| Collaborative arrangements | 9. Collaborative arrangements To date, the Company’s collaboration revenue has been exclusively generated from its collaboration arrangement with Celgene Corporation (“Celgene”), which was originally entered into in March 2013 and was subsequently amended in June 2015, as further described below. During the three months ended September 30, 2018, the Company entered into a collaboration agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”), as further described below. Celgene Celgene Original Collaboration Agreement On March 19, 2013, the Company entered into a Master Celgene Collaboration Agreement (the “Celgene Collaboration Agreement”) with Celgene to discover, develop and commercialize potentially disease-altering gene therapies in oncology. The collaboration is focused on applying gene therapy technology to genetically modify a patient’s own T cells, known as chimeric antigen receptor, or CAR T cells, to target and destroy cancer cells. Additionally, on March 19, 2013, the Company entered into a Platform Technology Sublicense Agreement with Celgene pursuant to which the Company obtained a sublicense to certain intellectual property from Celgene, originating under Celgene’s license from Baylor College of Medicine, for use in the collaboration. Under the terms of the Celgene Collaboration Agreement, the Company received a $75.0 million up-front, non-refundable cash payment. The Company is responsible for conducting discovery, research and development activities through completion of Phase I clinical studies during the initial term of the Celgene Collaboration Agreement, or three years. The collaboration was governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and Celgene. The JSC, among other activities, reviewed the collaboration program, reviewed and evaluated product candidates and approved regulatory plans. In addition to the JSC, the Celgene Collaboration Agreement provided that the Company and Celgene each appoint representatives to a patent committee, which was responsible for managing the intellectual property developed and used during the collaboration. Celgene Amended Collaboration Agreement On June 3, 2015, the Company and Celgene amended and restated the Celgene Collaboration Agreement (the “Amended Celgene Collaboration Agreement”). Under the Amended Celgene Collaboration Agreement, the parties narrowed the focus of the collaboration exclusively to anti- B-cell maturation antigen (“BCMA”) product candidates for a new three-year term that ended in June 2018. In connection with the Amended Celgene Collaboration Agreement, the Company received an upfront, one-time, non-refundable, non-creditable payment of $25.0 million. The collaboration continued to be governed by the JSC. Under the terms of the Amended Celgene Collaboration Agreement, for up to two product candidates selected for development under the collaboration, the Company was responsible for conducting and funding all research and development activities performed up through completion of the initial Phase I clinical study of such product candidates. On a product candidate-by-product candidate basis, up through a specified period following enrollment of the first patient in an initial Phase I clinical study for such product candidate (the “Option Period”), the Company granted Celgene an option to obtain an exclusive worldwide license to develop and commercialize such product. Following Celgene’s license of each product candidate, the Company is entitled to elect to co-develop and co-promote each product candidate in the U.S. Celgene bb2121 License Agreement On February 10, 2016, Celgene exercised its option to obtain an exclusive worldwide license to develop and commercialize bb2121, the first product candidate under the Amended Celgene Collaboration Agreement, pursuant to an executed license agreement (“bb2121 License Agreement”) entered into by the parties on February 16, 2016 and paid the Company an option fee of $10.0 million. Pursuant to the bb2121 License Agreement, Celgene was responsible for development and related funding of bb2121 after the substantial completion of the on-going Phase I clinical trial. The Company was responsible for the manufacture of vector and associated payload throughout development and, upon Celgene’s request, commercialization, which is fully reimbursed by Celgene, and Celgene was responsible for the manufacture of drug product throughout development and commercialization. Celgene bb2121 Co-Development, Co-Promote and Profit Share Agreement On March 28, 2018, the Company elected to co-develop and co-promote bb2121 within the U.S. pursuant to the execution of the Amended and Restated Co-Development, Co-Promote and Profit Share Agreement (“bb2121 CCPS”). The responsibilities of the parties remain unchanged from those under the bb2121 License Agreement, however, the Company will share equally in all profits and losses relating to developing, commercializing and manufacturing bb2121 within the U.S. and has the right to participate in the development and promotion of bb2121 in the U.S. Under the bb2121 CCPS, the Company may receive up to $70.0 million in development milestone payments for the first indication to be addressed by the bb2121 product candidate, with the ability to obtain additional milestone payments for a second indication and modified licensed products. In addition, to the extent bb2121 is commercialized, the Company is entitled to receive tiered royalty payments ranging from the mid-single digits to low-teens based on a percentage of net sales generated outside of the U.S., subject to certain reductions. Celgene bb21217 License Agreement On September 22, 2017, Celgene exercised its option to obtain an exclusive worldwide license to develop and commercialize bb21217, the second product candidate under the Amended Celgene Collaboration Agreement, pursuant to an executed license agreement (“bb21217 License Agreement”) entered into by the parties on September 28, 2017 and paid the Company an option fee of $15.0 million. Pursuant to the bb21217 License Agreement, Celgene is responsible for development and related funding of bb21217 after the substantial completion of the on-going Phase I clinical trial. The Company is responsible for the manufacture of vector