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Collaboration and Licensing Agreements | 9 Months Ended
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Sep. 30, 2020
Collaboration and Licensing Agreements |
Collaboration and Licensing Agreements | NOTE 10. COLLABORATION AND LICENSING AGREEMENTS Kyowa Kirin Co., Ltd. (“KKC”) 2019 KKC Agreement In November 2019, the Company entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two pre-clinical compounds that are ready for designation as development compounds (“DCs”), with one compound inhibiting the first undisclosed target (“Program 1”), and a second inhibiting the second undisclosed target (“Program 2”). Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more DCs, KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories. Under the terms of the 2019 KKC Agreement, KKC agreed to pay the Company a non-refundable, non-creditable upfront fee of $10.0 million, payable as follows: the first installment of $5.0 million within 30 days of November 11, 2019 (the “Effective Date”), and the second installment of $5.0 million on the first anniversary of the Effective Date, unless the 2019 KKC Agreement is earlier terminated by KKC due to material breach by the Company. The term of the 2019 KKC Agreement commenced on the Effective Date and ends on the earliest of: (i) two years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs. The Company assessed the 2019 KKC Agreement in accordance with ASC 606 and concluded that the contract’s counterparty, KKC, is a customer. Management also considered the modification guidance prescribed in ASC 606 and concluded that the 2019 KKC Agreement should be accounted for as a separate contract from the 2017 KKC Agreement, as defined and discussed below. The Company identified various promises in the 2019 KKC Agreement, including: the grant of an initial research license; the Program 1 research; the Program 2 research; the right to obtain certain development and commercialization rights to a Program 1 DC in certain territories; the right to obtain development and commercialization rights to a Program 2 DC in certain territories; and participation in a joint steering committee (“JSC”). The Company determined that KKC could not benefit from either of the research programs without the research license and participation in the JSC. As such, the combined license, research programs and participation in the JSC were deemed to be the highest level of goods and services that can be deemed distinct for each of the Program 1 research and Program 2 research. The Company concluded that the options to obtain additional development and commercialization rights that are exercisable by KKC under certain circumstances are not performance obligations of the contract at inception because the option fees reflect the standalone selling price of the options, and therefore, the options are not considered to be material rights. At the outset of the 2019 KKC Agreement, the Company determined that the initial transaction price amounted to $10.0 million and that revenue associated with the combined performance obligations will be recognized as services are provided using an input method. Since transfer of control occurs over time, in management’s judgment this input method is the best measure of progress towards satisfying the performance obligations and reflects a faithful depiction of the transfer of goods and services. Revenue will be recognized over the Program 1 and Program 2 research periods, which are currently expected to extend through the end of 2021. Management will re-evaluate the estimates related to the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and adjust the timing of revenue recognition as necessary. During the three and nine months ended September 30, 2020, the Company recognized $1.4 million and $3.7. million, respectively, as revenue under the 2019 KKC Agreement in the accompanying statement of operations and comprehensive loss. The aggregate amount of the transaction price allocated to the Company’s partially unsatisfied performance obligations as of September 30, 2020 was $5.9 million, of which $0.9 million is presented in the accompanying condensed balance sheet as deferred revenue. As of September 30, 2020, the Company expects to recognize the remaining transaction price allocated to the Company’s partially unsatisfied performance obligations over the remaining research terms, which, as noted above, are currently expected to extend through the end of 2021. There were no significant changes in estimates associated with the 2019 KKC Agreement during the three or nine months ended September 30, 2020. 2017 KKC Agreement In November 2017, the Company entered into an exclusive license agreement with KKC (the “2017 KKC Agreement”), for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications. The Company granted KKC an exclusive license to develop and commercialize certain sodium hydrogen exchanger 3 (“NHE3”) inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer. The Company retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above. Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for the treatment of cardiorenal diseases and conditions, excluding cancer in Japan. Under the 2017 KKC Agreement, the Company is responsible for supplying the tenapanor drug product for KKC’s use in development and during commercialization until KKC has assumed such responsibility. Additionally, the Company is responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions. ​ The Company assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, KKC, is a customer. Under the terms of the 2017 KKC Agreement, the Company received $30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed. Based on the Company’s assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct. Additionally, the Company recorded unbilled revenue of $5.0 million and an increase in uncharged license fees of $1.0 million related to the first milestone under the 2017 KKC Agreement that KKC; this first milestone was achieved in February 2019. In addition to the $30.0 million upfront license