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Collaboration Agreement | 3 Months Ended
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Mar. 31, 2023
Collaboration Agreement [Abstract] |
Collaboration Agreement | 6. Collaboration Agreement In December 2022 the Company entered into a Collaboration and License Agreement with Kite Pharma, Inc. (Kite), a Gilead company (the Kite Collaboration Agreement), and a Common Stock Purchase agreement (the Gilead SPA) and Standstill and Stock Restriction agreement (the Standstill Agreement) with Gilead Sciences, Inc. (Gilead). Upon closing in January 2023, Kite made an upfront payment of $225.0 million and obtained a license to co-develop and co-commercialize CART-ddBCMA, and next-generation autologous and non-autologous CAR-T cell therapy products that use the same D-domain BCMA binder used in CART-ddBCMA, in each case for the treatment of multiple myeloma. The Company also granted Kite the ability to negotiate a development and commercialization license for the inclusion of a limited number of pre-specified additional autologous CAR-T-cell therapy products for the treatment of multiple myeloma, which can only be exercised by Kite after the Company provides to Kite a phase 1 clinical study report. In addition to the upfront consideration, the Company will be eligible to receive clinical, regulatory, and commercial milestone payments of up to $335.0 million, $635.0 million and $507.5 million, for CART-ddBCMA, each next-generation autologous CAR-T cell therapy product, and each non-autologous CAR-T cell therapy product, respectively. In the United States, the Company and Kite will equally share profits and losses from the commercialization of CART-ddBCMA and any next-generation autologous CAR-T cell therapy product for which the Company has exercised its option to co-promote with Kite (collectively, the Co-Promote Products). The Company has the option to designate next-generation autologous CAR-T therapy product as a Co-Promote Product after Kite provides the first phase 1 clinical study report for such product with the proposed core development plan and budget. For Co-Promote Products outside of the United States and for any other products worldwide that are not a Co-Promote Product (Non-Co-Promote Products), including any next-generation autologous CAR-T cell therapy product for which the company has opted out of designating as a Co-Promote Product, the Company will be eligible for tiered royalties in the low to mid teen percentages. The Company and Kite will jointly develop the Co-Promote Products in accordance with mutually agreed development plans and development budgets. On a Co-Promote Product-by-Co-Promote Product basis, the Company may, upon advance written notice to Kite, opt out of sharing development costs and profits and losses from the commercialization of such Co-Promote Product (for example, CART-ddBCMA), in which case, it will become a Non-Co-Promote Product and eligible for tiered royalties in the low to mid teen percentages. Other than certain items expressly set forth in the Kite Collaboration Agreement, the out-of-pocket development costs for activities conducted in the United States for Co-Promote Products will be shared equally by the Company and Kite. In the United States, the Company and Kite will be jointly responsible for commercialization of the Co-Promote Products. The out-of-pocket development costs for activities conducted outside the United States as part of a global clinical trial for Co-Promote Products will be borne 60% (for ex-U.S. patients) by Kite and 40% (for U.S. patients) by the Company, however Kite will be solely responsible for the costs for country-specific clinical trials outside the United States and chemistry, manufacturing and control (CMC) commercial readiness. Kite will be solely responsible for the conduct of development and commercialization of the Non-Co-Promote Products at its sole cost. Kite will manufacture the licensed products and bear the CMC commercial readiness costs and capital expenses, except that the Company is responsible for manufacturing CART-ddBCMA prior to transferring the manufacturing process to Kite during which the cost of manufacturing clinical trial material will be shared. Unless earlier terminated, the Kite Collaboration Agreement will continue in effect until no licensed products are being developed or commercialized. The Kite Collaboration Agreement is subject to termination provisions including termination by a party for the other party’s uncured, material breach. In the event of certain terminations of the Kite Collaboration Agreement, the Company is entitled to certain reversionary rights, including access to and continuity of manufacturing, with respect to the terminated products. Stock Purchase Agreement and Standstill Agreement In connection with the Kite Collaboration Agreement and upon its closing in January 2023, Gilead made an equity investment of $100.0 million by purchasing 3,478,261 shares of Arcellx common stock at a fixed