and associated payload throughout development and, upon Celgene’s request, commercialization, which is fully reimbursed by Celgene, and Celgene is responsible for the manufacture of drug product throughout development and commercialization. The Company currently expects it will exercise its option to co-develop and co-promote bb21217 within the U.S. The Company’s election to co-develop and co-promote bb21217 must be made by the substantial completion of the ongoing Phase I trial of bb21217. If elected, the Company expects the responsibilities of the parties to remain largely unchanged, however, the Company expects it will share equally in all profits and losses relating to developing, commercializing and manufacturing bb21217 within the U.S. and to have the right to participate in the development and promotion of bb21217 in the U.S. In the event the Company does not exercise its option to co-develop and co-promote bb21217, the Company will receive an additional fee in the amount of $10.0 million. Under this scenario, the Company may be eligible to receive up to $10.0 million in clinical milestone payments, up to $117.0 million in regulatory milestone payments, and up to $78.0 million in commercial milestone payments. In addition, to the extent bb21217 is commercialized, the Company would be entitled to receive tiered royalty payments ranging from the mid-single digits to low-teens based on a percentage of net sales, subject to certain reductions. Accounting analysis – bb2121 The Company has elected to use a practical expedient within Topic 606 that allow entities to reflect the aggregate effect of all contract modifications when identifying the satisfied and unsatisfied performance obligations for contracts that were modified prior to Topic 606 adoption. Celgene’s option to in-license the first product candidate, bb2121, under the arrangement was considered a material right at the time the Amended Celgene Collaboration Agreement was executed in June 2015 given the product candidate had been formally nominated by the JSC and that substantially all investigational new drug application, or IND, enabling activities had been completed by that time. Therefore, Celgene’s February 2016 exercise of its option that was considered a material right to obtain an exclusive worldwide license to develop and commercialize the first product candidate, bb2121, under the collaboration represented a contract modification. As a result, the Celgene Collaboration Agreement, Amended Celgene Collaboration Agreement, and bb2121 CCPS are combined for accounting purposes and treated as a single arrangement. As of February 2016, Celgene’s option to license an additional product candidate under the collaboration did not represent a material right. Therefore, the license to the Company’s second product candidate, bb21217, which was executed in September 2017, is accounted for as a separate contract. Refer below for discussion of the bb21217 accounting analysis. As of the February 2016 contract modification date, the Company concluded the arrangement contained the following promised goods and services: (i) research and development services, (ii) a license to the first product candidate, bb2121, and (iii) manufacture of vectors and associated payload for incorporation into bb2121 through development. The Company determined that the manufacture of commercial vector represents an option to acquire additional goods and services that is not representative of a material right. In addition, at this time Celgene has not exercised its option to purchase any commercial vector. Accordingly, the manufacture of commercial vector is not considered to be a performance obligation at this time. The Company concluded that the research and development services are distinct from the other promised goods and services under the arrangement and thus such services are considered to be a separate performance obligation. The Company concluded that the license to bb2121 is not distinct from the vector manufacturing services because the manufacturing is essential to the use of the license. Accordingly, these two promised goods and services are considered a single combined performance obligation. As of September 30, 2018, the total transaction price of $185.5 million comprises the up-front non-refundable fees of $100.0 million, the option fee of $10.0 million, and the estimated variable consideration of $75.5 million related to the estimated reimbursement from Celgene for the manufacture of vectors and associated payload through development. The total transaction price has been allocated to the performance obligations identified based on a relative SSP basis. The Company estimated the SSP of the license after considering potential future cash flows under the license. The Company then discounted these probability-weighted cash flows to their present value. The Company estimated the SSP of each of the research and development services and manufacturing services to be provided based on the Company’s estimated cost of providing the services plus an applicable profit margin commensurate with observable market data for similar services. None of the clinical or regulatory milestones have been included in the transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones is outside the control of the Company and contingent upon the future success of its clinical trials, the licensee’s efforts, and the receipt of regulatory approval. