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Collaborative Research and License Agreements | 6 Months Ended
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Jun. 30, 2020
Research and Development [Abstract] |
Collaborative Research and License Agreements | Collaborative Research and License Agreements Allergan Collaboration Agreement Summary of Agreement On November 13, 2019 (the “Effective Date”), the Company entered into a Collaboration, Option and License Agreement (the “Allergan Collaboration Agreement”), with a wholly-owned subsidiary of Allergan plc, Allergan. On May 8, 2020, Allergan plc, including Allergan, was acquired by AbbVie Inc. (“AbbVie”). Accordingly, all references to “Allergan” in the defined terms including, but not limited to, “Allergan,” “Allergan Collaboration Agreement,” “Allergan R&D Services” and “Allergan JDC Services,” should be read and construed as references to AbbVie. Pursuant to the Allergan Collaboration Agreement, the Company granted to Allergan exclusive access and options to license SNA based therapeutics arising from two collaboration programs related to the treatment of hair loss disorders (each, a “Collaboration Program”). Under each such license (obtained in connection with the exercise of an Option, as defined and discussed further below), the Company would grant to Allergan exclusive, royalty-bearing, sublicenseable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics. Under the Allergan Collaboration Agreement, the Company will use commercially reasonable efforts to conduct two Collaboration Programs, each focused on one or more hair loss disorders to discover one or more SNA products that are directed to, bind to or inhibit one or more specific Collaboration Program targets (each, a “Program Target”). As of the Effective Date, the Company and Allergan have agreed upon a development plan for each Collaboration Program that describes the development activities and timelines required to advance such Collaboration Program through first IND filing (each, a “Development Plan”). The activities described in the Development Plan are conducted under the supervision of the Joint Development Committee (the “JDC”) consisting of three members from each of the Company and Allergan. The Company is primarily responsible for performing early stage discovery and preclinical activities (the “Initial Development Activities”) set forth in the Development Plan for each Collaboration Program and will be solely responsible for all costs and expenses related to the Initial Development Activities. Allergan may elect, in its sole discretion and at its sole cost and expense, to conduct formulation assessment and in vivo testing as set forth in a Development Plan. Following the completion of all Initial Development Activities, the Company is required to deliver to Allergan a report that describes the results of the Initial Development Activities and identifies at least one SNA-based compound that satisfies certain criteria for such Collaboration Program as determined by the JDC (the “Initial Development Report”). Following the delivery of the Initial Development Report for a Collaboration Program, Allergan will have the ability for a defined period of time (the “Initial Option Exercise Period”) to exercise an option (each an “Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each a “Licensed Product”) that results from such Collaboration Program during the term of the Allergan Collaboration Agreement. At Allergan’s sole option, Allergan may extend the Initial Option Exercise Period (the “Option Extension”) and require the Company to perform IND-enabling activities described in the Development Plan (the “IND-Enabling Activities”), subject to the payment of additional consideration (“Extension Exercise”). If Allergan exercises the Option Extension, the Company would be responsible for conducting the IND-Enabling Activities and would be solely responsible for all costs and expenses associated with such activities. Upon completion of the IND-Enabling Activities, the Company is required to deliver a report that describes the results of the IND-Enabling Activities (the “IND-Enabling Activities Data Package”) to Allergan. Following the delivery of IND-Enabling Activities Data Package, Allergan will have the ability for a defined period of time (the “Extended Option Exercise Period”) to exercise an Option with respect to such Collaboration Program. After the exercise of an Option with respect to a Collaboration Program, Allergan will be responsible for all development, manufacturing, and commercialization activities, and costs and expense associated with such activities in connection with Licensed Products arising from such Collaboration Program. The Company’s obligation to conduct the activities defined in the Development Plan under the Allergan Collaboration Agreement commenced on November 13, 2019 and continues until the earlier of (i) the date Allergan exercises an Option, (ii) the date Allergan abandons a Collaboration Program and foregoes its Option to that Collaboration Program, or (iii) the fifth anniversary of the Effective Date (the “Research Term”). If the Initial Option Exercise Period or Extended Option Exercise Period is still in effect for a Collaboration Program or if the Company has not delivered a complete Initial Development Report or, if Allergan made an Extension Exercise for a Collaboration Program, a complete IND-Enabling Activities Data Package for such Collaboration Program, as determined by the JDC, then the Research Term will automatically extend by one-year increments until such obligation is satisfied, but in no event past the seventh anniversary of the Effective Date. Under the terms of the Allergan Collaboration Agreement, the Company received a $25,000 upfront, non-refundable, non-creditable cash payment (the “Allergan Upfront Payment”) related to the Company’s research and development costs for conducting the Development Plan for two Collaboration Programs, each focused on one or more targets, and certain options to obtain exclusive, worldwide licenses under certain intellectual property rights owned or controlled by the Company to develop, manufacture and commercialize certain products resulting from each such Collaboration Programs. The option exercise fee during the Initial Option Exercise Period is $10,000 per Collaboration Program. If Allergan elects to extend the Initial Option Exercise Period, Allergan is required to pay an additional fee of $10,000. If Allergan elects to exercise its option during the Extended Option Exercise Period, Allergan must pay the Company the option exercise fee of $15,000. Following the exercise by Allergan of an Option with respect to a Collaboration Program, Allergan would