Marketing and Supply Agreement | 3 Months Ended |
Mar. 31, 2015 |
Eisai | |
Marketing and Supply Agreement | 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 lorcaserin to all of the countries in the world, except for South Korea, Taiwan, Australia, New Zealand and Israel. Lorcaserin 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 manufacture and sell lorcaserin to Eisai and provide Eisai with services related to development and regulatory activities. Under the Eisai Agreement, we have received an upfront payment and payments from sales of lorcaserin, and are entitled to receive payments from future sales of lorcaserin, 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 lorcaserin 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 for the periods presented, in thousands: |
|
|
| | | | | | | | |
| | Three months ended | |
March 31, |
| | 2015 | | | 2014 | |
Net product sales | | $ | 4,436 | | | $ | 2,882 | |
| | | | | | | | |
Amortization of upfront payments | | | 1,885 | | | | 1,975 | |
Reimbursement of development expenses | | | 191 | | | | 745 | |
Milestone payment | | | 0 | | | | 500 | |
Reimbursement of patent and trademark expenses | | | 60 | | | | 127 | |
| | | | | | | | |
Subtotal other Eisai collaborative revenue | | | 2,136 | | | | 3,347 | |
| | | | | | | | |
Total | | $ | 6,572 | | | $ | 6,229 | |
| | | | | | | | |
|
The following table summarizes the deferred revenues under our collaboration with Eisai, in thousands: |
|
|
| | | | | | | | |
| | March 31, | | | December 31, | |
2015 | 2014 |
Upfront payments | | $ | 92,589 | | | $ | 94,474 | |
Net product sales | | | 17,806 | | | | 7,081 | |
| | | | | | | | |
Total deferred revenues attributable to Eisai | | | 110,395 | | | | 101,555 | |
Less current portion | | | (25,347 | ) | | | (14,622 | ) |
| | | | | | | | |
Deferred revenues attributable to Eisai, less current portion | | $ | 85,048 | | | $ | 86,933 | |
| | | | | | | | |
|
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 lorcaserin at our facility in Switzerland, and sell lorcaserin 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 Eisai Product Purchase Price, in the respective territory. The Eisai 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 Eisai 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 Eisai 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 the use of vouchers and product samples is based on our cost of goods sold. |
|
In addition to payments for purchases of lorcaserin, 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 lorcaserin 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. |
|
The amount that Eisai pays us for lorcaserin product supply is based on Eisai’s estimated price at the time the order is shipped, which is Eisai’s estimate of the Eisai Product Purchase Price, and is subject to change on April 1 and October 1 of each year. Eisai’s estimate of the Eisai Product Purchase Price was changed as of October 1, 2013, and there was no further change as of April 1, 2014, October 1, 2014, and April 1, 2015. 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 Eisai 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 March 31, 2015, we recognized revenues from net product sales of BELVIQ to Eisai of $4.4 million, of which $4.0 million related to sales at the Eisai Product Purchase Price and $0.4 million related to redemptions of vouchers. The Eisai 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 (i) the price that Eisai paid us did not include deductions for the use of vouchers and savings cards or for certain items related to product launch and (ii) the subsequent allocation of certain bottles of BELVIQ for product sampling initiated by Eisai as part of its commercialization efforts. In January 2015, Eisai announced the launch of a new savings card which enables eligible patients without commercial coverage for BELVIQ to pay no more than $75 for each monthly prescription while those patients with commercial coverage for BELVIQ are able to use the card to obtain additional savings if their copay is greater than $50 per monthly prescription. The new savings card is subject to certain restrictions, including the exclusion of patients who are eligible for state or federal healthcare programs. |
|
These excess payments, which total the $22.5 million classified as Payable to Eisai on our condensed consolidated balance sheet at March 31, 2015, are primarily related to the above deductions, product sampling and the January 2015 launch of the new savings card. On a quarterly basis, subsequent to the end of each calendar quarter, we refund to Eisai the portion of these excess payments related to product sampling for product shipped to physicians during the quarter. On an annual basis, subsequent to the end of Eisai’s fiscal year, we refund to Eisai the portion of these excess payments related to product sold by Eisai to their distributors through March 31. We expect to pay approximately $10 million to $11 million to Eisai in May 2015 for the annual refund for product sold by Eisai to their distributors. |