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Celgene and therefore are recognized at the later of when the performance obligation is satisfied, or the related sales occur. The Company will re-evaluate the transaction price, including its estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. bb2121 research and development services The Company allocated $36.6 million of the transaction price to the research and development services. The Company satisfied this performance obligation as the research and development services were performed. The Company determined that the period of performance of the research and development services was three years through projected initial Phase I clinical study substantial completion, or through May 2018. The Company recognized revenue related to research and development services performed using an input method by calculating costs incurred at each period end relative to total costs expected to be incurred. Although the Company has fully satisfied this performance obligation during the second quarter of 2018, any future changes to the total transaction price allocated to the performance obligations under the arrangement may impact the revenue recognized for this performance obligation in the period of change. The Company recognized revenue related to bb2121 research and development services of $0.6 million and $3.7 million for the three and nine months ended September 30, 2018, respectively. The Company recognized revenue related to bb2121 research and development services of $1.6 million and $4.7 million for the three and nine months ended September 30, 2017, respectively. bb2121 license and manufacturing services The Company allocated $148.9 million of the transaction price to the combined unit of accounting which consists of the license and manufacture of vectors and associated payload for incorporation into bb2121. The Company accounts for its vector manufacturing services for development in the U.S. and Celgene’s U.S. development efforts within the scope of ASC 808 given that both parties are active participants in the activities and both parties are exposed to significant risks and rewards dependent on the commercial success of the activities. The Company recognizes revenue for its U.S. manufacturing services by analogy to Topic 606. The portion of Celgene’s U.S. development costs that the Company is responsible for are recognized as a reduction to its collaboration revenues, or, if in excess of such revenues in a given quarter, the excess is recorded as research and development expense. Revenue recognition for the combined unit of accounting commenced during the first quarter of 2017. The Company recognizes revenue associated with the combined unit of accounting using the proportional performance method, as the Company will satisfy this performance obligation as the manufacturing services are performed through development. In using this method, the Company estimated its development plan for bb2121, including expected demand from Celgene, and the costs associated with the manufacture of vectors and associated payload for incorporation into bb2121. On a quarterly basis, the Company determines the proportion of effort incurred as a percentage of total effort it expects to expend. This ratio is applied to the transaction price, which includes variable consideration, allocated to the combined performance obligation consisting of the bb2121 license and manufacturing services. Management has applied significant judgment in the process of developing its budget estimates and any changes to these estimates will be recognized in the period in which they change as a cumulative catch up. In developing the SSP for the combined performance obligation, management assumed that the Company would exercise its option to co-develop and co-promote bb2121, and therefore will recognize revenue related to 67.5% of worldwide development costs incurred, which represents the percentage the Company is contractually entitled to bill Celgene under the cost share provisions of the co-development and co-promotion agreement, upon its execution. The Company exercised its option to co-develop and co-promote bb2121 in March 2018. The period of performance and pattern of revenue recognition remained unchanged upon its execution and will be revisited as the development plan changes or if other events occur. As noted above, the calculation of revenue or research and development expense to be recognized for the Company’s U.S. manufacturing services is performed on a quarterly basis. The calculation is independent of previous activity, which may result in fluctuations between revenue and expense recognition period over period, depending on the varying extent of effort performed by each party during the period. For the three months ended March 31, 2018, the Company recognized revenue of $3.9 million (representative of gross revenue of $11.8 million offset by approximately $7.9 million of cost reimbursement to Celgene) related to the combined unit of accounting for its license and vector manufacturing of bb2121 in the U.S. For the three months ended June 30, 2018, the portion of Celgene’s U.S. development costs that the Company is responsible for were in excess of the Company’s corresponding U.S. development costs, and, as such, the Company recognized research and development expense of $3.3 million (which is representative of gross revenue of $8.5 million offset by approximately $11.8 million of cost reimbursement to Celgene) related to the combined unit of accounting. For the three months ended September 30, 2018, the portion of Celgene’s U.S. development costs that the Company is responsible for are in excess of the Company’s corresponding U.S. development costs, and, as such, the Company recorded research and development expense of $5.3 million (which is representative of gross revenue of $11.2 million offset by approximately $16.6 million of cost reimbursement to Celgene) related to the combined unit of accounting. Revenue related to the combined unit of accounting for its rest of world license and vector manufacturing services is accounted for in accordance with Topic 606 and is recognized as collaboration revenue. The Company recognized $9.6 million and $24.3 million of revenue related to the combined unit of accounting for its rest of world license and vector manufacturing services for the three and nine months ended September 30, 2018, respectively. The Company recognized $7.7 million and $18.6 million of revenue related to the combined unit of accounting of accounting for its license and vector manufacturing services for the three and nine months ended September 30, 2017, respectively, in accordance with ASC 605. As of September 30, 2018, the aggregate amount of the transaction price allocated to the combined performance obligation, which consists of the bb2121 license and manufacturing services, that is unsatisfied, or partially unsatisfied, is $63.1 million, which the Company expects to recognize as revenue as manufacturing services are provided through the remaining development period which is estimated to be through 2020. The Company