| Deferred Revenue | ( 4 )
Deferred Revenue Deferred revenue consisted of the following as of:
March 31, 2016
December 31, 2015
Celgene
$
6,724,160
7,543,927
Gilead
26,084
27,457
Total deferred revenue
6,750,244
7,571,384
Less: current portion
(3,450,582
)
(3,450,582
)
Deferred revenue, long-term
$
3,299,662
4,120,802
(a)
Celgene Agreements In May 2009, we entered into a Collaboration and Option Agreement with Celgene for the early development of four oncology products and all future oncology drug candidates (which options to future oncology drug candidates is subject to expiration if Celgene did not license one of the initial four named products). Celgene is also a holder of our common stock. Under the collaboration agreement, Celgene has the option to obtain an exclusive worldwide license to develop and commercialize the product candidates subject to diligence requirements, an up-front development funding fee, milestone payments and royalties. This agreement was amended in June 2011 to replace one of the four named product candidates with another oncology Tarmogen product candidate. The terms of the amendment did not materially modify the agreement as the financial terms and the length of the agreement remained substantially the same. Celgene’s options with respect to the GI-6200 and GI-3000 oncology drug candidate programs will terminate if Celgene does not exercise its options for such programs after we deliver certain reports on predefined clinical trials with respect to such drug programs. In March 2013, Celgene declined to exercise its option to the GI-4000 program and returned all rights and development responsibility to us. In July 2013, Celgene exercised its option to license the GI-6300 program. As a result of the election to license the GI-6300 program, Celgene has an option to license all future oncology drug candidates developed by us on a product by product basis. In July 2015, Celgene exercised its option to license the GI-6200 program and amended the agreement to replace one of the four named product candidates with our GI-6100 program as a drug candidate subject to the Collaboration and Option agreement. The terms of the amendment did not materially modify the agreement as the financial terms and the length of the agreement remained substantially the same. In July 2013, Celgene exercised its option to license the GI-6300 program, including GI-6301, in exchange for an upfront payment of $9,000,000. As part of that exercise, the Collaboration and Option Agreement was amended as it related to the GI-6300 program. The agreement, as amended, includes (1) a license granted to Celgene as of the date of the exercise of the option to develop and commercialize the GI-6300 product candidates using all of our related patents, intellectual property and know-how related to these product candidates that existed at the inception of the Collaboration and Option Agreement or any time during the term, (2) us supplying drug product for the Phase 2 clinical trial and (3) our option to perform Phase 2 clinical trials, subject to Celgene’s right to assume performance of those trials. As part of this exercise, certain milestones were modified and adjustments to the royalty rates on net sales were reduced. The modification to the milestones did not materially impact the deliverables that existed at the time of the modification. In July 2015, Celgene exercised its option to license the GI-6200 program, including GI-6207, in exchange for an upfront payment of $1.9 million. Pursuant to the license granted to Celgene as of the date of the exercise of the option to develop and commercialize the GI-6200 product candidates using all of our related patents, intellectual property and know-how related to these product candidates that existed at the inception of the Collaboration and Option Agreement or any time during the term. As part of this exercise, certain milestones were modified. The modification to the milestones did not materially impact the deliverables that existed at the time of the modification. The Collaboration and Option agreement, as amended including the amendment relating to the GI-6100 program, contain the following provisions:
·
We received a $30,000,000 upfront payment to perform research and development and for the option to license products based on the GI-4000, GI-6200, GI-6300 and GI-3000 programs. This payment was made by Celgene in May 2009.
·
We received $1,000,000 in October 2011 and $300,000 in April 2012 from Celgene for additional immunology work for the GI-4000 program.
·
We may receive a total of $85,000,000 in development and regulatory milestones for the GI-6100 program; activities for which we are not responsible for completing.
·
If Celgene exercises its option to the GI-6100 program and these products are commercialized, we may also receive up to $60,000,000 in net sales milestones and tiered royalty rates on net sales in the teens on worldwide net sales; activities for which we are not responsible for completing.
·
We are eligible to receive a total of $85,000,000 and $60,000,000 in development and regulatory milestone payments for GI-6300 and GI-6200, respectively; activities for which we are not responsible for completing.
