| Collaborative Arrangements and Revenue Recognition | 6. Collaborative Arrangements and Revenue Recognition
Healios
On January 8, 2016, we entered into a license agreement
(“Healios Agreement”) with HEALIOS K.K.
(“Healios”) to develop and commercialize MultiStem cell
therapy for ischemic stroke in Japan, and to provide Healios with
access to Athersys’ proprietary MAPC technology for use in
Healios’ “organ bud” program, initially for
transplantation to treat liver disease or dysfunction. Under
the Healios Agreement, Healios also obtained a right, at their
option, to expand the scope of the collaboration to include the
exclusive rights to develop and commercialize MultiStem for the
treatment of two additional indications in Japan, which include
acute respiratory distress syndrome (“ARDS”) and
another indication in the orthopedic area, and to include all
indications for the “organ bud” program. Healios
will develop and commercialize the MultiStem product in Japan, and
we will provide the manufactured product to Healios.
Under the terms of the Healios Agreement, we received a
nonrefundable, up-front cash payment of $15 million from Healios,
the majority of which was received in January 2016. If Healios
exercises its option to expand the collaboration, we will be
entitled to receive a cash payment of $10 million. Healios may
exercise its option to expand the collaboration prior to certain
milestone dates that are expected to occur within the next two
years.
For the ischemic stroke indication, we may also receive additional
success-based development, regulatory approval and sales milestones
aggregating up to $225 million. Such amounts are non-refundable and
non-creditable towards future royalties or any other payment due
from Healios. We will also receive tiered royalties on net
product sales, starting in the low double-digits and increasing
incrementally into the high teens, depending on net sales
levels. Additionally, we will receive payments for product
supplied to Healios for ischemic stroke.
If Healios exercises the option to expand the collaboration to
include ARDS and another indication in the orthopedic area, we
would be entitled to receive royalties from product sales and
success-based development, regulatory approval and sales
milestones, as well as payments for product supply related to the
additional indications covered by the option.
For the “organ bud” product, we are entitled to receive
a fractional royalty percentage on net sales of the “organ
bud” products and will receive payments for manufactured
product supplied to Healios under a manufacturing supply
agreement. Additionally, we have a right of first negotiation
for commercialization of an “organ bud” product in
North America, with such right expiring on the later of (i) the
date five years from the effective date of the Healios Agreement
and (ii) 30 days after authorization to initiate clinical studies
on an “organ bud” product under the first
investigational new drug application or equivalent in Japan, North
America or the European Union.
The Healios Agreement will expire automatically when there are no
remaining intellectual property rights subject to the
license. Additionally, Healios may terminate the Healios
Agreement under certain circumstances, including for material
breach and without cause upon advance written notice. We may
terminate the Healios Agreement if there is an uncured material
breach of the agreement by Healios. In the event that Healios
does not move the program forward, the development and
commercialization rights would revert to us.
To determine the appropriate accounting for the license agreement,
we evaluated the Healios Agreement and related facts and
circumstances, focusing in particular on the rights and obligations
of the arrangement. We have determined that our obligations
under the Healios Agreement represent multiple
deliverables. For deliverables with standalone value, our
policy is to account for these as separate units of
accounting. We allocate the overall consideration of the
arrangement that is fixed and determinable, excluding consideration
that is contingent upon future deliverables, to the separate units
of accounting based on estimated selling prices (as defined in ASC
605-25) of each deliverable.
Given Healios’ ability to sublicense under the Healios
Agreement and its ability to conduct the ongoing development
efforts, we concluded that the license had stand-alone value at the
inception of the arrangement and would be treated as a separate
unit of accounting, noting that there was no general right of
return associated with the license. Further, the preclinical
and clinical manufacturing services and certain near-term
regulatory advisory services that will be provided to Healios under
the Healios Agreement had been determined to have stand-alone value
and considered separate units of accounting.
We were unable to establish vendor-specific objective evidence of
selling price or third-party evidence for either the license or the
services, and thus, instead, allocated the arrangement
consideration between the license and the services based on their
relative selling prices using a best estimate of selling price
(“BESP”). We developed the BESP of the license using a
probability weighted, discounted cash flow analysis using the
income approach, taking into consideration market assumptions
including the estimated development and commercialization timeline,
data regarding patient population, discount rate related to our
industry, and probability of success using market data for both our
industry and therapeutic field. We estimated the BESP of the
manufacturing services and certain near-term regulatory advisory
services using actual historical experience and best estimates of
the cost of obtaining these services at arm’s length from a
third-party provider, including an estimated mark-up. As a
result of the analysis, we allocated $15 million to the license,
which represents the amount of consideration that is allocable
pursuant to the relative selling price and is not contingent upon
delivery of additional items under the Healios Agreement. The
license was delivered and recognized as revenue in January
2016.
Other contingent deliverables that were not accounted for at the
inception of the arrangement, and will not be accounted for until
the contingency is resolved, included the potential expansion of
the collaboration to include additional indications, and the
milestones that are not substantive since they are dependent on the
activities of Healios. Further, the Healios arrangement
contemplates our providing manufacturing services for commercial
product supply, the terms of which are not defined and are to be
agreed upon in the future under a separate supply agreement.
Upon the removal of the contingencies associated with each of the
potential contingent deliverables, including the expansion fee,
milestone payments and/or commercial product supply, we will
reevaluate the overall arrangement, including the estimated selling
prices and the allocation of the overall consideration of the
arrangement, with any changes in estimates accounted for on a
prospective basis.
Chugai
In October 2015, we and Chugai Pharmaceutical Co. Ltd.
(“Chugai”) agreed to terminate the License Agreement
(the “Chugai Agreement”), dated February 28, 2015,
between the parties, as a result of an inability to reach an
agreement on the modification of the financial terms of the Chugai
Agreement and on the development strategy, as proposed by Chugai,
of our MultiStem ®
Under the Chugai Agreement, we received a non-refundable, up-front
cash payment of $10 million from Chugai, of which approximately
$2.0 million was temporarily withheld by Japan taxing authorities
and was refunded in September 2015. The $10 million upfront
payment from Chugai was recorded as deferred revenue since we had
concluded that the license grant did not have standalone value (as
defined in ASC 605-25) at the inception of the arrangement. In
connection with the termination and the parties having no further
obligations under the Chugai Agreement, we recognized the $10
million upfront payment from Chugai as revenue in October 2015.
RTI Surgical, Inc.
In 2010, we entered into an agreement with RTI Surgical, Inc.
(“RTI”) to develop and commercialize biologic implants
using our technology for certain orthopedic applications in the
bone graft substitutes market on an exclusive basis. Under the
terms of the agreement, we received a non-refundable license fee in
installments and performed certain services that were concluded in
2012, and we are eligible to receive cash payments upon the
successful achievement of certain commercial milestones. We
evaluated the nature of the events triggering these contingent
payments and concluded that these events are substantive and that
revenue will be recognized in the period in which each underlying
triggering event occurs. No milestone revenue has been recognized
to date. In addition, we began receiving in 2014 tiered
royalties on worldwide commercial sales of implants using our
technologies based on a royalty rate starting in the mid-single
digits and increasing into the mid-teens. Any royalties may be
subject to a reduction if third-party payments for intellectual
property rights are necessary or commercially desirable to permit
the manufacture or sale of the product. |