had $32.1 million remaining deferred revenue as of September 30, 2018 associated with the combined performance obligation consisting of the bb2121 license and manufacturing services. Accounting analysis – bb21217 On September 22, 2017, Celgene exercised its option to obtain an exclusive worldwide license to develop and commercialize bb21217, the second optioned product candidate, pursuant to the bb21217 License Agreement entered into by the parties on September 28, 2017. The bb21217 License Agreement is considered a separate contract for accounting purposes as the option to obtain an exclusive worldwide license to develop and commercialize bb21217, or any other product candidate, was not considered a material right to Celgene at the time the practical expedient was applied. The Company made this evaluation after considering the significant uncertainty at that time regarding whether any additional product candidates would be identified under the Amended Celgene Collaboration Agreement. In particular, the Company considered that bb21217 had not been formally nominated as a product candidate under the collaboration at that time, primarily due to a lack of pre-clinical data as well as uncertainty surrounding the ability to successfully complete various IND-enabling activities. At contract inception, the Company concluded that the arrangement contained the following promised goods and services: (i) research and development services, (ii) a license to the second product candidate, bb21217, and (iii) manufacture of vectors and associated payload for incorporation into bb21217 through development. The Company determined that the manufacture of commercial vector represents an option to acquire additional goods and services that is not representative of a material right. In addition, at this time Celgene has not exercised its option to purchase any commercial vector. Accordingly, the manufacture of commercial vector is not considered to be a performance obligation at this time. The Company concluded that the research and development services are distinct from the other promised goods and services under the arrangement and thus is considered to be a performance obligation. Similar to bb2121, the Company concluded that the license to bb21217 is not distinct from the vector manufacturing services because the manufacturing is essential to the use of the license. Accordingly, these two promised goods and services are considered a single combined performance obligation. As of September 30, 2018, the total transaction price of $41.7 million comprises the option fee of $15.0 million and the estimated variable consideration of $26.7 million related to reimbursement from Celgene for the manufacturing services during development. The total transaction price has been allocated to the performance obligations identified based on a relative SSP basis. The Company estimated the SSP of the license after considering potential future cash flows under the license. The Company then discounted these probability-weighted cash flows to their present value. The Company estimated the SSP of each of the research and development services and manufacturing services to be provided based on the Company’s estimated cost of providing the services plus an applicable profit margin commensurate with observable market data for similar services. None of the clinical or regulatory milestones have been included in the transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones is outside the control of the Company and contingent upon the future success of its clinical trials, the licensee’s efforts, and the receipt of regulatory approval. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Celgene and therefore are recognized at the later of when the performance obligation is satisfied, or the related sales occur. The Company will re-evaluate the transaction price, including is estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. bb21217 research and development services The Company allocated $5.4 million of the transaction price to the research and development services. The Company will satisfy this performance obligation as the research and development services are performed. The Company determined that the period of performance of the research and development services was two years through projected initial Phase I clinical study substantial completion, or through September 2019. The Company recognizes revenue related to research and development services performed using an input method by calculating costs incurred at each period end relative to total costs expected to be incurred. The Company recognized revenue related to bb21217 research and development services for Celgene of $0.7 million and $2.2 million for the three and nine months ended September 30, 2018, respectively. During the three and nine months ended September 30, 2017, the Company did not recognize any revenue under the bb21217 License Agreement. As of September 30, 2018, the aggregate amount of the transaction price allocated to the bb21217 research and development services performance obligation that are unsatisfied, or partially unsatisfied, and deferred is $2.9 million, which the Company expects to recognize through September 2019 as research and development services are performed. bb21217 license and manufacturing services The Company will satisfy its performance obligation related to the manufacture of vectors and associated payload for incorporation into bb21217 through development as the bb21217 manufacturing services are performed. As of September 30, 2018, the manufacturing services for bb21217 had not yet commenced. Therefore, no revenue has been recognized for the combined unit of accounting for the three and nine months ended September 30, 2018 and 2017. The aggregate amount of the transaction price allocated to the combined performance obligation, which consists of the bb21217 license and manufacturing services, is $36.2 million. The Company does not expect that recognition will begin in the next twelve months and has therefore classified deferred revenue associated with the combined performance obligation as deferred revenue, net of current portion on its consolidated balance sheet. The Company had $9.8 million remaining deferred revenue as of September 30, 2018 associated with the combined performance obligation consisting of the bb21217 license and manufacturing services. Contract assets and liabilities The Company receives payments from its collaborative partners based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements. A contract asset is a conditional right to consideration in exchange for goods or services that the Company has transferred to a customer. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The following table presents changes in the balances of the Company’s Celgene receivables and contract liabilities during the nine months ended September 30, 2018:
