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Collaborative Research, Development and License Agreements | 12 Months Ended
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Dec. 31, 2013
Collaborative Research, Development and License Agreements |
1 0. | Collaborative Research, Development and License Agreements
GlaxoSmithKline In December 2008, we entered into a worldwide strategic alliance with GSK to discover, develop and commercialize TLR inhibitors. Under the terms of the arrangement, we agreed to conduct research and early clinical development in up to four programs: the Lead TLR 7/9 program, a Follow-On TLR 7/9 program, and up to two other TLR programs. In 2011 we began development of a TLR 8 program as one of the two additional programs under the collaboration. GSK subsequently returned all rights to this program to us. We are currently conducting a Phase 1 clinical trial in the Lead TLR 7/9 program with DV1179 in systemic lupus erythematosus patients. The Company is not currently performing any activities on the Follow-On TLR 7/9 program. GSK has not yet chosen to initiate development of the remaining program under the agreement. In December 2013, we amended our agreement with GSK to extend the research term until conclusion of the ongoing phase 1 study of DV1179. In addition, the exclusivity provisions of the agreement were modified, giving us rights to immediately begin preclinical and clinical research on inhibitors of TLR 7 and 9 (other than DV1179) for oncology indications. GSK can exercise its exclusive option to license each program. If GSK exercises an option, GSK would carry out further development and commercialization of the corresponding products. If GSK exercises their option on the Lead TLR 7/9 program, then we are eligible to receive payments of up to approximately $125 million, comprised of contingent option exercise payments and additional payments based on GSK’s achievement of certain development, regulatory and commercial objectives. We are also eligible to receive up to $60 million if aggregate worldwide annual net sales milestones are achieved and tiered royalties ranging from the mid–single digit to mid-teens on sales of any products originating from the collaboration. We have retained an option to co-develop and co-promote one product under this agreement. We received an initial payment of $10 million in 2008. The deliverables under this arrangement did not have stand-alone value and so did not qualify as separate units of accounting. In 2011, we earned and recognized $12 million in substantive development milestone payments related to the initiation of Phase I and proof-of-mechanism clinical trials of DV1179 in systemic lupus erythematosus patients. In 2011, we earned and recognized $3 million in substantive development milestone payments related to the initiation of development of the TLR 8 program. Revenue from the initial payment from GSK was deferred and is being recognized over the expected period of performance under the agreement, initially estimated to be seven years. In the fourth quarter of 2013 we ree valuated and revised the expected period of performance under the agreement from seven years to six years resulting in the recognition of $0.3 million of additional revenue in 2013. The following table summarizes the revenues recognized under our agreement with GSK (in thousands):
|  | Year ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
Initial payment |  | $ | 1,702 |  |  | $ | 1,428 |  |  | $ | 1,428 |
Milestone revenue |  |  | - |  |  |  | - |  |  |  | 15,000 |
Total |  | $ | 1,702 |  |  | $ | 1,428 |  |  | $ | 16,428 |
As of December 31, 2013 and 2012, deferred revenue relating to the initial payment was $2.5 million and $4.2 million, respectively. Absent early termination, the agreement will expire when all of GSK’s payment obligations expire. Either party may terminate the agreement early upon written notice if the other party commits an uncured material breach of the agreement. Either party may terminate the agreement in the event of insolvency of the other party. GSK also has the option to terminate the agreement without cause upon prior written notice within a specified window of time dependent upon the stage of clinical development of the programs. AstraZeneca In September 2006, we entered into a three-year research collaboration and license agreement with AstraZeneca for the discovery and development of TLR 9 agonist-based therapies for the treatment of asthma and chronic obstructive pulmonary disease. In October 2011, we amended our agreement with AstraZeneca to provide that we will conduct initial clinical development of AZD 1419. Under the terms of the amended agreement, AstraZeneca will fund all program expenses to cover the cost of development activities through Phase 2a, estimated to