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Collaboration agreements | 9 Months Ended
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Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Collaboration agreements | Collaboration agreements GSK On August 6, 2022, the Company entered into a Collaboration, Option and License Agreement (the “GSK Agreement”) with GlaxoSmithKline Intellectual Property (No. 4) Limited (“GSK”), pursuant to which the Company granted GSK an exclusive option to obtain an exclusive license (the “Option”) to co-develop and to commercialize products containing XMT-2056 (the “Licensed Products”), exercisable within a specified time period (the “Option Period”) after the Company delivers to GSK data resulting from completion of dose escalation with enrichment for breast cancer patients in a Phase 1 single-agent clinical trial of XMT-2056. GSK’s exercise of the Option may require clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Clearance” and GSK’s exercise of the Option following any applicable HSR Clearance, the “GSK Option Exercise”). Prior to the GSK Option Exercise, the Company will lead and will be responsible for the costs of manufacturing, research, and early clinical development related to its XMT-2056 program. Pursuant to the GSK Agreement, GSK paid the Company a non-refundable, upfront fee of $100.0 million in August 2022. Following the GSK Option Exercise, if any, GSK is obligated to pay the Company an option exercise payment of $90.0 million (the “Option Payment”). The GSK Agreement will terminate at the end of the Option Period if GSK does not exercise its Option. In the event of the GSK Option Exercise, unless earlier terminated, the GSK Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all Licensed Products in all countries have expired. Accounting Analysis The Company assessed the GSK Agreement in accordance with ASC 606 and concluded that the contract counterparty, GSK, is a customer. The Company identified the following two material performance obligations under the GSK Agreement: (i) development activities, including manufacturing, research and early clinical development activities, necessary to deliver the package of data, information and materials specified in the GSK Agreement (the “Development Activities”) and (ii) the Option to co-develop and to commercialize Licensed Products (the “License Option”). The Company is recognizing revenue related to the Development Activities performance obligation over the estimated period of the pre-option development using a proportional performance model as the underlying activities are performed. Th e C ompany measures proportional performance based on the costs incurred relative to the total costs expected to be incurred. The Company deferred revenue recognition related to the License Option. If the License Option is exercised and GSK obtains an exclusive license, the Company will recognize revenue as it fulfills its obligations under the GSK Agreement. If the Option is not exercised, the Company will recognize the entirety of the revenue in the period when the Option expires. During the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2024 and 2023, the Company recorded collaboration revenue of $0.5 million, $0.5 million, $0.6 million and $1.8 million, respectively, related to its efforts under the GSK Agreement. As of September 30, 2024 and December 31, 2023, the Company had recorded $94.0 million and $94.6 million, respectively, in deferred revenue related to the unsatisfied performance obligations under the GSK Agreement. This deferred revenue will be recognized over the remaining performance period and classified as current or noncurrent on the consolidated balance sheets based upon the expected timing of satisfaction of the performance obligations. Johnson & Johnson In February 2022, the Company entered into a research collaboration and license agreement with Janssen Biotech Inc. (“Johnson & Johnson” and such agreement, as amended on July 14, 2023 and September 25, 2023, the “Johnson & Johnson Agreement”) focused on the research, development and commercialization of novel ADCs for three oncology targets by leveraging Mersana’s ADC expertise and Dolasynthen platform with Johnson & Johnson’s proprietary antibodies. Upon execution of the Johnson & Johnson Agreement, the Company received a non-refundable upfront payment of $40.0 million. Johnson & Johnson may select up to three targets and may substitute each target once prior to a substitution deadline. Johnson & Johnson is not required to pay a fee for its first substitution right, but must pay a one-time fee for access to the subsequent substitution rights following its exercise of its second substitution right. During the year ended December 31, 2023, Johnson & Johnson exercised its first substitution right for a certain target. Pursuant to mutually agreed research and chemistry, manufacturing and controls (“CMC”) plans, the Company agreed to perform bioconjugation, production development, preclinical manufacturing, and certain related research and preclinical development activities, in order to progress the targets through investigational new drug application (“IND”) submission for further development, manufacture and commercialization by Johnson & Johnson. The Company estimates that its activities under the research plans for the targets will be performed into 2025. Johnson & Johnson is required to pre-pay for the Company's preclinical