaction price allocated to our research and development services performance obligation had not been satisfied. As of September 30, 2018, the net contract liability for the collaboration agreement with Takeda was $2.3 million, which was included in Long-term portion of deferred revenue in the accompanying Condensed Consolidated Balance Sheets. Collaboration revenues under the collaboration agreement with Takeda were as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Takeda collaboration revenues | $ | 1,940 |  |  | $ | 4,023 |  |  | $ | 6,843 |  |  | $ | 10,848 |
Genentech Collaboration Royalty revenues on ex-U.S. sales and our share of the profits and losses recognized in connection with COTELLIC’s commercialization in the U.S. were as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Royalty revenues on ex-U.S. sales | $ | 1,390 |  |  | $ | 1,392 |  |  | $ | 4,285 |  |  | $ | 5,057 |
Profits and losses on U.S. commercialization | $ | 1,935 |  |  | $ | (891 | ) |  | $ | 6,004 |  |  | $ | (2,298 | )
The royalty revenues on ex-U.S. sales were included in Collaboration revenues. Prior to 2017, royalty revenues from the collaboration agreement with Genentech were based on amounts reported to us by our collaboration partner and were recorded when such information becomes available to us; beginning in the first quarter of 2017 such information became available in the current quarter and for 2016 such information was not available until the following quarter, meaning that through December 31, 2016 we recorded royalty revenues on a one quarter lag. As a result of this change, royalty revenues for the nine months ended September 30, 2017 included $1.1 million in royalty revenues for sales in the fourth quarter of 2016 in addition to the royalty revenues for sales for the nine months ended September 30, 2017. Losses on the U.S. commercialization of COTELLIC for the three and nine months ended September 30, 2017 were included in Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. We expect an overall profit on the U.S. commercialization of COTELLIC for the year ending December 31, 2018 and therefore we have included the profit for the three and nine months ended September 30, 2018 in Collaboration revenues. GSK Collaboration Royalties accruing to GSK in connection with the sales of COMETRIQ and CABOMETYX are included in Cost of goods sold for net sales by us and as a reduction of Collaboration revenues for net sales by Ipsen in the accompanying Condensed Consolidated Statements of Operations. Such royalties were as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Royalties accruing to GSK | $ | 6,268 |  |  | $ | 3,446 |  |  | $ | 17,021 |  |  | $ | 8,809 |
StemSynergy Collaboration In January 2018, we entered into an exclusive collaboration and license agreement with StemSynergy Therapeutics, Inc. (“StemSynergy”) for the discovery and development of novel oncology compounds targeting Casein Kinase 1 alpha (“CK1α”) a component of the Wnt signaling pathway implicated in key oncogenic processes. Under the terms of the agreement, we will partner with StemSynergy to conduct preclinical and clinical studies with compounds targeting CK1α. We paid StemSynergy an upfront payment of $3.0 million in initial research and development funding. As of September 30, 2018, we have accrued $0.6 million to fund additional research and development under the agreement and StemSynergy is eligible for an additional $2.9 million of such funding. The funding costs incurred to date, including t he $3.0 million initial payment, was included in Research and development expenses in the accompanying Condensed Consolidated Statements of Operations. StemSynergy will also be eligible for up to $56.5 million in milestones for the first product to emerge from the collaboration, including preclinical and clinical development and regulatory milestone payments, commercial milestones, as well as single-digit royalties on worldwide sales. We will be solely responsible for the commercialization of products that arise from the collaboration. Invenra Collaboration In May 2018, we entered into a collaboration and license agreement with Invenra, Inc. (“Invenra”), which is focused on developing next-generation biologics, to discover and develop multispecific antibodies for the treatment of cancer. Invenra is responsible for antibody lead discovery and generation while we will lead Investigational New Drug enabling studies, manufacturing, clinical development in single-agent and combination therapy regimens, and future regulatory and commercialization activities. The collaboration agreement also provides that we will receive an exclusive, worldwide license to one preclinical asset (the “lead preclinical asset”), and that we and Invenra will pursue up to six additional discovery projects during the term of the collaboration, which in total are directed to three discovery programs. In consideration for the exclusive worldwide license and other rights contained in the collaboration agreement, we paid Invenra an upfront payment of $2.0 million and second project initiation fee of $2.0 million. The $4.0 million of total payments we made during the nine months ended September 30, 2018 are included in Research and development expenses in the accompanying Condensed Consolidated Statements of Operations. Invenra is eligible to receive payments of up to $131.5 million based on the achievement of specific development and regulatory milestones for a product containing the lead preclinical asset in the first indication. Upon successful commercialization of a product, Invenra is eligible to receive global milestone payments up to $325.0 million if certain sales thresholds are achieved as well as single digit tiered royalties on net sales of the approved product. We also have the right to initiate five additional discovery projects for development subject to an upfront payment of $2.0 million for each project as well as additional global milestone payments and royalties for any products that arise from these discovery efforts. Unless earlier terminated, the collaboration agreement has a term that continues, on a product-by-product and country-by-country basis, until the later of (i) ten years after the first commercial sale of such product in such country or (ii) expiration of patent claims covering the product in such country. We may terminate the collaboration agreement in its entirety or on a project-by-project basis at any time prior to commercialization, for any or no reason, upon thirty days’ written notice to Invenra. The collaboration agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Other Collaborations For a description of our other existing collaboration agreements, see “Note 2. Collaboration Agreements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 26, 2018. We have determined that each of our other existing collaboration agreements have one performance obligation, the delivery of an intellectual property license to each collaboration partner, which was satisfied for all such agreements prior to the adoption of Topic 606. As a result, any consideration earned and received from these collaborations will be recognized immediately as the licenses we provided represent functional intellectual property that was transferred at a point in time prior to the adoption of Topic 606, when the agreements were executed. Potential v ariable consideration for these collaborations related to regulatory and development milestones was constrained due to the fact that it was not probable that a significant reversal of cumulative revenue would not occur, given the inherent uncertainty of success with these milestones. Any variable consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the licenses transferred and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur. In February 2018, upon Daiichi Sankyo’s submission of a regulatory application to the Japanese Pharmaceutical and Medical Devices Agency for esaxerenone as a treatment for patients with essential hypertension, we earned a $20.0 million milestone, which is included in Collaboration revenues during the nine months ended September 30, 2018.

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