|
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 and adolescent patients. In addition to the FDA-required studies, we and Eisai initially prioritized the development areas of a once-daily formulation, smoking cessation, 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 chart below 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 lorcaserin at such party’s own expense. |
|
Eisai Second Amended and Restated Marketing and Supply Agreement: Cost Sharing for Development |
|
|
| | | | | | | | |
| | United States | | Rest of | | Remaining Territories | | |
| | |
North and South America | | |
| | | | | |
BELVIQ | | Not Applicable | | General | | Up to a total of $100.0 million - | | |
| | | | |
- Pre-approval* | Eisai: 90%; Arena: 10% | Eisai: 50%; Arena: 50% | | |
| | | | |
| | | | |
| | | | |
| Certain stability work Eisai: 50%; Arena: 50% | Thereafter, Eisai: 100% | | |
| | | | | |
BELVIQ | | General | | General | | Up to a total of $50.0 million - | | |
| | | | | |
- Post-approval* | Eisai: 90%; Arena 10% | Eisai: 90%; Arena: 10% | Eisai: 50%; Arena: 50% | | |
| | | | | |
| | | | | |
| | | | | |
| Non-FDA required portion of CVOT | Certain stability work | Thereafter, Eisai: 90%; | | |
| | | | | |
| Up to $80.0 million - | Eisai: 50%; Arena: 50% | Arena: 10% | | |
| | | | | |
| Eisai: 50%; Arena: 50% | | | | |
| | | | | |
| Thereafter, Eisai: 100% | | | | |
| | | | | |
| Certain pediatric studies | | | | |
| | | | | |
| Eisai: 50%; Arena: 50% | | | | |
| | | |
Lorcaserin | | Up to a total of $250.0 million (as reduced by up to $80.0 million for non-FDA required portion of CVOT) | | |
| | | |
products other than | -Eisai: 50%; Arena: 50% | | |
| | | |
BELVIQ | | | |
| | | |
- Pre-approval | | | |
| | | |
Lorcaserin | | Up to a total of $100.0 million in the aggregate across all additional products - | | |
| | | |
products other than | Eisai: 50%; Arena: 50% | | |
| | | |
BELVIQ | Thereafter, Eisai: 90%; Arena: 10% | | |
| | | |
- Post-approval | | | |
|
|
* | Development required by a regulatory authority, with the exception of the non-FDA required portions of the CVOT. | | | | | | | |
|
Certain Other Terms |
|
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2014, for additional information regarding termination, indemnification, product liability, certain limitations and other provisions included in the Eisai Agreement. |
lldong | |
Marketing and Supply Agreement | 8. Marketing and Supply Agreement with Ildong |
|
In November 2012, Arena GmbH and Ildong Pharmaceutical Co., Ltd., or Ildong, entered into the Marketing and Supply Agreement, or Ildong Agreement. Under this agreement, we granted Ildong exclusive rights to commercialize BELVIQ in South Korea for weight loss or weight management in obese and overweight patients. We also provide certain services and will manufacture and sell BELVIQ to Ildong. Ildong has agreed not to conduct activities outside of our agreement related to the approval or commercialization of any other pharmaceutical product for weight loss, weight management or obesity in South Korea, with the exception of phentermine. |
|
In connection with entering into the Ildong Agreement, we received from Ildong an upfront payment of $5.0 million, less withholding taxes. Revenues from this upfront payment were deferred, as we determined that the exclusive rights did not have standalone value without our ongoing development and regulatory activities. Accordingly, this payment is recognized ratably as revenue over the period in which we expect the services to be rendered, which is approximately 14 years. In addition to the upfront payment, we received a milestone payment of $3.0 million, less withholding taxes, in March 2015, which we earned upon the February 2015 approval of BELVIQ for marketing in South Korea for weight management. |
|
We manufacture BELVIQ at our facility in Switzerland, and sell BELVIQ to Ildong for a purchase price starting at the higher of the defined minimum amount or 35% of Ildong’s annual net product sales (which are the gross invoiced sales less certain deductions described in the Ildong Agreement), or the Ildong Product Purchase Price. The Ildong Product Purchase Price will increase on a tiered basis up to the higher of the defined minimum amount or 45% on the portion of annual net product sales exceeding $15.0 million. However, in no event will the Ildong Product Purchase Price be less than a defined minimum amount adjusted annually based on a consumer price index. For the three months ended March 31, 2015, the Ildong Product Purchase Price equaled the defined minimum amount (which exceeded the 45% tier). If certain annual net product sales amounts are not met, we can convert Ildong’s right to commercialize BELVIQ in South Korea to be non-exclusive. We recognized revenues from net product sales of BELVIQ to Ildong of $2.2 million for the three months ended March 31, 2015. |