·
If GI-6300 or GI-6200 is commercialized by Celgene, we may receive up to $60,000,000 in sales milestone payments for each program for which we are not responsible for completing. Tiered royalty rates on net sales range from single digits to low double digits.
·
For programs other than GI-6100, GI-6200 and GI-6300, we may be eligible to receive up to $101,000,000 in development and regulatory milestone payments for Celgene’s clinical trials, NDA filing and regulatory approvals; up to $60,000,000 in net sales milestone payments for such programs, and tiered royalty rates on net sales in the teens on worldwide net sales; activities for which we are not responsible for completing. Upon execution of the May 2009 agreement, we estimated that our obligations to perform research and development under the agreement would continue through September 30, 2016 and, accordingly, were recognizing as revenue the upfront fees received of $31,300,000 as revenue from the date of receipt through September 30, 2016. We review the term of performance on a quarterly basis and adjust the revenue recognition period if there are any changes. As of December 31, 2015 and March 31, 2016, the unamortized balance is expected to be amortized on a straight line basis through March 31, 2018. We determined that there were two units of accounting under the July 2013 GI-6300 License Agreement with Celgene: the license to further develop and commercialize GI-6300 and undelivered items related to supplying drug product for the Phase 1 clinical trial along with the option to perform the Phase 2 clinical trial (subject to Celgene’s right to assume performance of those trials). We determined that the license had standalone value based on the fact that the drug candidate has been developed and is currently in a clinical trial, Celgene possesses the knowledge, technology, skills, experience and background necessary for all further development of the drug through commercialization, we are not required to perform any additional development work related to GI-6300 and Celgene has the right to sublicense the product. We allocated the $9,000,000 of proceeds to the two units of accounting using the relative selling price method. We determined the estimated selling price for the license based upon a third party valuation and vendor specific objective evidence for the undelivered items. The allocation resulted in $8,766,881 being allocated to the license and the remaining amount of $233,119 allocated to the undelivered items. We recognized $8,766,881 in revenue related to the license in the fourth quarter of 2013 upon the delivery of all intellectual property, reports and documentation for the license to Celgene. Revenue related to the undelivered items will be recognized as the services are performed. The current estimated service period for the undelivered items under the GI-6300 License Agreement is through June 2016. We determined that there were two units of accounting under the July 2015 GI-6200 License Agreement with Celgene: the license to further develop and commercialize GI-6200 and undelivered items related to supplying drug product for the Phase 2 clinical trial. We determined that the license had standalone value based on the fact that the drug candidate has been developed and is currently in a clinical trial, Celgene possesses the knowledge, technology, skills, experience and background necessary for all further development of the drug through commercialization, we are not required to perform any additional development work related to GI-6200 and Celgene has the right to sublicense the product. We allocated the $1,900,000 of proceeds to the two units of accounting using the relative selling price method. We determined the estimated selling price for the license based upon a valuation and vendor specific objective evidence for the undelivered items. The allocation resulted in $1,828,124 being allocated to the license and the remaining amount of $71,876 allocated to the undelivered items. We recognized $1,828,124 in revenue related to the license in the third quarter of 2015 upon the delivery of all intellectual property, reports and documentation for the license to Celgene. Revenue related to the undelivered items will be recognized as the services are performed. The current estimated service period for the undelivered items under the GI-6200 License Agreement is through June 2016. We recognized $819,767, and $819,767, in license and service revenue during the three months ended March 31, 2016 and 2015, respectively. Costs incurred under these agreements, included in costs of collaboration licenses and services in our statement of operations, for the three months ended March 31, 2016 and 2015 were $485,037, and $696,340, respectively. To date, we have not recognized any revenue in connection with milestone payments, other than the license election noted above, or royalties under this agreement.
