Marketing and Supply Agreement with Eisai | 6 Months Ended |
Jun. 30, 2014 |
Marketing and Supply Agreement with Eisai | ' |
7. Marketing and Supply Agreement with Eisai |
In November 2013, our wholly owned subsidiary, Arena Pharmaceuticals GmbH, or Arena GmbH, and Eisai Inc. and Eisai Co., Ltd. (collectively with Eisai Inc., Eisai) entered into the Second Amended and Restated Marketing and Supply Agreement, or Eisai Agreement. The Eisai Agreement amended and restated the previous agreement and expanded Eisai’s exclusive commercialization rights for BELVIQ to all of the countries in the world, except for South Korea, Taiwan, Australia, New Zealand and Israel. BELVIQ is approved in the United States for chronic weight management in adults who are overweight with a comorbidity or obese, and was made available to patients by prescription in the United States by Eisai in June 2013. In addition to providing commercialization rights, which are subject to applicable regulatory approval, we provide Eisai with services related to development and regulatory activities, and manufacture and sell BELVIQ to Eisai. Under the Eisai Agreement, we received an upfront payment and are entitled to receive payments from sales of BELVIQ, milestone payments based on the achievement of regulatory filings and approvals, one-time purchase price adjustment payments and other payments. |
Prior to entering into the Eisai Agreement, Arena GmbH and Eisai Inc. entered into the original marketing and supply agreement in July 2010, 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 first amended agreement, which expanded Eisai Inc.’s exclusive commercialization rights to include most of North and South America. |
The following table summarizes the revenues we recognized under our collaboration with Eisai in the three and six months ended June 30, 2014, and 2013, in thousands: |
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| | Three months ended | | | Six months ended | |
June 30, | June 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Net product sales | | $ | 3,529 | | | $ | 1,319 | | | $ | 6,411 | | | $ | 1,319 | |
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Amortization of upfront payments | | | 1,885 | | | | 861 | | | | 3,860 | | | | 1,723 | |
Reimbursement of research and development expenses | | | 6,568 | | | | 9 | | | | 7,313 | | | | 10 | |
Milestone payments | | | 0 | | | | 65,500 | | | | 500 | | | | 66,000 | |
Reimbursements of patent and trademark expenses | | | 101 | | | | 95 | | | | 228 | | | | 227 | |
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Subtotal other Eisai collaborative revenue | | | 8,554 | | | | 66,465 | | | | 11,901 | | | | 67,960 | |
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Total | | $ | 12,083 | | | $ | 67,784 | | | $ | 18,312 | | | $ | 69,279 | |
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The following table summarizes the deferred revenues under our collaboration with Eisai as of June 30, 2014, and December 31, 2013, in thousands: |
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| | June 30, | | | December 31, | | | | | | | | | |
2014 | 2013 | | | | | | | | |
Upfront payments | | $ | 98,244 | | | $ | 102,104 | | | | | | | | | |
Net product sales | | | 24,349 | | | | 30,299 | | | | | | | | | |
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Total deferred revenues attributable to Eisai | | | 122,593 | | | | 132,403 | | | | | | | | | |
Less current portion | | | (31,890 | ) | | | (37,301 | ) | | | | | | | | |
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Deferred revenues attributable to Eisai, less current portion | | $ | 90,703 | | | $ | 95,102 | | | | | | | | | |
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Upfront and Milestone Payments |
In connection with entering into the Eisai Agreement, we received from Eisai an upfront payment of $60.0 million. This payment is in addition to the $50.0 million and $5.0 million in upfront payments we received from Eisai in connection with entering into the original agreement and the first amended agreement, respectively. Revenues from these upfront payments were deferred, as we determined that the exclusive rights did not have standalone value without our ongoing development and regulatory activities. Accordingly, these payments are recognized ratably as revenue over the periods in which we expect the services to be rendered, which are approximately 15 years for the Eisai Agreement and first amended agreement and 16 years for the original agreement. In addition to the upfront payments, we have received from Eisai a total of $86.5 million in milestones payments, and we are eligible to receive up to an aggregate of $176.0 million in additional regulatory and development milestone payments. |
