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Collaboration Arrangements | 9 Months Ended
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Sep. 30, 2012
Collaboration Arrangements |
Collaboration Arrangements |
3. Collaboration Arrangements GSK LABA collaboration In November 2002, the Company entered into its long-acting beta 2 agonist (LABA) collaboration with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disease (COPD) and asthma. For the treatment of COPD, the collaboration is developing two combination products: Relvar™ or Breo™ (FF/VI) and umeclidinium bromide/vilanterol (UMEC/VI). For the treatment of asthma, the collaboration is developing FF/VI. FF/VI is an investigational once-daily combination medicine consisting of a LABA, vilanterol (VI), and an inhaled corticosteroid (ICS), fluticasone furoate (FF). UMEC/VI is an investigational once-daily combination medicine consisting of the long-acting muscarinic antagonist (LAMA), umeclidinium bromide (UMEC), and a LABA, VI. In the event that a product containing VI is successfully developed and commercialized, the Company will be obligated to make milestone payments to GSK which could total as much as $220.0 million if both a single-agent and a combination product or two different combination products are launched in multiple regions of the world. These potential milestone payments could be payable to GSK within the next two years. The Company is entitled to annual royalties from GSK of 15% on the first $3.0 billion of annual global net sales and 5% for all annual global net sales above $3.0 billion. Sales of single-agent LABA medicines and combination medicines would be combined for the purposes of this royalty calculation. For other products combined with a LABA from the LABA collaboration, such as UMEC/VI, royalties are upward tiering and range from the mid-single digits to 10%. However, if GSK is not selling a LABA/ICS combination product at the time that the first other LABA combination is launched, then the royalties described above for the LABA/ICS combination medicine would be applicable. 2004 Strategic Alliance In March 2004, the Company entered into its strategic alliance with GSK. Under this alliance, GSK received an option to license exclusive development and commercialization rights to product candidates from certain of the Company’s discovery programs on pre-determined terms and on an exclusive, worldwide basis. Upon GSK’s decision to license a program, GSK is responsible for funding all future development, manufacturing and commercialization activities for product candidates in that program. In addition, GSK is obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses. If the program is successfully advanced through development by GSK, the Company is entitled to receive clinical, regulatory and commercial milestone payments and royalties on any sales of medicines developed from the program. If GSK chooses not to license a program, the Company retains all rights to the program and may continue the program alone or with a third party. In 2005, GSK licensed the Company’s bifunctional muscarinic antagonist-beta 2 agonist (MABA) program for the treatment of COPD, and in October 2011, the Company and GSK expanded the MABA program by adding six additional Theravance-discovered preclinical MABA compounds (the “Additional MABAs”). GSK’s development, commercialization, milestone and royalty obligations under the strategic alliance remain the same with respect to ‘081, the lead compound in the MABA program. GSK is obligated to use diligent efforts to develop and commercialize at least one MABA within the MABA program, but may terminate progression of any or all Additional MABAs at any time and return them to the Company, at which point the Company may develop and commercialize such Additional MABAs alone or with a third party. Both GSK and the Company have agreed not to conduct any MABA clinical studies outside of the strategic alliance so long as GSK is in possession of the Additional MABAs. If a single-agent MABA medicine containing ‘081 is successfully developed and commercialized, the Company is entitled to receive royalties from GSK of between 10% and 20% of annual global net sales up to $3.5 billion, and 7.5% for all annual global net sales above $3.5 billion. If a MABA medicine containing ‘081 is commercialized only as a combination product, such as a MABA/ICS, the royalty rate is 70% of the rate applicable to sales of the single-agent MABA medicine. For single-agent MABA medicines containing an Additional MABA, the Company is entitled to receive royalties from GSK of between 10% and 15% of annual global net sales up to $3.5 billion, and 10% for all annual global net sales above $3.5 billion. For combination products containing an Additional MABA, such as a MABA/ICS, the royalty rate is 50% of the rate applicable to sales of the single-agent MABA medicine. If a MABA medicine containing ‘081 is successfully developed and commercialized in multiple regions of the world, the Company could earn total milestone payments of up to $125.0 million for a single-agent medicine and of up to $250.0 million for both a single-agent and a combination medicine. If a MABA medicine containing an Additional MABA is successfully developed and commercialized in multiple regions of the world, the Company could earn total milestone payments of up to $129.0 million. In connection with the expansion of the MABA program, GSK relinquished its option right on the Company’s MonoAmine Reuptake Inhibitor (MARIN) program and Angiotensin Receptor-NEP Inhibitor (ARNI) program. GSK has no further option rights on any of the Company’s research or development programs under the strategic alliance. Purchases of Common Stock under the Company’s Governance Agreement and Common Stock Purchase Agreements with GSK; GSK Conversion of the Company’s Class A Common Stock On May 16, 2012, the Company issued and Glaxo Group Limited, an affiliate of GSK, purchased 10,000,000 shares of the Company’s common stock at a price of $21.2887 per share, for a total investment of $212,887,000. In addition, Glaxo Group Limited purchased shares of the Company’s common stock pursuant to its periodic “top-up” rights under the Company’s governance agreement with GSK dated June 4, 2004, as amended, as follows:
|  | Through September 30, 2012 |
|  | Common Stock Shares Purchased |  | Aggregate Amounts (in thousands) |
Purchase dates |  |  |  |  |
February 24, 2011 |  | 152,278 |  | $ | 3,609 |
May 3, 2011 |  | 261,299 |  | $ | 6,689 |
August 2, 2011 |  | 102,466 |  | $ | 2,020 |
November 1, 2011 |  | 58,411 |  | $ | 1,298 |
February 14, 2012 |  | 88,468 |  | $ | 1,603 |
August 3, 2012 |  | 316,334 |  | $ | 8,924 |
GSK Upfront License Fees, Milestone Payments and Revenue Upfront license fees and milestone payments received from GSK under the LABA collaboration and strategic alliance agreements were as follows:
|  | Through September 30, 2012 |
(in thousands) |  | Upfront Fees |  | Milestone Payments |  | Total |
GSK Collaborations |  |  |  |  |  |  |
LABA collaboration(1) |  | $ | 10,000 |  | $ | 50,000 |  | $ | 60,000 |
Strategic alliance agreement |  | 20,000 |  | — |  | 20,000 |
Strategic alliance—LAMA license(2) |  | 5,000 |  | 3,000 |  | 8,000 |
Strategic alliance—MABA program license |  | 6,000 |  | 16,000 |  | 22,000 |
Total |  | $ | 41,000 |  | $ | 69,000 |  | $ | 110,000 |
(1) The Company does not expect to be eligible for any additional milestones under this collaboration. (2) In August 2004, GSK exercised its right to license the Company’s LAMA program pursuant to the terms of the strategic alliance. In 2009, GSK returned the program to the Company. The eligible potential contingent payments related to the MABA program, which includes the Additional MABAs, are not deemed substantive due to the fact that the achievement of the event underlying the payment predominantly relates to GSK’s performance of future development, manufacturing and commercialization activities for product candidates after licensing the program. Revenue recognized from GSK under the LABA collaboration and strategic alliance agreements was as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
(in thousands) |  | 2012 |  | 2011 |  | 2012 |  | 2011 |
GSK Collaborations |  |  |  |  |  |  |  |  |
LABA collaboration |  | $ | 907 |  | $ | 1,270 |  | $ | 2,722 |  | $ | 3,811 |
Strategic alliance agreement |  | — |  | 489 |  | — |  | 1,858 |
Strategic alliance—MABA program license |  | 523 |  | 621 |  | 1,569 |  | 1,625 |
Total revenue |  | $ | 1,430 |  | $ | 2,380 |  | $ | 4,291 |  | $ | 7,294 |
Astellas License, Development and Commercialization Agreement with Astellas In November 2005, the Company entered into a global collaboration arrangement with Astellas for the development and commercialization of VIBATIV®. On January 6, 2012, Astellas exercised its right to terminate this agreement. The rights previously granted to Astellas ceased upon termination of the agreement and Astellas stopped all promotional sales efforts. Pursuant to the terms of the agreement, Astellas is entitled to a ten-year, 2% royalty on future net sales of VIBATIV®. In March 2012, the Company entered into a series of purchase agreements with Astellas for the purchase of VIBATIV® active pharmaceutical ingredient and other raw materials of up to $6.2 million and VIBATIV® finished goods inventory of up to $4.2 million, which inventory remains subject to release. As of September 30, 2012, the Company had purchased $4.3 million of active pharmaceutical ingredient and other raw materials pursuant to these purchase agreements. In addition, beginning July 1, 2012, the Company is responsible to fund governmental rebate and governmental chargeback claims for Astellas-labeled product sales. As a result of the termination of the VIBATIV® collaboration agreement, the Company recorded a liability of $150,000 in the first quarter of 2012. At September 30, 2012, $130,000 of this accrual is reflected in deferred revenue, non-current and $20,000 of this accrual is reflected in accounts payable. The Company continues to evaluate global commercialization alternatives for VIBATIV® either with partners or alone. Through January 6, 2012, the Company had received $191.0 million in upfront license, milestone and other fees from Astellas. The Company previously recorded these payments as deferred revenue and amortized them ratably over its estimated performance period (development and commercialization period). As a result of the termination of the VIBATIV® collaboration agreement, the development and commercialization period ended on January 6, 2012. As such, the Company recognized into revenue $125.8 million of deferred revenue related to Astellas in the first quarter of 2012, and the Company is no longer eligible to receive any further milestone payments from Astellas. Net revenue recognized under this collaboration agreement was as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
(in thousands) |  | 2012 |  | 2011 |  | 2012 |  | 2011 |
Recognition of deferred revenue |  | $ | — |  | $ | — |  | $ | 125,819 |  | $ | — |
Amortization of deferred revenue |  | — |  | 3,244 |  | — |  | 9,731 |
Royalties from net sales of VIBATIV® |  | — |  | 807 |  | — |  | 2,131 |
Proceeds from VIBATIV® delivered to Astellas |  | — |  | — |  | — |  | 1,171 |
Cost of VIBATIV® delivered to Astellas |  | — |  | — |  | — |  | (1,177 | )
Astellas-labeled product sales allowance |  | — |  | — |  | (150 | ) | — |
Total net revenue |  | $ | — |  | $ | 4,051 |  | $ | 125,669 |  | $ | 11,856 |

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 07-1 -Paragraph 21 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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