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License and Collaboration Agreement (Tables) | 3 Months Ended
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Mar. 31, 2020
License and Collaboration Agreement. |
Schedule of changes in contract assets and liabilities | The Company has concluded that the amended Janssen License and Collaboration Agreement continues to contain a single performance obligation including the development license; second-generation compound research services; Phase 1 development services for PTG-200 and potential second-generation compounds; the Company’s services associated with Phase 2 development for PTG-200 until Phase 2a; the Company’s services associated with Phase 2 development for a second-generation product until the dosing of the third patient in Phase 2b; and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200, second-generation research services, or the development of a second-generation compound. The Company concluded that the Amended First Opt-in Election and the Amended Second Opt-in Election options are not considered to be material rights. The Company determined that the license was not distinct from the added research and development services within the context of the agreement because the added research and development services significantly increase the utility of the intellectual property. The Company also determined that the remaining research and development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the First Amendment of the development license and PTG-200 services, including compound supply and other services. Therefore, the First Amendment is treated as if it were part of the original Janssen License and Collaboration Agreement. The First Amendment was accounted for as if it were an extension of services under the initial Janssen License and Collaboration Agreement by applying a cumulative catch-up adjustment to revenue. As of the effective date of the First Amendment, the Company calculated the adjusted cumulative revenue under the amended Janssen License and Collaboration Agreement by updating the transaction price for the incremental consideration to be received, net of the incremental development cost reimbursement to be paid to Janssen, and an updated percentage complete, which resulted in a cumulative adjustment recorded during the year ended December 31, 2019 that reduced revenue by $9.4 million. The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. For revenue recognition purposes, the Company determined that the duration of the Janssen License and Collaboration Agreement, as amended, began on the effective date of July 13, 2017 and ends upon the later of end of Phase 2a for PTG-200 or upon dosing of the third patient in Phase 2b for a second-generation compound. The Company uses the most likely amount method to estimate variable consideration included in the transaction price. Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services offset by Phase 2 development costs reimbursement payable to Janssen. Cost sharing payments from Janssen relate to the agreed upon services for Phase 2 activities that the Company performs within the duration of the contract are included in the transaction price at an amount equal to 80% of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third party contract costs. Cost sharing payments to Janssen relate to agreed-upon services for Phase 2 activities that Janssen performs within the duration of the contract are not a distinct service that Janssen transfers to the Company. Therefore, the consideration payable to Janssen is accounted for as a reduction in the transaction price. The Company determined that the transaction price of the Janssen License and Collaboration Agreement was $113.6 million as of March 31, 2020, an increase of $0.7 million from the transaction price of $112.9 million as of December 31, 2019. In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of Phase 2 development costs reimbursement expected to be payable to Janssen. The Company determined that the transaction price includes the $50.0 million upfront payment, the $25.0 million payment received upon the effectiveness of the First Amendment, the $5.0 million payment triggered by the successful nomination of a second-generation compound, $18.3 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research costs and other services, and $15.3 million of estimated variable consideration, which includes a $7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound. The Company evaluated whether the variable component of the transaction price should be constrained to ensure that a significant reversal of revenue recognized on a cumulative basis as of March 31, 2020 is not probable. The Company concluded that the variable consideration constraint does not further decrease the estimated transaction price as of March 31, 2020. The additional potential development, regulatory and sales milestone payments after the completion of Phase 2b activities that the Company would be eligible to receive are currently outside the contract term as defined for revenue recognition purposes and as such have been excluded from the transaction price. The Company re-evaluates the transaction price, including variable consideration, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company and Janssen make quarterly cost sharing payments to one another in amounts necessary to ensure that each party bears its contractual share of the overall shared costs incurred. The Company utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. In applying the cost-based input methods of revenue recognition, the Company uses actual costs incurred relative to expected costs to fulfill the combined performance obligation. These costs consist primarily of internal FTE effort and third-party contract costs. Revenue will be recognized based on actual costs incurred as a percentage of total estimated costs as the Company completes its performance obligations. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Janssen. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. For the three months ended March 31, 2020 and 2019, the Company recognized license and collaboration revenue of $3.6 million and $1.6 million, respectively, which was primarily related to the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance. The following tables present changes in the Company’s contract assets and liabilities during the periods presented (in thousands):
|  | Balance at |  |  |  |  |  | Balance at
|  | Beginning of |  |  |  |  |  | End of
Three Months Ended March 31, 2020 |  | Period |  | Additions |  | Deductions |  | Period
Contract assets: |  |  |  |  |  |  |  |  |  |  |  |
Receivable from collaboration partner - related party |  | $ | 5,955 |  | $ | 1,509 |  | $ | (5,012) |  | $ | 2,452
Contract asset - related party |  | $ | 800 |  | $ | 342 |  | $ | — |  | $ | 1,142
Contract liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue - related party |  | $ | 41,530 |  | $ | 1,850 |  | $ | (4,335) |  | $ | 39,045
Payable to collaboration partner - related party |  | $ | 1,262 |  | $ | 676 |  | $ | (822) |  | $ | 1,116
|  | Balance at |  |  |  |  |  |  |  | Balance at
|  | Beginning of |  |  |  |  |  | End of
Three Months Ended March 31, 2019 |  | Period |  | Additions |  | Deductions |  | Period
Contract assets: |  |  |  |  |  |  |  |  |  |  |  |
Receivable from collaboration partner - related party |  | $ | 2,042 |  | $ | 1,726 |  | $ | (4) |  | $ | 3,764
Contract asset - related party |  | $ | 2,545 |  | $ | — |  | $ | (1,248) |  | $ | 1,297
Contract liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue - related party |  | $ | 8,223 |  | $ | 342 |  | $ | (1,564) |  | $ | 7,001
Payable to collaboration partner - related party |  | $ | 1,061 |  | $ | 150 |  | $ | — |  | $ | 1,211

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- Definition Tabular disclosure of contract balances and changes in contract balances. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=118956577&loc=SL49130551-203045 + Details
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