per share price of $28.75 pursuant to the Gilead SPA which represented a $15.3 million discount on the sale of the Company’s common stock based on the share price on the date of closing. Pursuant to the terms of the Standstill Agreement, Gilead has agreed not to, without the Company’s prior written consent and subject to certain conditions and exceptions, among other things, directly or indirectly acquire additional shares of the Company’s outstanding equity securities, seek or propose a tender or exchange offer, merger or other business combination involving the Company, solicit proxies or consents with respect to any matter, or undertake other specified actions related to the potential acquisition of additional equity interests in the Company, collectively, the Standstill Restrictions. The Standstill Restrictions will expire on the 18-month anniversary of the Gilead SPA. Revenue Recognition The Company evaluated the agreement with Kite and determined that the obligation to co-develop the ddBCMA license and the Company’s research and development obligations to develop CART-ddBCMA were within the scope of ASC 606 because these activities are ordinary Company activities and Kite meets the definition of a customer with respect to this combined performance obligation. The revenue to be recognized will be recorded on a cost-to-cost percentage of completion basis over the period of time the Company is performing the research and development activities. Transaction Price In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if there is a significant benefit of financing. The Company assessed our collaboration agreements and concluded that no significant financing components were present. The Company’s assessment of the transaction price upon the signing of the Kite Collaboration Agreement included an analysis of the amounts it expects to receive, which at contract inception totaled $198.1 million. The transaction price consists of fixed consideration of $221.0 million and variable consideration of $22.8 million. Variable consideration results from net amounts expected to be paid to Kite over the course of the contract and are subject to change. Fixed consideration includes a reduction of a $15.3 million deemed discount on the shares sold to Gilead as they were sold at a price less than the closing price of the Company’s stock on the expiration date of the antitrust waiting period. There were no material direct transaction costs related to the transaction. Promises and Performance Obligation The Company’s promises under the Kite Collaboration Agreement include development, manufacture, and commercialization licenses, research and development activities, manufacturing activities, and the transfer of manufacturing know-how to Kite (collectively, the research and development services). These promises represent a single combined performance obligation as the promises are not distinct from each other. The Company determined that the license and research and development services are combined based on the specialized nature of the Company’s know-how and manufacturing process. The Company recognizes revenue over time using a cost-to-cost input measure of progress. In applying the cost-to-cost input measure of progress, the Company used actual costs incurred relative to total budgeted costs expected to be incurred for the combined performance obligation. Cost-sharing Reimbursements The CART-ddBCMA therapy product is under development as iMMagine-1, iMMagine-2, and iMMagine-3 research and development and clinical trial programs. The Company’s research and development obligations under the Kite Collaboration Agreement includes a co-share of 50/50 (with respect to the iMMagine-1 and iMMagine-2 trials) and 40/60 (with respect to certain aspects of the iMMagine-3 trial) of the joint development costs associated with CART-ddBCMA and any other Co-Promote Products. Kite will be conducting and paying for all activities relating to the iMMagine-2 and 3 trials and the Company will reimburse Kite from 4 0% to 5 0% of these costs. Reimbursement costs expected to be received from Kite or paid to Kite represent variable consideration and is included in the estimated transaction price. The Company uses the expected value method to estimate variable consideration and will update it at each reporting date. Q1 Activity As of March 31, 2023, receivable from collaboration partner totaled $2 1.2 million, which consists of reimbursable costs. Revenue recognized is presented as collaboration revenue in the condensed consolidated financial statements. As of March 31, 2023 the balances in contract liability were as follows (in thousands):
Contract liability |  |
Fixed transaction price | $ | 220,925 |
Reimbursable costs for the three months ended March 31, 2023 |  | 10,036 |
Less: revenue recognized as of March 31, 2023 |  | (17,912 | )
Total contract liability |  | 213,049 |
Less: current portion |  | (107,287 | )
Noncurrent portion | $ | 105,762 |

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