Note 7 — License and Collaboration Agreements

We have entered into various collaboration agreements including license agreements and collaborative research, manufacturing, development and commercialization agreements with various pharmaceutical and biotechnology companies. Under these collaboration agreements, we are entitled to receive license fees, upfront payments, milestone payments, royalties, sales milestones, and payments for the manufacture and supply of our proprietary PEGylation materials and reimbursement for research and development activities. All of our collaboration agreements are generally cancelable by our partners without significant financial penalty. Our costs of performing these services are generally included in research and development expense, except that costs for product sales to our collaboration partners are included in cost of goods sold.

In accordance with our collaboration agreements, we recognized license, collaboration and other revenue as follows (in thousands):


		Three months ended June 30,				Six months ended June 30,
Partner	Drug or Drug Candidate	2014		2013		2014		2013
Roche	PEGASYS^® and MIRCERA^®	$	3,219	$	2,625	$	6,415	$	5,250
Bayer Healthcare LLC	BAY41-6551 (Amikacin Inhale)		2,393		13,111		3,146		13,825
Amgen, Inc.	Neulasta^®		1,250		1,250		2,500		2,535
Baxter Healthcare	BAX 855 (Hemophilia)		669		597		1,006		1,297
Other			10,254		1,776		12,799		2,928

License, collaboration, and other revenue		$	17,785	$	19,359	$	25,866	$	25,835

As of June 30, 2014, our collaboration agreements include potential aggregate future payments for development milestones of approximately $146.3 million, including the milestone amounts from our collaboration agreements with Bayer and Baxter described below. In addition, we are entitled to receive up to $175.0 million and $75.0 million of contingent payments related to the MOVANTIK^TM (previously referred to as naloxegol and NKTR-118) and MOVANTIK^TM fixed-dose combination (previously referred to as NKTR-119) drug development programs, respectively, based on development and regulatory events to be pursued and completed solely by AstraZeneca.

There have been no material changes to our collaboration agreements in the three or six months ended June 30, 2014, except as described below.

AstraZeneca AB: MOVANTIK^TM (naloxegol oxalate), previously referred to as naloxegol and NKTR-118, and MOVANTIK^TM fixed-dose combination program, previously referred to as NKTR-119

In September 2009, we entered into a license agreement with AstraZeneca AB (AstraZeneca), as amended by AstraZeneca and us in August 2013, under which we granted AstraZeneca a worldwide, exclusive, perpetual, royalty-bearing, and sublicensable license under our patents and other intellectual property to develop, market, and sell MOVANTIK^TM and MOVANTIK^TM fixed-dose combination program. AstraZeneca is responsible for all costs associated with research, development and commercialization and is responsible for all drug development and commercialization decisions for MOVANTIK^TM and the MOVANTIK^TM fixed-dose combination program. As of June 30, 2014, we are entitled to receive up to an additional $175.0 million and $75.0 million of contingent payments related to MOVANTIK^TM and the MOVANTIK^TM fixed-dose combination program, respectively, based on development events to be pursued and completed solely by AstraZeneca, as described below.

On September 25, 2013, the European Medicines Agency (EMA) notified AstraZeneca that it had accepted for review the MOVANTIK^TM regulatory approval application filed in August 2013. As a result, we were entitled to a $25.0 million payment from AstraZeneca, which was received and fully recognized as revenue in September 2013.