Product Purchase Price and Purchase Price Adjustment Payments |
We manufacture BELVIQ at our facility in Switzerland, and sell BELVIQ to Eisai for Eisai’s commercialization in the United States and, subject to applicable regulatory approval, in the other territories under the Eisai Agreement (other than Europe, China and Japan) for a purchase price starting at 31.5% and 30.75%, respectively (and starting at 27.5% in Europe, China and Japan), of Eisai’s aggregate annual net product sales (which are the gross invoiced sales less certain deductions described in the Eisai Agreement), or the Product Purchase Price, in the respective territory. The Product Purchase Price will increase on a tiered basis in the United States and the other territories (other than Europe, China and Japan) to as high as 36.5% and 35.75%, respectively, on the portion of Eisai’s annual aggregate net product sales exceeding $750.0 million in all territories other than Europe, China and Japan. The Product Purchase Price will increase to 35% in Europe, China and Japan on the portion of Eisai’s annual aggregate net product sales exceeding $500.0 million in such territories. The Product Purchase Price is subject to reduction (for sales in a particular country), including in the event of generic competition in the applicable country. The revenue we recognize for BELVIQ product revenue related to redemption of vouchers is based on our cost of goods sold. |
In addition to payments for purchases of BELVIQ, we are eligible to receive up to an aggregate of $1.56 billion in one-time purchase price adjustment payments and other payments. These payments include up to an aggregate of $1.19 billion that are based on Eisai’s annual net product sales of BELVIQ in all of the territories under the Eisai 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 will pay us a total of $330.0 million for annual net product sales of up to $1.0 billion. The $1.56 billion also includes $370.0 million in one-time purchase price adjustment payments we are eligible to receive based on annual net product sales in the non-US territories, comprised of $185.0 million based on Eisai’s annual net product sales in the non-US territories in North and South America and $185.0 million based on Eisai’s annual net product sales in the territories outside of North and South America. The first and last amounts are payable upon first achievement of annual net product sales of $100.0 million and $1.0 billion, respectively, with respect to each of the following areas: (i) the non-US territories in North and South America and (ii) the territories outside of North and South America. In addition, we are also eligible to receive certain payments by Eisai if certain annual minimum sales requirements in Mexico, Canada and Brazil are not met during the first ten years after initial commercial sale in such territories. |
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The amount that Eisai pays us for BELVIQ product supply is based on Eisai’s estimated price at the time the order is shipped, which is Eisai’s estimate of the Product Purchase Price, and is subject to change on April 1 and October 1 of each year. Eisai’s estimate of the Product Purchase Price was changed as of October 1, 2013, and there was no further change as of April 1, 2014. At the end of Eisai’s fiscal year (March 31), the estimated price paid to us for product that Eisai sold to their distributors is compared to the Product Purchase Price of such product, and the difference is either refunded back to Eisai (for overpayments) or paid to us (for underpayments). On a monthly basis, Eisai provides us the total amount of net product sales for the month, details of the total deductions from gross to net product sales and the sales in units. We recognize our revenues monthly based on our percentage of Eisai’s monthly net product sales figures. When the revenues we recognize differ from the estimated price that Eisai 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 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. |
