Marketing and Supply Agreement with Eisai Inc. | 9 Months Ended |
Sep. 30, 2013 |
Marketing and Supply Agreement with Eisai Inc. | ' |
6. Marketing and Supply Agreement with Eisai Inc. |
This Note describes our marketing and supply agreement with Eisai as of September 30, 2013. See Note 11 regarding an expansion of such agreement and certain changes to the rights, obligations and other terms thereunder. |
In July 2010, Arena GmbH and Eisai Inc. entered into the original Marketing and Supply Agreement, or Original Eisai Agreement, under which we granted Eisai Inc. exclusive commercialization rights for BELVIQ solely in the United States and its territories and possessions. In May 2012, Arena GmbH and Eisai Inc. amended and restated such agreement by entering into the Amended and Restated Marketing and Supply Agreement, or Eisai First Amended Agreement, which expanded Eisai Inc.’s exclusive commercialization rights to include most of North and South America, including Mexico, Canada and Brazil. Under the Eisai First Amended Agreement, we provide services related to development and regulatory activities, and we also manufacture and sell BELVIQ to Eisai Inc. We are also entitled to receive upfront payments, milestone payments based on the achievement of regulatory filings and approvals, one-time purchase price adjustment payments and other payments, and payments from sales of BELVIQ. |
The following table summarizes the revenues we have recognized under the Eisai First Amended Agreement in the three and nine months ended September 30, 2013, and 2012, in thousands: |
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| | Three months ended | | | Nine months ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Net product sales | | $ | 2,011 | | | $ | 0 | | | $ | 3,330 | | | $ | 0 | |
Milestone payments | | | 0 | | | | 0 | | | | 66,000 | | | | 20,000 | |
Amortization of upfront payments | | | 861 | | | | 864 | | | | 2,584 | | | | 2,642 | |
Reimbursements of development and patent expenses | | | 112 | | | | 0 | | | | 349 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,984 | | | $ | 864 | | | $ | 72,263 | | | $ | 22,642 | |
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Under the Eisai First Amended Agreement, we manufacture and sell BELVIQ to Eisai Inc. for marketing and distribution in the United States and, subject to applicable regulatory approval, in the additional territories under our agreement for a purchase price starting at 31.5% and 30.75%, respectively, of Eisai Inc.’s aggregate annual net sales (which are the gross invoiced sales less certain deductions described in the Eisai First Amended Agreement that are estimated by Eisai Inc. based on their experience, including deductions for certain taxes, credits, allowances, discounts, rebates, chargebacks, returns and other items), or the Product Purchase Price, in all of such territories on an aggregate basis. The Product Purchase Price will increase on a tiered basis in the United States and in the additional territories to as high as 36.5% and 35.75%, respectively, on the portion of Eisai Inc.’s annual net product sales exceeding $750.0 million, subject to reduction (for sales in a particular country), including in the event of generic competition in the applicable country. The Eisai First Amended Agreement includes payments by Eisai Inc. if annual minimum sales requirements in the additional territories are not met during the first ten years after initial commercial sale in Mexico, Canada or Brazil. In addition, we are eligible to receive up to an aggregate of $1.19 billion in one-time purchase price adjustment payments and other payments based on Eisai Inc.’s annual net product sales of BELVIQ in all of the territories under our agreement on an aggregate basis, with the first and last amounts payable with annual net product sales of $250.0 million and $2.5 billion, respectively. Of these payments, Eisai Inc. will pay us a total of $330.0 million for annual net product sales of up to $1.0 billion. We are also eligible to receive up to an additional $185.0 million in one-time purchase price adjustment payments based on Eisai Inc.’s annual net product sales of BELVIQ in the non-US territories under our agreement, with the first and last amounts payable upon first achievement of annual net sales of $100.0 million and $1.0 billion, respectively, in such territories. |
