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License and Collaboration Agreement | 3 Months Ended
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Mar. 31, 2022
License and Collaboration Agreement.. |
License and Collaboration Agreement |
License and Collaboration Agreement | Note 3. License and Collaboration Agreement Agreement Terms On July 27, 2021, the Company entered into an amended and restated License and Collaboration Agreement (“Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”). The Restated Agreement amends and restates the License and Collaboration Agreement, dated May 26, 2017, by and between the Company and Janssen (as amended by the First Amendment thereto, effective May 7, 2019, the “Original Agreement”). Janssen is a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of the Company, and Janssen are both subsidiaries of Johnson & Johnson. The Original Agreement became effective on July 13, 2017. Upon the effectiveness of the Original Agreement, the Company received a non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the effectiveness of the First Amendment, the Company received a $25.0 million payment from Janssen in 2019. The Company also received a $5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first quarter of 2020 and a $7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021. In March 2022, the Company became eligible to receive a $25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound. The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates. The candidates nominated for initial development pursuant to the Restated Agreement include PTG-200 (JN-67864238), PN-232 (JNJ-75105186) and PN-235 (JNJ-77242113). PTG-200 is an oral IL-23 receptor antagonist that was in Phase 2a development for the treatment of Crohn’s disease (“CD”). During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing PN-235, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for the conduct of all future trials, including these anticipated Phase 2 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials. ​ Pursuant to the Restated Agreement, the parties have:
| ● | amended development milestones to reflect Janssen’s expected development of collaboration compounds for multiple indications in the IL-23 pathway;
| ● | limited the Company’s further development and related expense obligations under the Restated Agreement to the PTG-200 Phase 2a trial and the ongoing Phase 1 trials in PN-232 and PN-235; Janssen is responsible for all other future development and related expenses under the Restated Agreement; and
| ● | concluded the parties’ two-year research collaboration, while enabling Janssen to continue conducting additional research through July 2024 on compounds developed pursuant to the Original Agreement.
The Restated Agreement enables Janssen to develop collaboration compounds for multiple indications. Under the Restated Agreement, Janssen is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications. The Company’s development cost obligations in the Original Agreement for the period following the effective date of the Original Agreement were as follows: (a) up to $20.0 million of costs related to up to three Phase 1 trials of second-generation compounds; (b) up to $20.0 million of costs related to Phase 2a and 2b costs for PTG-200 (i.e., 20% of the first $100.0 million in costs); and (c) up to $25.0 million in costs related to up to two Phase 2 trials evaluating second-generation compounds. The Company’s continuing development expense obligations under the Restated Agreement are as follows: (a) the Company funded 20% of the costs related to the Phase 2a trial evaluating PTG-200 for the treatment of CD (subject to a $20.0 million cap); (b) the Company was responsible for 50% of agreed-upon costs related to the ongoing Phase 1 trial evaluating PN-235 incurred through January 4, 2021; and (c) the Company was responsible for 100% of agreed-upon costs related to the Phase 1 trial evaluating PN-232. Certain of the Company’s previous development expense obligations under the Original Agreement were limited or eliminated as follows: (a) the Company’s previous $25.0 million obligation for 20% of costs related to Phase 2 trials for second-generation products was eliminated; (b) the Company’s previous $5.0 million obligation for 50% of the costs of a potential third Phase 1 trial evaluating a second-generation compound was eliminated; and (c) the Company had no obligation to fund any portion of any Phase 2b or other trial evaluating PTG-200 beyond the Phase 2a trial in CD. One milestone for second-generation Phase 2 development was reduced from $50.0 million to $25.0 million in the Restated Agreement; otherwise, the various milestone payment amounts in the Restated Agreement remain substantially the same as in the Original Agreement. To reflect parallel development of multiple indications in the IL-23 pathway, milestone payments under the Restated Agreement generally now correspond to the achievement of specified milestones in: (a) any initial indication (rather than CD, as in the Original Agreement); (b) any second indication (rather than ulcerative colitis (“UC”), as in the Original Agreement); and (c) any third indication. With respect to second-generation compounds, milestone payments for second and third indications may be triggered by any second-generation compound (i.e., not necessarily the second-generation compound that triggered the initial payment for any indication, or the payment for a second indication). In addition, the opt-in payments contemplated by the Original Agreement related to the scope of Janssen’s license rights have been converted into development milestones in the Restated Agreement. Upcoming potential development milestones for second-generation compounds include:
| ● | $10.0 million for dosing of the third patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e., an indication different than the indication which triggered the $25.0 million milestone described above);
| ● | $50.0 million for dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for any indication;
| ● | $15.0 million for dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication; and
| ● | $115.0 million for a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint.