In the three months ended June 30, 2014, we recognized total revenues from net product sales of BELVIQ of $3.5 million, of which $3.1 million related to sales at the Product Purchase Price and $0.4 million related to redemptions of vouchers. In the six months ended June 30, 2014, we recognized total revenues from net product sales of BELVIQ of $6.4 million, of which $5.8 million related to sales at the Product Purchase Price and $0.6 million related to redemptions of vouchers. The Product Purchase Price for the product Eisai has sold to date was lower than the initial estimated price that Eisai paid us for such product, primarily because the price that Eisai paid us did not include deductions for the use of vouchers, savings cards and deductions for certain items related to product launch. These excess payments, which reflect both the amounts Eisai has sold to date and the product supply remaining in Eisai’s inventory at June 30, 2014, are included in the $13.0 million classified as Payable to Eisai on our condensed consolidated balance sheets. On an annual basis, subsequent to the end of Eisai’s fiscal year, we will refund to Eisai the portion of these excess payments related to product sold by Eisai to their distributors through March 31. |
Development Payments |
In connection with the US approval of BELVIQ, the US Food and Drug Administration, or FDA, is requiring (i) an evaluation as part of the cardiovascular outcomes trial, or CVOT, of the effect of long-term treatment with BELVIQ on the incidence of major adverse cardiovascular events, or MACE, in overweight and obese patients with cardiovascular disease or multiple cardiovascular risk factors and (ii) the conduct of postmarketing studies to assess the safety and efficacy of BELVIQ for weight management in obese pediatric patients. In addition to the FDA-required studies, we and Eisai are prioritizing the development areas of smoking cessation, a once-daily formulation, co-administration with phentermine, as well as potentially exploring, including as part of the CVOT, BELVIQ’s effect on conversion to type 2 diabetes and improvements in cardiovascular outcomes. |
The below chart summarizes the general agreement regarding cost sharing between Eisai and us for significant development activities under the Eisai Agreement. In addition, Eisai or we may from time to time conduct approved development of BELVIQ at such party’s own expense. For example, Eisai is responsible for the expenses of the pilot study of 12-week duration to preliminarily assess BELVIQ and phentermine when co-administered. |
Eisai Second Amended and Restated Marketing and Supply Agreement: Cost Sharing for Development |
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| | United States | | Rest of | | Remaining Territories | | | | | | | | | | |
North and South America | | | | | | | | | | |
BELVIQ for weight | | Not Applicable | | General | | Up to total of $100.0 million - | | | | | | | | | | |
management | Eisai: 90%; Arena: 10% | Eisai: 50%; Arena: 50% | | | | | | | | | | |
- Pre-approval* | | | | | | | | | | | | |
| Certain stability work | Thereafter, Eisai: 100% | | | | | | | | | | |
| Eisai: 50%; Arena: 50% | | | | | | | | | | | |
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BELVIQ for weight management | | General—Eisai: 90%; Arena 10% | | General | | Up to total of $50.0 million - | | | | | | | | | | |
- Post-approval* | | Eisai: 90%; Arena: 10% | Eisai: 50%; Arena: 50% | | | | | | | | | | |
| Non-FDA required portion of CVOT | | | | | | | | | | | | |
| Up to $80.0 million - | Certain stability work | Thereafter, Eisai: 90%; | | | | | | | | | | |
| Eisai: 50%; Arena: 50% | Eisai: 50%; Arena: 50% | Arena: 10% | | | | | | | | | | |
| Thereafter, Eisai: 100% | | | | | | | | | | | | |
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| Certain pediatric studies | | | | | | | | | | | | |
| Eisai: 50%; Arena: 50% | | | | | | | | | | | | |
Products other than BELVIQ for weight management | | Up to total of $250.0 million (as reduced by up to $80.0 million for non-FDA required portion of CVOT) - | | | | | | | | | | |
- Pre-approval | Eisai: 50%; Arena: 50% | | | | | | | | | | |
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Products other than BELVIQ for weight management | | Up to a total of $100.0 million in the aggregate across all additional products - | | | | | | | | | | |
- Post-approval | Eisai: 50%; Arena: 50% | | | | | | | | | | |
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| Thereafter, Eisai: 90%; Arena: 10% | | | | | | | | | | |
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* | Development required by a regulatory authority, with the exception of the non-FDA required portions of the CVOT. | | | | | | | | | | | | | | | |
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Certain Other Terms |
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, for additional information regarding termination, indemnification, product liability, certain limitations and other provisions included in the Eisai Agreement. |