total approximately $20 million. We received an initial payment of $3 million to begin the clinical development program. In the first quarter of 2012, we received a $2.6 million payment to advance AZD1419 into preclinical toxicology studies and these toxicology studies were completed in the third quarter of 2012. We and AstraZeneca have agreed to advance AZD 1419 towards a Phase 1 clinical trial, which resulted in a development funding payment of $6 million, received in the fourth quarter of 2012. If AstraZeneca chooses to advance the program following completion of Phase 2a, we will receive a $20 million milestone payment and AstraZeneca will retain its rights to develop the candidate therapy and to commercialize the resulting asthma product. We are eligible to receive additional milestone payments, which we have determined to be substantive milestones, of up to approximately $100 million, based on the achievement of certain development and regulatory objectives. Additionally, upon commercialization, we are eligible to receive tiered royalties ranging from the mid to high single-digits based on product sales of any products originating from the collaboration. We have the option to co-promote in the United States products arising from the collaboration, if any. AstraZeneca has the right to sublicense its rights upon our prior consent. Revenue from the initial payment was deferred and is being recognized over the expected period of performance under the agreement, which is approximately 50 months. Revenue from the development funding payment is being recognized as the development work is performed. The following table summarizes the revenues earned under our agreement with AstraZeneca (in thousands):
|  | Year ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
Initial payments |  | $ | 720 |  |  | $ | 720 |  |  | $ | 120 |
Performance of research activities |  |  | 2,507 |  |  |  | 2,462 |  |  |  | 642 |
Total |  | $ | 3,227 |  |  | $ | 3,182 |  |  | $ | 762 |
As of December 31, 2013 and 2012, total deferred revenue from the initial payment and development funding payments was $4.8 million and $7.7 million, respectively. Absent early termination, the agreement will expire when all of AstraZeneca’s payment obligations expire. AstraZeneca has the right to terminate the agreement at any time upon prior written notice and either party may terminate the agreement early upon written notice if the other party commits an uncured material breach of the agreement. National Institutes of Health (“NIH”) and Other Funding We have been awarded various grants from the NIH and the NIH’s National Institute of Allergy and Infectious Disease (“NIAID”) in order to fund research. The awards are related to specific research objectives and we earn revenue as the related research expenses are incurred. We have earned revenue during the periods ended December 31, 2013 and 2012 from the following awards:
· | September 2013, NIH awarded us $0.2 million to fund research in developing TLR antagonists for therapy of hepatic fibrosis and cirrhosis.
· | June 2012, NIH awarded us $0.6 million to fund research in screening for inhibitors of TLR 8 for treatment of autoimmune diseases.
· | May 2012, NIH awarded us $0.4 million to fund development of TLR 8 inhibitors for treatment of rheumatoid arthritis.
· | July 2011, NIH awarded us $0.6 million to fund research in preclinical models of skin autoimmune inflammation.
· | August 2010, NIAID awarded us a grant to take a systems biology approach to study the differences between individuals who do or do not respond to vaccination against the hepatitis B virus. This study will be one of several projects conducted under a grant to the Baylor Institute of Immunology Research in Dallas as part of the Human Immune Phenotyping Centers program. We have been awarded a total of $1.4 million under this grant.
· | July 2010, NIH awarded us $0.6 million to explore the feasibility of developing a universal vaccine to prevent infection by human papilloma virus.
· | September 2008, NIAID awarded us a five-year $17 million contract to develop our oligonucleotide technology using TLR 9 agonists as vaccine adjuvants. The contract supports adjuvant development for anthrax as well as other disease models.
The following table summarizes the revenues recognized under the various arrangements with the NIH and NIAID (in thousands):
|  | Year ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
NIAID contracts |  | $ | 4,103 |  |  | $ | 3,571 |  |  | $ | 2,730 |
All other NIH contracts |  |  | 1,035 |  |  |  | 368 |  |  |  | 380 |
Total grant revenue |  | $ | 5,138 |  |  | $ | 3,939 |  |  | $ | 3,110 |

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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 + Details
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