License and Collaboration Agreements

6 Months Ended

Dec. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

4.	License and Collaboration Agreements

Alimera

Under a collaboration agreement with Alimera, as amended in March 2008 (the “Prior Alimera Agreement”), the Company licensed to Alimera the rights to develop, market and sell certain product candidates, including ILUVIEN for DME, and Alimera assumed all financial responsibility for the development of licensed products. In addition, the Company was entitled to receive 20% of any net profits (as defined) on sales of each licensed product (including ILUVIEN) by Alimera, measured on a quarter-by-quarter and country-by-country basis. Alimera was entitled to recover 20% of previously incurred and unapplied net losses (as defined) for commercialization of each product in a country, but only by an offset of up to 4% of the net profits earned in that country each quarter, reducing the Company’s net profit share to 16% in each country until those net losses were recouped. In the event that Alimera sublicensed commercialization in any country, the Company was entitled to 20% of royalties and 33% of non-royalty consideration received by Alimera, less certain permitted deductions. The Company was also entitled to reimbursement of certain patent maintenance costs with respect to the patents licensed to Alimera.

Revenue under the Prior Alimera Agreement, as well as all patent fee reimbursements, totaled $

39,000

for the six months ended December 31, 2018,

$148,000 for fiscal 2018, $659,000 for fiscal 2017 and $233,000 for fiscal 2016, which are included in collaborative research and development revenues in the accompanying consolidated statements of comprehensive loss. These revenues included (i) $50,000 and $585,000 of net profit share earned in fiscal 2018 and 2017, respectively, of which the fiscal 2017 total included $136,000 recognized in connection with an arbitration settlement related to calendar year 2014 reporting by Alimera; and (ii) $157,000 of non-royalty sublicense consideration earned in fiscal 2016. The remainder of Alimera revenues included in collaborative research and development for each year consisted principally of patent fee reimbursements.

On July 10, 2017, the Company entered into a further amended and restated collaboration agreement (the “Amended Alimera Agreement”), pursuant to which the Company (i) licensed its Durasert for NIPU product to Alimera for Europe, the Middle East and Africa (the “EMEA”) and (ii) converted the net profit share arrangement for each licensed product (including ILUVIEN) under the Prior Alimera Agreement to a sales-based royalty on a calendar quarter basis commencing July 1, 2017, with payments from Alimera due 60 days following the end of each quarter.

Sales-based royalties started at the rate of 2%. Commencing

December 12, 2018,

the sales-based royalty increased to 6% on aggregate calendar year net sales up to $75 million and to 8% on any calendar year sales in excess of $75 million. Alimera’s share of contingently recoverable accumulated ILUVIEN commercialization losses under the original net profit share arrangement, capped at $25 million, are to be reduced as follows: (i) $10 million was cancelled in lieu of an upfront license fee on the effective date of the Amended Alimera Agreement; (ii) for calendar years 2019 and 2020,

% of earned sales-based royalties in excess of 2% will be offset against the quarterly royalty payments otherwise due from Alimera; (iii) on January 1, 2020, another $5 million will be cancelled, provided, however, that such date of cancellation may be extended under certain circumstances related to Alimera’s regulatory approval process for ILUVIEN for NIPU, with such extension, if any, subject to mutual agreement by the parties; and (iv) commencing in calendar year 2021, 20% of earned sales-based royalties in excess of 2% will be offset against the quarterly royalty payments due from Alimera until such time as the balance of the original $25 million of recoverable commercialization losses has been fully recouped.

Royalty income

under the Amended Alimera Agreement totaled $588,000 in the six months ended December 31, 2018 and $575,000 in fiscal 2018.

Following consummation of the Amended Alimera Agreement, the Company withdrew its previously filed EU marketing approval application (“MAA”) and its orphan drug designation for posterior uveitis, and Alimera became responsible for filing a Type II variation for ILUVIEN for the treatment of NIPU in the 17 EU countries where ILUVIEN is currently approved for the treatment of DME. In January 2018, Alimera received validation of a Type II variation submitted in December 2017 in all seventeen European countries in which it previously received regulatory approval for ILUVIEN for DME. Alimera has reported that it expects to receive regulatory approval for the Type II variation in the first half of calendar year 2019. If the variation is approved, Alimera plans to commercialize the three-year NIPU indication under its ILUVIEN trademark.

Prior to the July 1, 2018 adoption of ASC 606, the Company had recorded royalties earned from Alimera one quarter in arrears upon receipt of payment. Under ASC 606, the Company is required

to recognize royalty

income based on an estimate of royalties earned in each fiscal quarter. As a result, $218,000 of royalties earned for the quarter ended June 30, 2018 that would have been recorded as royalty income in the three months ended September 30, 2018 have been accounted for as a cumulative effect adjustment to beginning accumulated deficit at July 1, 2018.

Pfizer

In June 2011, the Company and Pfizer entered into an Amended and Restated Collaborative Research and License agreement (the “Restated Pfizer Agreement”) to focus solely on the development of a sustained-release bioerodible micro-insert injected into the subconjunctiva designed to deliver latanoprost for human ophthalmic disease or conditions other than uveitis (the “Latanoprost Product”). Pfizer made an upfront payment of $2.3 million and the Company agreed to provide Pfizer options under various circumstances for an exclusive, worldwide license to develop and commercialize the Latanoprost Product.