fee, the Company may be entitled to receive up to $55.0 million in total development milestones, of which $5.0 million has been received to date, and approximately $80.4 million in commercialization milestones, as well as reimbursement of costs plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020. During each of the three and nine months ended September 30, 2020, the Company recognized $1.4 million as other revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement. Similarly, for the three and nine months ended September 30, 2019, $13,000 and $31,000, respectively, was recognized as other revenue. Xuanzhu (HK) Biopharmaceutical Limited (“XuanZhu”) In November 2019, the Company entered into a license agreement with XuanZhu (the “XuanZhu Agreement”), pursuant to which the Company granted XuanZhu a license to certain specific patent and patent applications. The Company assessed the XuanZhu Agreement in accordance with ASC 606 and concluded that the contract counterparty, XuanZhu, is a customer. Under the terms of the XuanZhu Agreement, the Company recognized $1.5 million in license fees, which constituted the initial transaction price, when the agreement was executed, of which $750,000 was received upfront in November 2019, and achievement for the second $750,000 payment, related to the issuance and grant of a specific patent, was determined to be not materially at risk and probable of achievement. Based on management’s assessment, the Company determined that it has one combined performance obligation, which is the license and the specific patent grant. ​ No revenue related to the XuanZhu Agreement was recorded during the three and nine months ended September 30, 2020. Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”) In December 2017, the Company entered into an exclusive license agreement with Fosun Pharma (the “Fosun Agreement”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C. The Company assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer. Under the terms of the Fosun Agreement, the Company received $12.0 million in upfront license fees which was recognized as revenue when the agreement was executed. Based on management’s assessment, the Company determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct. The Company may be entitled to additional development and commercialization milestones of up to $110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20%. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020. The Company has recorded no revenue during the three and nine months ended September 30, 2020 related to the Fosun Agreement. During each of the three and nine months ended September 30, 2019, $3.0 million licensing revenue was recorded upon the achievement of a development milestone pursuant to the Fosun Agreement. Knight Therapeutics, Inc. (“Knight“) In March 2018, the Company entered into an exclusive license agreement with Knight (the “Knight Agreement”), for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer. Based on management’s assessment, the Company determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct. Under the terms of the agreement, the Company received a $2.3 million nonrefundable, one-time upfront payment in March 2018 and is eligible to receive additional development and commercialization milestone payments worth up to $16.4 million. The Company is also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020. In April 2020, Knight announced that it had received approval from Health Canada for IBSRELA® (tenapanor) for the treatment of IBS-C, and in May 2020, the Company received a development milestone payment from Knight related to the achievement of the aforementioned milestone. For the three and nine months ended September 30, 2020 the Company recognized zero and $0.7 million, respectively, as licensing revenue, and for the three and nine months ended September 30, 2019, no revenue was recognized related to the Knight Agreement. AstraZeneca AB (“AstraZeneca”) In June 2015, the Company entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which the Company has agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10% of net sales of tenapanor or other NHE3 products by the Company or its licensees, and (ii) 20% of non-royalty revenue received from a new collaboration partner should the Company elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $75.0 million in aggregate for (i) and (ii). As of September 30, 2020, to date in aggregate, the Company has recognized $10.6 million of the $75.0 million, recorded as cost of revenue, and has paid AstraZeneca $10.6 million. For the three and nine months ended September 30, 2020 the Company has recognized and recorded as cost of revenue zero and $0.1 million, respectively, related to the AstraZeneca Termination Agreement. Similarly, for each of the three and nine months ended September 30, 2019 the Company recognized $0.1 million as cost of revenue. The following table presents changes in the Company’s deferred revenue balance, which is attributable entirely to the 2019 KKC Agreement discussed above, during the reporting period: ​
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​
​ |  | Deferred revenue |
Balance at December 31, 2019 |  | $ | 4,541 |
Increases due to cash received, excluding amounts recognized as revenue during the period | ​ | ​ | — | ​
Decreases due to revenue recognized in the period for which cash has been received | ​ | ​ | (1,828) | ​
Decreases due to revenue recognized in the period for which cash has not been received | ​ | ​ | (1,828) | ​
Balance at September 30, 2020 | ​ | $ | 885 | ​
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- Definition The entire disclosure for collaborative arrangements in which the entity is a participant, including a) information about the nature and purpose of such arrangements; b) its rights and obligations thereunder; c) the accounting policy for collaborative arrangements; and d) the income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -URI http://asc.fasb.org/topic&trid=5833765 + Details
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