Royalty Monetization Arrangement

3 Months Ended

Mar. 31, 2023

Royalty Monetization Arrangement

On March 8, 2023, the Company entered into a Purchase and Sale Agreement (Royalty Purchase Agreement) with DRI Healthcare Acquisitions LP (DRI), a wholly owned subsidiary of DRI Healthcare Trust, for the sale to DRI of the Company’s single-digit royalty interest on global net sales of TZIELD (teplizumab-mzwv) (the DRI Transaction) under the Company’s Asset Purchase Agreement dated May 7, 2018, as amended (the Asset Purchase Agreement), with Provention Bio, Inc. (Provention). The Company retains its other economic interests related to TZIELD, including future potential development, regulatory, and commercial milestones.

Under the terms of the Royalty Purchase Agreement, the Company received $100.0 million from DRI for its single-digit royalty interest on global net sales of TZIELD under the Asset Purchase Agreement. The Company will have the right to receive a 50% share of the royalty on global net sales above a certain annual threshold. In addition, the Company may also receive up to $50.0 million from DRI upon the occurrence of pre-specified events tied to the advancement of TZIELD for the treatment of newly diagnosed type 1 diabetes. The Company may also receive an additional $50.0 million milestone from DRI if TZIELD achieves a certain level of net sales.

The $100.0 million proceeds received from DRI under the Royalty Purchase Agreement were recorded as a liability for future royalties, net of transaction costs of $0.3 million, which will be amortized over the term of the arrangement using the effective interest rate method. The Company accounted for the Royalty Purchase Agreement as a financing arrangement because the Company has significant continuing involvement in the delivery of future royalty payments to DRI and other existing obligations under the Asset Purchase Agreement. Royalty revenue will be recognized as earned on net sales of TZIELD, and the Company will record the royalty payments to DRI as a reduction of the liability when paid. The aggregate future estimated payments, less the $99.7 million of net proceeds, will be recorded as interest expense over the term of the arrangement. As such payments are made to DRI, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The Company will estimate the payments to be made to DRI over the term of the Royalty Purchase Agreement based on forecasted royalties and will calculate the effective interest rate required to discount such payments back to the liability balance. Over the course of the Royalty Purchase Agreement, the actual effective interest rate will be affected by the amount and timing of net royalty revenue recognized and changes in forecasted revenue. On a quarterly basis, the Company will reassess the effective interest rate and adjust the rate prospectively as necessary.

Changes to the liability related to future royalties were as follows for the three months ended March 31, 2023 (in thousands):


Liability related to future royalties - beginning balance	$	—
Proceeds from sale of future royalties	100,000
Deferred transaction costs	(344)
Non-cash royalty revenue payable to DRI	(90)
Non-cash interest expense recognized	656
Liability related to future royalties - ending balance	$	100,222