The amount that Eisai Inc. pays us for BELVIQ product supply is based on Eisai Inc.’s estimated price at the time the order is shipped, which is Eisai Inc.’s estimate of the Product Purchase Price, and is subject to change on April 1 and October 1 of each year. Eisai Inc.’s estimate of the Product Purchase Price was changed as of October 1, 2013. At the end of Eisai Inc.’s fiscal year (March 31), the estimated price paid to us for product that Eisai Inc. sold to their distributors is compared to the Product Purchase Price of such product, and the difference is either refunded back to Eisai Inc. (for overpayments) or paid to us (for underpayments). On a monthly basis, Eisai Inc. provides us the total amount of net sales for the month, details of the total deductions from gross sales to net sales and the sales in units. We recognize our revenues monthly based on our percentage of Eisai Inc.’s monthly net sales figures. When the revenues we recognize differ from the estimated price that Eisai Inc. paid us for such product, the difference is reclassified from deferred revenues to a receivable or payable account, as appropriate. We also adjust the deferred revenues balance for the product supply held at Eisai Inc. based on the most current net product sales figures provided to us, with the difference reclassified from deferred revenues to a receivable or payable account. At March 31 of each year, the amount recorded as receivable or payable will be settled by the applicable party. |
In June 2013, BELVIQ was made available to patients by prescription in the United States. We recognize revenues from net product sales when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. We recognize such revenues when Eisai Inc. ships BELVIQ to their distributors. Eisai Inc.’s estimated deductions used to determine net sales are subject to revision, and could result in material adjustments to our recognized revenues if actual deductions differ materially from Eisai Inc.’s original estimates. |
We recognized revenues from net product sales of $2.0 million and $3.3 million in the three and nine months ended September 30, 2013, respectively. The Product Purchase Price for the product Eisai Inc. has sold to date was lower than the estimated price that Eisai Inc. paid us, primarily because the estimated price that Eisai Inc. paid us did not include deductions for certain items related to product launch. This difference of $18.7 million at September 30, 2013, reflects both the amounts Eisai Inc. has sold to date and the product supply remaining in Eisai Inc.’s inventory at September 30, 2013, and is classified as payable to collaborators. (See Note 4.) |
Revenues from the upfront payments we received of $50.0 million when we entered into the Original Eisai Agreement and $5.0 million when we entered into the Eisai First Amended Agreement were deferred, as we determined that the exclusive rights did not have standalone value without our ongoing development and regulatory activities. These payments are being recognized ratably as revenue over the periods in which we expect the services to be rendered, which are approximately 16 years and 13 years, respectively. |
Revenues recognized in the nine months ended September 30, 2013, included (i) $65.0 million in milestones earned upon the final scheduling designation of the DEA for BELVIQ, (ii) a $0.5 million milestone earned upon Eisai Inc. filing for regulatory approval of BELVIQ in Canada and (iii) a $0.5 million milestone earned upon Eisai Inc. filing for regulatory approval of BELVIQ in Mexico. Under the Eisai First Amended Agreement, we are also entitled to receive from Eisai Inc. up to $53.5 million of additional non-refundable milestone payments based on achievement of regulatory filings and approvals. Under the milestone method of revenue recognition, we recognize revenue for the amount payable to us for achieving each substantive milestone payment, if any, in the period the milestone is achieved. |
The following table summarizes the deferred revenues attributable to Eisai Inc. as of September 30, 2013, and December 31, 2012, in thousands: |
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| | September 30, | | | December 31, | | | | | | | | | |
2013 | 2012 | | | | | | | | |
Upfront payments | | $ | 43,555 | | | $ | 46,140 | | | | | | | | | |
Product sales | | | 25,086 | | | | 11,594 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total deferred revenues attributable to Eisai Inc. | | | 68,641 | | | | 57,734 | | | | | | | | | |
Less current portion | | | (28,532 | ) | | | (15,040 | ) | | | | | | | | |
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Deferred revenues attributable to Eisai Inc., less current portion | | $ | 40,109 | | | $ | 42,694 | | | | | | | | | |