CMC activities at agreed-upon rates, and the parties may enter into one or more clinical supply agreements related to clinical manufacturing services for each licensed ADC for a selected target, pursuant to which Johnson & Johnson would pre-pay for such services at agreed-upon rates. Unless earlier terminated, the Johnson & Johnson Agreement will expire upon the expiration of the last royalty term for a product under the Johnson & Johnson Agreement. In August 2024, the Company entered into a clinical supply agreement with Johnson and Johnson (the “2024 Johnson & Johnson CSA” and, together with the Johnson & Johnson Agreement, the “Johnson & Johnson Agreements”). Under the terms of the 2024 Johnson & Johnson CSA, the Company will perform clinical manufacturing services for Johnson & Johnson related to a licensed ADC for a selected target. Johnson & Johnson is required to pre-pay for such services at agreed-upon rates. The Company may enter into future clinical supply agreements should Johnson & Johnson request clinical supply services either beyond the scope of the 2024 Johnson & Johnson CSA or with respect to any other licensed ADC or target. Johnson & Johnson may also request that the Company perform a technology transfer of bioconjugation and manufacturing process technology, at Johnson & Johnson's cost, at an agreed upon rate. Accounting Analysis The Company assessed the Johnson & Johnson Agreements in accordance with ASC 606. With respect to the Johnson & Johnson Agreement, the Company concluded that the contract counter party, Johnson & Johnson, is a customer. The Company identified the following seven material performance obligations under the Johnson & Johnson Agreement: (i) exclusive Johnson & Johnson licenses and research activities for each of the three designated targets, (ii) preclinical CMC activities for each of the three designated targets and (iii) the first target substitution right. The Company determined that the consideration for preclinical CMC activities represents variable consideration. Preclinical CMC activities for one of the three designated targets were initiated. The Company has elected to apply the right to invoice practical expedient in accordance with ASC 606 related to the preclinical CMC activities under the Johnson & Johnson Agreement. As such, the Company will recognize revenue related to the preclinical CMC activities when the services are performed over the corresponding CMC plan for a given target. As of September 30, 2024, the revised total transaction price for the Johnson & Johnson Agreement was $56.0 million based on the reassessment of the constraint of certain development milestones and the remaining risks associated with the development required to achieve the milestones. As of September 30, 2024, the Company considered the remaining milestones to be fully constrained as achievement was outside the control of the Company. The Company is recognizing revenue related to the Johnson & Johnson Licenses and research services performance obligation over the estimated period of the research services using a proportional performance model. The Company measures proportional performance based on the costs incurred relative to the total costs expected to be incurred. During the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2024 and 2023, the Company recorded collaboration revenue of $8.4 million, $4.9 million, $16.3 million and $14.0 million, respectively, related to its performance obligations under the Johnson & Johnson Agreement. During the nine months ended September 30, 2024 and 2023, the Company recognized revenue of $8.0 million and $2.0 million, respectively, related to achievement of development milestones under the Johnson & Johnson Agreement for which performance obligations were previously completed. With respect to the 2024 Johnson & Johnson CSA, the Company concluded that each manufacturing batch of the licensed ADC that the Company committed to deliver in the next twelve months represents a material performance obligation. As of September 30, 2024, the transaction price was $8.5 million based on the total costs expected to be incurred to develop and manufacture the licensed ADC. The Company is recognizing revenue related to the performance obligations over the estimated period of the clinical manufacturing services using a proportional performance model. During each of the three and nine months ended September 30, 2024, the Company recorded clinical supply revenue of $0.4 million related to its performance obligations under the 2024 Johnson & Johnson CSA. As of September 30, 2024 and December 31, 2023, the Company had recorded $6.6 million and $10.4 million, respectively, in deferred revenue related to the Johnson & Johnson Agreements that will be recognized over the remaining performance period and classified as current or noncurrent on the consolidated balance sheets based upon the expected timing of satisfaction of respective performance obligations. Merck KGaA Immunosynthen Platform Agreement In December 2022, the Company entered into a research collaboration and license agreement with Ares Trading S.A., a wholly owned subsidiary of Merck KGaA, Darmstadt, Germany (Merck KGaA and/or its affiliate, as applicable, “Merck KGaA” and such agreement, the “2022 Merck KGaA Agreement”), focused on the research, development and commercialization of novel ADCs for up to two specific target antigens by leveraging Mersana’s ADC expertise and Immunosynthen