Development milestones for PTG-200 were unchanged under the Restated Amendment, except that milestone achievement is generally no longer indication-specific. Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent. The sales milestone payments in the Original Agreement also remain the same in the Restated Agreement. Pursuant to both the Original and Restated Agreements, payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities. Janssen bills the Company for its share of the PTG-200 Phase 2a development costs as expenses are incurred by Janssen. Milestone payments are received after the related milestones are achieved. Janssen retains exclusive, worldwide rights to develop and commercialize IL-23 receptor antagonist compounds derived from the research collaboration conducted under the Original Agreement, or Janssen’s further research under the Restated Agreement. Any further research and development will be conducted by Janssen. The Company will have the right to co-detail (for CD and UC indications) up to two of the IL-23 receptor antagonist compounds under the collaboration in the U.S. market. The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier. Upon a termination of the Restated Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials. Revenue Recognition The Restated Agreement contains a single performance obligation for the development license; Phase 1 development services for PTG-200, PN-232 and PN-235; the Company’s services associated with Phase 2a development for PTG-200 in CD; the initial year of second-generation compound research services; and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and PN-235 through Phase 1. Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and PN-235 beyond Phase 1 are no longer required. The Company determined that the license was not distinct from the revised development services within the context of the agreement because the revised development services did not change the utility of the intellectual property. The Company also concluded that the remaining development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the Restated Agreement of the development license and PTG-200, PN-232 and PN-235 services, including compound supply and other services. Therefore, the Restated Agreement is treated as if it were part of the Original Agreement. The Restated Agreement was accounted for as if it were a modification of services under the Original Agreement by applying a cumulative catch-up adjustment to revenue. As of the effective date of the Restated Agreement, the Company calculated the adjusted cumulative revenue under the Restated Agreement with primary updates to the transaction price, including the release of and update of prior constraints and fewer remaining services to be provided, resulting in a cumulative adjustment that increased revenue by $8.0 million for the year ended December 31, 2021. 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 duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and will end upon the later of the end of Phase 2a for PTG-200 in CD or the completion of a Phase 1 clinical trial for either PN-232 or PN-235. Final activities related to these trials are expected to be completed in 2022. The Company uses the most likely amount method to estimate variable consideration included in the transaction price. Variable consideration after the effective date of the Restated Agreement consists of future milestone payments and cost sharing payments for agreed upon services offset by development costs reimbursable to Janssen. Cost sharing payments from Janssen relate to the agreed upon services for development activities that the Company performs within the duration of the contract are included in the transaction price at the Company’s share 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 related to agreed-upon services for 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 transaction price of the initial performance obligation under the Restated Agreement was $131.5 million as of March 31, 2022, an increase of $25.0 million from the transaction price of $106.5 million as of December 31, 2021. In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen. The transaction price as of March 31, 2022 includes $87.5 million of nonrefundable payments received to date, the $25.0 million milestone payment receivable following dosing of the third patient in the Phase 2b clinical trial of PN-235, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and estimated variable consideration consisting of $8.2 million of development cost reimbursement receivable from Janssen, partially offset by $7.1 million of net cost reimbursement due to Janssen for services performed. The Company concluded that the variable consideration constraint is appropriately reflected in the estimated transaction as of March 31, 2022, and that the achievement of future milestones is subject to additional development and/or regulatory uncertainty and therefore it is not probable at March 31, 2022 that a material reversal of such revenues would not occur. Janssen also opted in for certain additional services to be performed by the Company that are outside the initial performance obligation. Revenue for these additional services is recognized as these services are performed. 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 full-time equivalent 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, 2022 and 2021, the Company recognized license and collaboration revenue of $25.7 million and $5.6 million, respectively, which was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance. In addition, the Company recognized $0.6 million in revenue for the three months ended March 31, 2021 related to additional services provided by the Company under the agreement. No such revenue related to additional services provided by the Company was recognized for the three months ended March 31, 2022. 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, 2022 |  | Period | ​ | Additions |  | Deductions |  | Period
Contract assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Receivable from collaboration partner - related party | ​ | $ | 1,566 | ​ | $ | 25,150 | ​ | $ | (1,566) | ​ | $ | 25,150
Contract liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred revenue - related party | ​ | $ | 1,601 | ​ | $ | 25,658 | ​ | $ | (26,491) | ​ | $ | 768
Payable to collaboration partner - related party | ​ | $ | 899 | ​ | $ | 330 | ​ | $ | (849) | ​ | $ | 380
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Balance at | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Balance at
​ | ​ | Beginning of | ​ | ​ | ​ | ​ | ​ | End of
Three Months Ended March 31, 2021 |  | Period | ​ | Additions |  | Deductions |  | Period
Contract assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Receivable from collaboration partner - related party | ​ | $ | 2,426 | ​ | $ | 1,570 | ​ | $ | — | ​ | $ | 3,996
Contract liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred revenue - related party | ​ | $ | 14,477 | ​ | $ | 1,017 | ​ | $ | (9,726) | ​ | $ | 5,768
Payable to collaboration partner - related party | ​ | $ | 2,732 | ​ | $ | 4,091 | ​ | $ | — | ​ | $ | 6,823
​ During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $13,000 and $1.1 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

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