be required to make certain milestone payments to the Company upon the achievement of specified development, product approval and launch, and commercial events, on a Licensed Product by Licensed Product basis. On a Licensed Product by Licensed Product basis, for the first Licensed Product to achieve the associated milestone event, the Company is eligible to receive up to an aggregate of $55,000 for development milestone payments and $132,500 for product approval and launch milestone payments. The Company is also eligible for up to $175,000 in sales milestone payments on a Collaboration Program by Collaboration Program basis, associated with aggregate worldwide sales. Certain product approval milestones are subject to certain reductions under specified circumstances, including for payments required to be made by Allergan to obtain certain third party intellectual property rights. In addition, to the extent there is any Licensed Product, the Company would be entitled to receive tiered royalty payments of mid-single digits to the mid-teens percentage on future net worldwide product sales of such Licensed Products, subject to certain reductions under specified circumstances. Royalties are due on a Licensed Product by Licensed Product and country by country basis from the date of the first commercial sale of each Licensed Product in a country until the latest to occur of: (i) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such Licensed Product in such country, (ii) the tenth anniversary of the first commercial sale of such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity for such Licensed Product in such country. Allergan may terminate the Allergan Collaboration Agreement for any reason or no reason, either in its entirety or on a Collaboration Program by Collaboration Program basis, at any time on 90 days’ prior written notice to the Company. Unless earlier terminated, the term of the Allergan Collaboration Agreement shall continue until (i) if both Option Exercise Periods expire without Allergan exercising either Option, the expiration of the later to expire Option Exercise Period, and (ii) if either or both Options are exercised on a Licensed Product-by-Licensed Product and country-by-country basis, the expiration of the royalty term for such Licensed Product in such country. Either party may terminate the Allergan Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Termination of the Allergan Collaboration Agreement for any reason will not release either party from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination. In addition, termination of the Allergan Collaboration Agreement will not preclude either party from pursuing any rights and remedies it may have under the agreement or at law or in equity with respect to any breach of the Allergan Collaboration Agreement. If either party terminates the Allergan Collaboration Agreement, the license and rights granted to Allergan with respect to the terminated Collaboration Program or License Product shall terminate. Accounting Analysis The Company concluded that Allergan is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. Under the Allergan Collaboration Agreement, the Company has identified a single performance obligation that includes (i) the research and development activities during the Research Term (the “Allergan R&D Services”), and (ii) Joint Development Committee services during the Research Term (the “Allergan JDC Services”). The Company has concluded that the Allergan R&D Services is not distinct from the Allergan JDC Services during the Research Term. The JDC provides oversight and management of the overall Allergan Collaboration Agreement, and the members of the JDC from the Company have specialized industry knowledge, particularly as it relates to SNA technology. The JDC is meant to facilitate the early stage research being performed and coordinate the activities of both the Company and Allergan. Further, the JDC services are critical to the ongoing evaluation of a Collaboration Program and the drafting and evaluation of the Initial Development Report and the IND-Enabling Data Package. Accordingly, the Company’s participation on the JDC is essential to Allergan receiving value from the Allergan R&D Services and as such, the Allergan JDC Services along with the Allergan R&D Services are considered one performance obligation (the “Collaboration Program Services”). In addition, the Company has concluded that the option to purchase two development and commercialization licenses is considered a marketing offer as the options did not provide any discounts or other rights that would be considered a material right in the arrangement, and thus, not a performance obligation at the onset of the agreement. The consideration for these options will be accounted for when they are exercised. As of the Effective Date of the Allergan Collaboration Agreement, the total transaction price was determined to be $25,000, consisting solely of the Allergan Upfront Payment. The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received. As of the Effective Date of the Allergan Collaboration Agreement, there were no milestones included in the transaction price. The milestones were fully constrained due to the significant uncertainties surrounding such payments. The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or Allergan. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of June 30, 2020, the Company determined that any development, regulatory, or commercial milestones continue to be constrained and therefore the related milestone payments continue to be excluded from the transaction price at June 30, 2020. The Company will recognize revenue related to the Collaboration Program Services as the performance obligation is satisfied using an input method to measure progress. The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the research service. During the three and six months ended June 30, 2020, the Company recognized revenue under the Allergan Collaboration Agreement of approximately $4,833 and $13,949, respectively. As of June 30, 2020, there was $10,880 of deferred revenue related to the Allergan Collaboration Agreement, which is classified as current on the unaudited condensed consolidated balance sheet. Dermelix Collaboration Agreement Summary of Agreement On February 17, 2019, Exicure entered into a License and Development Agreement with Dermelix (the “Dermelix Collaboration Agreement.”) Pursuant to the Dermelix Collaboration Agreement, the Company granted to Dermelix exclusive, worldwide royalty-bearing license rights to, develop, manufacture, have manufactured, use and commercialize the Company’s SNA technology for the treatment of Netherton Syndrome (“NS”) and, at Dermelix’s option, up