platform with Merck KGaA’s proprietary antibodies. In connection with the 2022 Merck KGaA Agreement, the Company received a non-refundable upfront payment of $30.0 million. Pursuant to the 2022 Merck KGaA Agreement, the Company granted Merck KGaA two exclusive, non-transferable, worldwide licenses - a research license and a commercialization license (together, the “Merck KGaA Licenses”). Pursuant to mutually agreed research and CMC plans, the Company will perform bioconjugation, production development, preclinical manufacturing, and certain related research and preclinical development activities, in order to progress the targets through IND (or foreign equivalent) submission for further development, manufacture and commercialization by Merck KGaA. The Company estimates that its activities under the research plans for the targets will be performed into 2025. The Company's CMC activities will be compensated by Merck KGaA at agreed upon rates. Unless earlier terminated, the 2022 Merck KGaA Agreement will expire upon the expiration of the last royalty term for a product under the 2022 Merck KGaA Agreement. Merck KGaA may request that the Company perform clinical manufacturing services under a separate clinical supply agreement. Merck KGaA may also request that the Company perform a technology transfer of bioconjugation technology, at Merck KGaA's cost, at an agreed upon rate. Accounting Analysis The Company assessed the 2022 Merck KGaA Agreement in accordance with ASC 606 and concluded that the contract counter party, Merck KGaA, is a customer. The Company identified the following four material performance obligations under the 2022 Merck KGaA Agreement: (i) exclusive Merck KGaA Licenses and research activities for each of the two designated targets and (ii) CMC activities for each of the two designated targets. The Company is recognizing revenue related to the Merck KGaA Licenses and research services performance obligation over the estimated period of the research services using a proportional performance model. The Company measures proportional performance based on the costs incurred relative to the total costs expected to be incurred. During the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2024 and 2023, the Company recorded collaboration revenue of $3.4 million, $2.3 million, $6.6 million and $7.9 million, respectively, related to its efforts under the 2022 Merck KGaA Agreement. As of September 30, 2024, the Company recorded $1.0 million in accounts receivable related to the achievement of a development milestone. As of September 30, 2024 and December 31, 2023, the Company had recorded $14.6 million and $20.2 million, respectively, in deferred revenue related to the unsatisfied performance obligations under the 2022 Merck KGaA Agreement. This deferred revenue will be recognized over the remaining performance period and classified as current or noncurrent on the consolidated balance sheets based upon the expected timing of satisfaction of respective performance obligations. Summary of Contract Assets and Liabilities The following table presents changes in the balances of the Company's contract liabilities:
(in thousands) | Balance at Beginning of Period |  | Additions |  | Deductions |  | Balance at End of Period
Nine months ended September 30, 2024 |  |  |  |  |  |  |
Contract liabilities: |  |  |  |  |  |  |
Total deferred revenue | $ | 125,314 |  |  | $ | 5,860 |  |  | $ | 15,937 |  |  | $ | 115,237 |
Nine months ended September 30, 2023 |  |  |  |  |  |  |
Contract liabilities: |  |  |  |  |  |  |
Total deferred revenue | $ | 147,653 |  |  | $ | 1,710 |  |  | $ | 16,267 |  |  | $ | 133,096 |
The Company did not record any contract assets associated with its collaboration agreements as of September 30, 2024 and 2023. During the three and nine months ended September 30, 2024 and 2023, the Company recognized the following revenues as a result of changes in the contract liability balances in the respective periods:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2024 |  | 2023 |  | 2024 |  | 2023
Revenue recognized in the period from: |  |  |  |  |  |  |
Amounts included in the contract liability at the beginning of the period | $ | 4,388 |  |  | $ | 4,503 |  |  | $ | 14,875 |  |  | $ | 17,963 |
Other Revenue The Company has provided limited services for a collaborator, Asana BioSciences, LLC (“Asana Biosciences”), pursuant to a 2012 research, development and license agreement (the “Asana Biosciences Agreement”). The Company did not recognize revenue related to these services during the three and nine months ended September 30, 2024 and 2023. During the nine months ended September 30, 2023, the Company recognized revenue of $2.5 million related to achievement of a development milestone under the Asana Biosciences Agreement for which performance obligations were previously completed.

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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/disclosureRef -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -SubTopic 10 -Topic 808 -Publisher FASB -URI https://asc.fasb.org/1943274/2147479402/808-10-50-1 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (b) -SubTopic 10 -Topic 808 -Publisher FASB -URI https://asc.fasb.org/1943274/2147479402/808-10-50-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 808 -Publisher FASB -URI https://asc.fasb.org/808/tableOfContent + Details
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