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Under the Eisai First Amended Agreement, with respect to the post-marketing studies Eisai Inc. and we committed to conduct as part of the FDA approval of BELVIQ, Eisai Inc. and we will be responsible for 90% and 10%, respectively, of the expenses for the cardiovascular outcomes trial and certain pediatric studies, and we will share equally with Eisai Inc. the expenses of certain other pediatric studies. Eisai Inc. is responsible for regulatory activities related to the BELVIQ New Drug Application, or NDA, and for the regulatory activities for obtaining regulatory approval in any country in the additional territories. If the regulatory authority for a country in the additional territories requires development work before or following approval of BELVIQ in such country, Eisai Inc. and we will be responsible for 90% and 10%, respectively, of the expenses for such work, with the exception of the expenses for stability testing, which we will share equally with Eisai Inc. In addition, with respect to any non-FDA required development work we may conduct relating to BELVIQ, we would expect to incur additional expenses, which may be significant. |
Under the Eisai First Amended Agreement, Eisai Inc. will indemnify Arena GmbH for losses resulting from certain third-party claims, including for (a) Eisai Inc.’s negligence, willful misconduct or violation of law, (b) Eisai Inc.’s breach of the Eisai First Amended Agreement or related agreements, (c) certain uses or misuses of BELVIQ, (d) certain governmental investigations of Eisai Inc. related to BELVIQ, and (e) infringement relating to Eisai Inc.’s use of certain trademarks related to BELVIQ. Arena GmbH will indemnify Eisai Inc. for losses resulting from certain US product liability claims and third-party claims, including for (i) Arena GmbH’s negligence, willful misconduct, failure to comply with law, breach of any agreement with a third party with respect to product development prior to the effective date of the original agreement with Eisai Inc., (ii) Arena GmbH’s negligence or willful misconduct with respect to certain uses or misuses of BELVIQ outside of the agreement, (iii) certain uses or misuses of BELVIQ after the term of the agreement or in any territory no longer under the agreement, (iv) Arena GmbH’s negligence, willful misconduct or violation of law, (v) Arena GmbH’s breach of the Eisai First Amended Agreement or related agreements; (vi) certain infringement of intellectual rights of a third party; and (vii) infringement relating to Eisai Inc.’s use of certain trademarks related to BELVIQ. In addition, each of Arena GmbH and Eisai Inc. will share equally in losses resulting from third-party product liability claims in the territories added with the Eisai First Amended Agreement, except to the extent caused by one party’s negligence, willful misconduct, violation of law or breach or default of the Eisai First Amended Agreement or certain other agreements between the parties. We are unable to predict the maximum potential amount of any future payment for such product liability indemnification provisions. As of September 30, 2013, we have not incurred any significant costs under these indemnification provisions. |
Under the Eisai First Amended Agreement, Eisai Inc. may terminate such agreement with respect to the United States or any country in the additional territories following the later of the expiration of all issued BELVIQ patents in such country and 12 years after the first commercial sale of BELVIQ in such country. Either party has the right to terminate the Eisai First Amended Agreement early in certain circumstances, including (a) if the other party is in material breach, (b) for commercialization concerns, and (c) for certain intellectual property infringement. Eisai Inc. also has the right to terminate the Eisai First Amended Agreement early in its entirety or with respect to each country in certain circumstances, including (i) termination in a country if sales of generic equivalents of BELVIQ in such country exceed sales of BELVIQ in that country (based on volume), and (ii) if Eisai Inc. is acquired by a company that has a product that competes with BELVIQ. In addition, we can terminate the Eisai First Amended Agreement early in its entirety or with respect to each country in the additional territories in certain circumstances, including termination in each country if Eisai Inc. does not satisfy certain regulatory filing and commercialization diligence requirements in such country. |