to five additional specified orphan diseases that are within the dermatology field. Upon written notice to the Company, Dermelix may exercise its option at any time following the effective date of the Dermelix Collaboration Agreement until the date that is six (6) years from the date that the first collaboration SNA therapeutic achieves first dosing in humans in a Phase 1 clinical trial for NS. Dermelix will initially seek to develop a targeted therapy for the treatment of NS. Under the terms of the Dermelix Collaboration Agreement, the Company will be responsible for conducting the early stage development for each indication up to IND enabling toxicology studies. Dermelix will assume subsequent development, commercial activities and financial responsibility for such indications. Dermelix will pay the costs and expenses of development and commercialization of any licensed products under the Dermelix Collaboration Agreement, including the Company’s expenses incurred in connection with development activities and in accordance with the development budget. Under the terms of the Dermelix Collaboration Agreement, Exicure received an upfront payment of $1,000, to be applied against the initial $1,000 of the Company’s development expenses. If Dermelix exercises any of its option rights for additional indications, Dermelix will pay an option exercise fee equal to $1,000 for each exercised option (each, an “Option Exercise Fee”). Any Option Exercise Fee will be applied against the Company’s development expenses with respect to the particular indication for which the option was exercised. Pursuant to the Dermelix Collaboration Agreement, the Company shall have the right to pursue the development and commercialization of SNA technology for the treatment of orphan diseases which are neither NS nor one of the additional specified orphan diseases selected by Dermelix pursuant to its option rights. If the Company commences development activities of SNA technology for the treatment of such an orphan disease, the Company will notify Dermelix in writing of such development and Dermelix will have thirty (30) days following receipt of such notice to use one of its remaining option rights on such orphan disease. If Dermelix does not use one of its remaining option rights on such orphan disease, or has no option rights remaining, then the Company will have no further obligations to Dermelix with respect to the development of SNA therapeutics for such orphan disease and shall be free to continue commercialization and development activities with respect thereto. For each of NS as well as any additional licensed product for which Dermelix exercises one of its options, the Company shall be eligible to receive additional cash payments totaling up to $13,500 upon achievement of certain development and regulatory milestones and up to $152,500 upon achievement of certain sales milestones. The regulatory milestones are payable upon the initiation or completion of clinical trials, and regulatory approval in the United States and outside the United States, per program. The commercial sales milestones are payable upon achievement of specified aggregate annual product sales thresholds. In the event a therapeutic candidate subject to the collaboration results in commercial sales, the Company will receive low double-digit royalties on annual net sales for such licensed products. Accounting Analysis The Company concluded that Dermelix is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. The Company identified performance obligations under the Dermelix Collaboration Agreement for the license of intellectual property for the NS therapeutic candidate and associated research and development services for the NS therapeutic candidate. The Company determined that the performance obligations were not separately identifiable and were not distinct or distinct within the context of the contract due to the specialized nature of the services to be provided by Exicure, specifically with respect to the Company’s expertise related to SNA technology, and the interdependent relationship between the performance obligations. As such, the Company concluded that there is a single identified performance obligation. The Company used the most likely amount method to estimate variable consideration and estimated that the most likely amount for each potential development and regulatory milestone, which is considered variable consideration, was zero, as the achievement of those milestones is uncertain and highly susceptible to factors outside of the Company’s control. Accordingly, all such milestones were excluded from the transaction price. Management will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and adjust the transaction price as necessary. Sales-based royalties, including commercial sales milestone payments based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate. The Company will recognize such revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Revenue associated with the performance obligation will be recognized as services are provided using a cost-to-cost measure of progress method. The transfer of control occurs over time and, in management’s judgment, this input method is the best measure of progress towards satisfying the performance obligation under the Dermelix Collaboration Agreement and reflects a faithful depiction of the transfer of goods and services. The Company initially recorded the upfront payment of $1,000 as deferred revenue related to its wholly unsatisfied performance obligation and reduced this balance to zero during 2019 by recognizing revenue as services were provided. The Company recognized $14 and $81 of revenue under the Dermelix Collaboration Agreement during the three and six months ended June 30, 2020, respectively, which reflects reimbursement by Dermelix for additional costs incurred by Exicure for early stage development costs beyond the initial $1,000 upfront payment. The Company expects to incur additional early stage development costs and expects to be reimbursed by Dermelix for such costs under the terms of the Dermelix Collaboration Agreement. The Company will recognize both revenue and research and development expense for such costs on a gross basis during the period in which those costs are incurred. The Company recognized $434 and $459 of revenue under the Dermelix Collaboration Agreement during the three and six months ended June 30, 2019, respectively, which related to amortization of the above-mentioned deferred revenue related to the upfront payment for services provided during that period.

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -URI http://asc.fasb.org/topic&trid=5833765 + Details
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