On September 16, 2013, AstraZeneca filed a New Drug Application (NDA) with the United States Food and Drug Administration (FDA) for MOVANTIK^TM, which was accepted for review by the FDA on November 16, 2013, resulting in a $70.0 million milestone payment to us from AstraZeneca in November 2013. We cannot recognize revenue for this payment until it is no longer refundable and, as a result of the potential for repayment of the $70.0 million as described below, we have recorded this amount in the line item “Liability related to receipt of refundable milestone payment” on our Condensed Consolidated Balance Sheet at June 30, 2014. If the FDA does not require a future clinical trial or other significant studies to assess the cardiovascular safety (CV Safety Study) of MOVANTIK^TM prior to an approval decision, AstraZeneca is obligated to pay us an additional $35.0 million. If the FDA does require a CV Safety Study prior to an approval decision and AstraZeneca elects to terminate the license agreement in its entirety due to a CV Safety Study, we would be required to repay the $70.0 million payment plus accrued interest at an interest rate of 4.5% per annum, compounded annually, in four installments in accordance with the following payment schedule: $10.0 million plus accrued interest on January 15, 2015, $10.0 million plus accrued interest on January 15, 2016, $20.0 million plus accrued interest on January 15, 2017 and $30.0 million plus accrued interest on January 15, 2018. If AstraZeneca elects to terminate the license agreement only with respect to its rights in the U.S., then such repayment amount would be funded through a 50% reduction of non-U.S. royalty amounts otherwise payable to us until the aggregate amount of such royalty reduction equals the total principal amount of $70.0 million plus accrued interest at an interest rate of 4.5% per annum, compounded annually. If the FDA requires a post-approval cardiovascular safety study as a condition to regulatory approval, then the royalty rate payable to us from net sales of MOVANTIK^TM in the U.S. by AstraZeneca would be reduced by up to two percentage points to fund 33% of the external costs actually incurred by AstraZeneca to fund such post approval study subject to a $35.0 million aggregate cap.

We will be entitled to the remaining $140.0 million of contingent payments if MOVANTIK^TM is approved by the FDA and EMA and commercial launch is achieved in the U.S. and one major country in the European Union. In addition, we are also entitled to sales milestone payments and royalties based on annual worldwide net sales of MOVANTIK^TM and MOVANTIK^TM fixed-dose combination products.

Roche: PEGASYS^® and MIRCERA^®

In February 1997, we entered into a license, manufacturing and supply agreement with Roche, under which we granted Roche a worldwide, exclusive license to certain intellectual property related to our proprietary PEGylation materials used in the manufacture and commercialization of PEGASYS^®. As of June 30, 2014, we have deferred revenue of approximately $7.7 million related to this agreement, which we expect to recognize through December 2015, the period through which we are required to provide back-up manufacturing and supply services related to PEGASYS^®.

In February 2012, we entered into a toll-manufacturing agreement with Roche under which we will manufacture the proprietary PEGylation material used by Roche to produce MIRCERA^®. Roche entered into the toll-manufacturing agreement with the objective of establishing us as a secondary back-up supply source on a non-exclusive basis. Under the terms of our toll-manufacturing agreement, Roche paid us an upfront payment of $5.0 million and an additional $22.0 million in performance-based milestone payments upon our achievement of certain manufacturing readiness, validation and production milestones, including the delivery of specified quantities of PEGylation materials, all of which were completed as of January 2013. Roche will also pay us additional consideration for any future orders of the PEGylation materials for MIRCERA^® beyond the initial quantities manufactured through January 2013. Roche has the right to terminate the toll-manufacturing agreement due to an uncured material default by us. As of June 30, 2014, we have deferred revenue of approximately $13.4 million related to this agreement, which we expect to recognize through December 2016, the estimated end of our obligations under this agreement.

In August 2013, we agreed to deliver additional quantities of PEGylation materials used by Roche to produce PEGASYS^® and MIRCERA^®, all of which were delivered in the last quarter of 2013, for total consideration of $18.6 million. We determined that these incremental activities should be considered a material modification of the existing PEGASYS^® and MIRCERA^® -related arrangements described above. As a result, we allocated the $18.6 million consideration to each of these arrangements and determined the amounts to be recognized or deferred based on the estimated selling prices of the undelivered obligations. As of June 30, 2014, we have deferred revenue of approximately $5.7 million related to these activities, which we expect to recognize through December 2016, the estimated end of our obligations under the modified arrangements.