The estimated selling price of the combined deliverables under the Restated Pfizer Agreement of $6.7 million was partially recognized as collaborative research and development revenue over the expected performance period using the proportional performance method with costs associated with developing the Latanoprost Product reflected in operating expenses in the period in which they were incurred. No collaborative research and development revenue was recorded during

fiscal 2016 and through the first quarter

of fiscal 2017.

On October 25, 2016, the Company notified Pfizer that it had discontinued development of the Latanoprost Product, which provided Pfizer a 60-day option to acquire a worldwide license in return for a $10.0 million payment and potential sales-based royalties and development, regulatory and sales performance milestone payments. Pfizer did not exercise its option and the Restated Pfizer Agreement automatically terminated on December 26, 2016. The remaining deferred revenue balance of $5.6 million was recognized as revenue in the three-month period ended December 31, 2016. Per the terms of the Restated Pfizer Agreement, the Company has retained the right to develop and commercialize the Latanoprost Product on its own or with a partner.

Bausch & Lomb

Pursuant to a licensing and development agreement, as amended, Bausch & Lomb has a worldwide exclusive license to make and sell Retisert in return for royalties based on sales. Royalty income totaled $456,000 in the six months ended December 31, 2018, approximately $1.0 million in fiscal 2018, $970,000 in fiscal 2017 and approximately $1.2 million in fiscal 2016. Accounts receivable from Bausch & Lomb totaled $253,000 at December 31, 2018, $306,000 at June 30, 2018 and $246,000 at June 30, 2017.

OncoSil Medical

The Company entered into an exclusive, worldwide royalty-bearing license agreement in December 2012, amended and restated in March 2013, with OncoSil Medical UK Limited (f/k/a Enigma Therapeutics Limited), a wholly-owned subsidiary of OncoSil Medical Ltd (“OncoSil”) for the development of BrachySil, the Company’s previous product candidate for the treatment of pancreatic and other types of cancer. The Company received an upfront fee of $100,000 and is entitled to 8% sales-based royalties, 20% of sublicense consideration and milestone payments based on aggregate product sales. OncoSil is obligated to pay an annual license maintenance fee of $100,000 by the end of each calendar year, the most recent of which was received in December 2018. For each calendar year commencing with 2014, the Company is entitled to receive reimbursement of any patent maintenance costs, sales-based royalties and sub-licensee sales-based royalties earned, but only to the extent such amounts, in the aggregate, exceed the $100,000 annual license maintenance fee. As of December 31, 2018, OncoSil has not received regulatory approval in any jurisdiction, although an application for CE Mark approval in Europe continues to be pending. The Company has no consequential performance obligations under the OncoSil license agreement, and, accordingly, any amounts to which the Company is entitled under the agreement are recognized as revenue on the earlier of receipt or when collectability is reasonably assured. Revenue related to the OncoSil agreement totaled $100,000 in the six months ended December 31, 2018,

and in each of

fiscal 2018, fiscal 2017 and fiscal 2016. At December 31, 2018, no deferred revenue was recorded for this agreement.

Ocumension Therapeutics

In November 2018, the Company entered into an exclusive license agreement with Ocumension

Therapeutics (“Ocumension”)

for the development and commercialization of its three-year micro insert using the Durasert technology for chronic NIPU in the greater China territory, which is comprised of China, Hong Kong, Macau and Taiwan. The Company received a one-time upfront payment of $1.75 million from Ocumension and is eligible to receive up to approximately $10 million upon the achievement by Ocumension of certain prescribed development, regulatory and commercial sales-based milestones. In addition, the Company is entitled to receive mid-single digit sales-based royalties.

Other than a fixed number of hours of technical assistance support to be provided at no cost by the Company, Ocumension is responsible for all development, regulatory and commercial costs, including any additional technical assistance requested. Ocumension has a first right of negotiation for an additional exclusive license to the Company’s short-acting

line extension candidate for the treatment of NIPU.

Applying the revenue guidance under ASC 606, the Company recognized approximately $1.7 million of collaborative research and development revenue in the three months ended December 31, 2018. The remaining balance of $30,000 attributable to the Company’s technical assistance obligation has been recorded as current deferred revenue in the accompanying consolidated balance sheet.

Feasibility Study Agreements

The Company from time to time enters into funded agreements to evaluate the potential use of its technology systems for sustained release of third-party drug candidates in the treatment of various diseases. Consideration received is generally recognized as revenue over the term of the feasibility study agreement. Revenue recognition for consideration, if any, related to a license option right is assessed based on the terms of any such future license agreement or is otherwise recognized at the completion of the feasibility study agreement. Revenues under feasibility study agreements totaled $15,000 in the six months ended December 31, 2018,

$1.1 million in fiscal 2018, $211,000 in fiscal 2017 and $33,000 in fiscal 2016. At December 31, 2018, no deferred revenue was recorded for any such agreements.