(b)
Gilead Agreement In October 2011, we entered into a License and Collaboration Agreement with Gilead, granting Gilead an exclusive license to all hepatitis B Tarmogen product candidates to be developed and commercialized under the collaboration, which includes a license granted at contract outset to develop and commercialize the HBV Tarmogen product candidate GS-4774 using all of our related patents, intellectual property and know-how related to these product candidates. Under the terms of the agreement, in November 2011 Gilead made a $10,000,000 initial nonrefundable payment to us. We conducted preclinical development, filed the Investigational New Drug application, or IND, and performed the initial Phase 1a trial in healthy volunteers for the selected HBV Tarmogen. Gilead reimbursed us on a periodic basis for the costs and expenses of the Phase 1a clinical trial. Gilead will perform any future clinical development, regulatory and commercialization activities. Gilead activities are subject to commercially reasonable diligence, milestone payments and royalties. Upon satisfaction of certain substantive milestone events for which we were partially responsible for completing, we received $2,000,000 upon filing an IND for HBV in 2012 and $3,000,000 at the point of commencement of the Phase 1b/2a clinical trial in 2013. We are also eligible to receive additional proceeds of up to $130,000,000 in development and regulatory milestones based upon achievement of such milestones by Gilead. If products are commercialized, we are eligible to receive tiered royalty rates in the upper single digit to mid-teens and up to $40,000,000 of sales milestone payments based on net sales of the licensed product candidates. We are not responsible for the sales efforts. We determined there was one unit of accounting under the agreement with Gilead. The non-contingent deliverables under the agreement include: (i) the license to all intellectual property and know-how related to hepatitis B Tarmogen products, (ii) the services to be performed in preclinical development (including the filing of an IND) and in conducting the Phase 1a clinical trial, (iii) participation on the Joint Research and Development Committee, or JRC, and (iv) the requirement to provide consultation to Gilead after Gilead assumes control of development activities. We have estimated the performance period for these deliverables to be from October 2011 through 2020. When the agreement was signed, we determined that our obligation to supply drug product to Gilead after Gilead assumed control of the development was a contingent deliverable, as the obligation to supply product was contingent on the successful development of the hepatitis B Tarmogen product candidate and the related approval of the IND among other items. Subsequently, Gilead has assumed control of manufacturing. However, a services agreement between the parties also continues to exist. As a result, the services agreement deliverables and the potential incremental fees to be received by us will be accounted for only if and when delivery takes place. We have determined that the consideration to be received is an appropriate incremental fee and, therefore there is not a significant incremental discount associated with the selling price of the services agreement. We determined that the license did not have standalone value at the inception of the agreement. This determination is based on the fact that the license is not sold on a standalone basis, nor could it be resold by Gilead on a standalone basis because we have proprietary knowledge, technology, skills, experience and background that no other third party, including Gilead, currently possesses and could not readily obtain at contract inception. Such knowledge, technology, skills, experience and background would be necessary for further development of the hepatitis B Tarmogen product candidate as required under the agreement. We are recognizing the initial consideration of $10,000,000 and the amounts we received as reimbursement from Gilead of costs to perform the initial Phase 1a trial on a proportional performance basis over the estimated period of performance to complete the preclinical development and Phase 1a trial services, JRC and consultation services, which is estimated to be from October 2011 through 2020. We will measure our progress under the proportional performance method based on hours incurred in proportion to total estimated hours. However, the cumulative revenue recognized under this agreement will be limited to the cumulative cash received to date from Gilead. We incurred substantially all of our hours during the preclinical development and Phase 1a trial period, which ended in February 2014. The contractual term of the license is on a product and country basis that begins on the effective date of the contract, October 2011, and runs through the expiration of Gilead’s obligation to pay royalties for such product in such country, or until the agreement is terminated. The JRC term is from the effective date of the agreement and terminates at the end of the Research Term, which is the period of time commencing on the date the agreement was signed and ending upon completion of the final clinical study report for the Gilead Phase 1b/2a trial. The consulting term begins upon the conclusion of the Research Term, and we estimate the term would end upon commercialization, currently estimated in 2020. We recognized $1,373 in license and services revenue under the Gilead arrangement during the three months ended March 31, 2016 and 2015. In addition, we recognized revenue of $0 and $160,926 during the three months ended March 31, 2016 and 2015, respectively, related to manufacturing supply for Phase 2 trials for which Gilead is responsible for performing. Collaboration license and service costs incurred under these agreements, included in costs of collaboration licenses and services in our statement of operations, for the three months ended March 31, 2016 and 2015 were $29,688, and $225,549, respectively. Manufacturing services costs incurred under agreements with Gilead are included in costs of manufacturing services in our statement of operations, for the three months ended March 31, 2015 were $160,926. |