Bayer Healthcare LLC: BAY41-6551 (Amikacin Inhale)

In August 2007, we entered into a co-development, license and co-promotion agreement with Bayer Healthcare LLC (Bayer) to develop a specially-formulated inhaled Amikacin. We are responsible for development and manufacturing and supply of the nebulizer device included in the Amikacin product. In April 2013, Bayer initiated a Phase 3 clinical trial in the treatment of intubated and mechanically ventilated patients with Gram-negative pneumonia. As of June 30, 2014, we have received an upfront payment of $40.0 million in 2007 and milestone payments totaling $30.0 million. In addition, in June 2013, we made a $10.0 million payment to Bayer for the reimbursement of its costs of the Phase 3 clinical trial.

In addition, we are entitled to receive a total of up to $50.0 million for development milestones upon achievement of certain development objectives, as well as sales milestones upon achievement of annual sales targets and royalties based on annual worldwide net sales of Amikacin Inhale. As of June 30, 2014, we have deferred revenue of approximately $21.6 million related to this agreement, which we expect to recognize through December 2026, the estimated end of our obligations under this agreement.

Amgen, Inc.: Neulasta^®

In October 2010, we amended and restated an existing supply and license agreement by entering into a supply, dedicated suite and manufacturing guarantee agreement (the amended and restated agreement) and a license agreement with Amgen Inc. and Amgen Manufacturing, Limited. As of June 30, 2014, we have deferred revenue of approximately $31.7 million related to this agreement, which we expect to recognize through October 2020, the estimated end of our obligations under this agreement.

Baxter Healthcare: Hemophilia

In September 2005, we entered into an exclusive research, development, license and manufacturing and supply agreement with Baxter Healthcare SA and Baxter Healthcare Corporation (together referred to as Baxter) to develop products designed to improve therapies for Hemophilia A patients using our PEGylation technology. Under the terms of this agreement, we are entitled to up to $28.0 million of development milestones related to Hemophilia A upon achievement of certain development objectives, as well as sales milestones upon achievement of annual sales targets and royalties based on annual worldwide net sales of products resulting from this agreement. This Hemophilia A program includes BAX 855, which is currently in a Phase 3 clinical study initiated in February 2013. As of June 30, 2014, we do not have significant deferred revenue related to this agreement.

Ophthotech Corporation: Fovista^®

We are a party to an agreement with Ophthotech Corporation (Ophthotech), dated September 30, 2006, under which Ophthotech received a worldwide, exclusive license to certain of our proprietary PEGylation technology to develop, manufacture and sell Fovista^®. Under the terms of our agreement, we are the exclusive supplier of all of Ophthotech’s clinical and commercial requirements for our proprietary PEGylation reagent used in Fovista^®. On May 19, 2014, Ophthotech entered into a Licensing and Commercialization Agreement with Novartis Pharma AG for Fovista^®. Under our agreement with Ophthotech, we were entitled to a $19.75 million payment in connection with this licensing agreement, which was received in June 2014. As of June 30, 2014, we have deferred revenue of approximately $19.6 million related to this agreement, which we expect to recognize through March 2028, the estimated end of our obligations under our agreement with Ophthotech.

In addition, we are entitled to up to $9.5 million in additional payments based upon Ophthotech’s potential achievement of certain regulatory and sales milestones. We are also entitled to low- to mid- single-digit royalties on net sales of Fovista^® that vary based on sales levels. Our right to receive royalties in any particular country will expire upon the later of ten years after the first commercial sale of Fovista^® or expiration of patent rights in such country.

Other

During the three months ended June 30, 2014, two of our collaboration partners achieved the successful transfer of our commercial manufacturing process in connection with the PEGylation materials used in their products. In connection with our assistance with these manufacturing technology transfers, we received a total of $9.0 million of milestone payments. We concluded that these payments are substantive milestones and recognized them in their entirety in the three months ended June 30, 2014.

In addition, we have a number of collaboration agreements, including agreements with our collaboration partners UCB and Regado Biosciences, Inc., under which we are entitled to up to a total of $61.8 million of development milestones upon achievement of certain development objectives, as well as sales milestones upon achievement of annual sales targets and royalties based on net sales of commercialized products, if any. However, given the current phase of development of the potential products under these collaboration agreements, we cannot estimate the probability or timing of achieving these milestones.