(in thousands)
Balance at beginning of period under Topic 606
Additions
Deductions
Balance at end of period under Topic 606
Receivables
$
4,635
$
1,641
(6,276
)
$
—
Contract liabilities:
Payable included in accrued expenses
—
$
8,031
$
(2,824
)
$
5,207
Deferred revenue
$
76,812
—
$
(31,981
)
$
44,831
The change in the receivables balance for the nine months ended September 30, 2018 is primarily driven by cash collected from Celgene for the amounts owed to the Company for the satisfaction of vector manufacturing services performed under the collaboration to date. As of September 30, 2018, the Company does not have a receivable given that any amounts owed to the Company through September 30, 2018 were collected in the period and Celgene’s U.S. development costs incurred in the second and third quarters of 2018 for which the Company is responsible are in excess of the Company’s U.S. development costs for which Celgene is responsible. The decrease in deferred revenue during the nine months ended September 30, 2018 is primarily driven by revenue recognized for the combined performance obligation consisting of the bb2121 license and manufacturing services. During the nine months ended September 30, 2018, $32.0 million of the deferred revenue balance at the beginning of the period was recognized as gross revenues. Regeneron Regeneron Collaboration Agreement On August 3, 2018, the Company entered into a Collaboration Agreement (the “Regeneron Collaboration Agreement”) with Regeneron pursuant to which the parties will apply their respective technology platforms to the discovery, development, and commercialization of novel immune cell therapies for cancer. On August 24, 2018, following the completion of required regulatory reviews, the Regeneron Collaboration Agreement became effective. Under the terms of the agreement, the parties will leverage Regeneron’s proprietary platform technologies for the discovery and characterization of fully human antibodies, as well as T cell receptors directed against tumor-specific proteins and peptides and the Company will contribute its field-leading expertise in gene therapy. In accordance with the Regeneron Collaboration Agreement, the parties jointly selected six initial targets and intend to equally share the costs of research up to the point of submitting an IND application for a potential gene therapy product directed to a particular target. Additional targets may be selected during the five-year research collaboration term as agreed to by the parties. Regeneron will accrue a certain number of option rights exercisable against targets as the parties reach certain milestones under the terms of the agreement. Upon the acceptance of an IND for the first product candidate directed to a target, Regeneron will have the right to exercise an option for co-development/co-commercialization of product candidates directed to such target on a worldwide or applicable opt-in territory basis, with certain exceptions. Where Regeneron chooses to opt-in, the parties will share equally in the costs of development and commercialization, and will share equally in any profits or losses therefrom in applicable opt-in territories. Outside of the applicable opt-in territories, the target becomes a licensed target and Regeneron would be eligible to receive, with respect to any resulting product, milestone payments of up to $130.0 million per product and royalties on net sales outside of the applicable opt-in territories at a rate ranging from the mid-single digits to low-double digits. Where Regeneron does not exercise its option, or does not have an option to a target, the target would also become a licensed target. Either party may terminate a given research program directed to a particular target for convenience, and the other party may elect to continue such research program at its expense, receiving applicable cross-licenses. The terminating party will receive licensed product royalties and milestone payments on the potential applicable gene therapy products. Where the Company terminates a given research program for convenience, and Regeneron elects to continue such research program, the parties will enter into a transitional services agreement. Under certain conditions, following its opt-in, Regeneron may terminate a given collaboration program and the Company may elect to continue the development and commercialization of the applicable potential gene therapy products as licensed products. Regeneron Share Purchase Agreement A Share Purchase Agreement (“SPA”) was entered into by the parties on August 3, 2018. On August 24, 2018, the closing date of the transaction, the Company issued Regeneron 0.4 million shares of the Company’s common stock, subject to certain restrictions, for $238.10 per share, or $100.0 million in the aggregate. The purchase price represents $63.0 million worth of common stock plus a $37.0 million premium, which represents a collaboration research advancement, or credit to be applied to Regeneron’s initial 50 percent funding obligation for collaboration research, after which the collaborators will continue to fund ongoing research equally. The collaboration research advancement only applies to pre-IND research activities and is not refundable or creditable against post-IND research activities for any programs where Regeneron exercises their opt-in rights. Accounting analysis – Regeneron At the commencement of the arrangement, two units of accounting were identified, which are the issuance of 420,000 of the Company’s common shares and joint research activities during the five year research collaboration term. The Company determined the total transaction price to |
