| Collaborative Arrangements and Revenue Recognition | 6. Collaborative Arrangements and Revenue Recognition
Healios
In January 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 stem cell 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 may exercise its
option to expand the collaboration prior to certain milestone dates
that are expected to occur within the next several years.
Under the terms of the Healios Agreement, we received a
nonrefundable, up-front
For the ischemic stroke indication, we may also receive additional
success-based development, regulatory approval and sales
milestones, which are non-refundable non-creditable
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 a cash payment of $10 million at
the time of exercise and 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 certain dates in the
future.
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 determined that our obligations under the
Healios Agreement represent multiple deliverables, and 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)
Given Healios’ ability to sublicense under the Healios
Agreement and its ability to conduct the ongoing development
efforts at the inception of the arrangement, we concluded that the
license had stand-alone value and would be treated as a separate
unit of accounting, noting also that there was no general right of
return associated with the license. Furthermore, the preclinical
and clinical manufacturing services and certain near-term
regulatory advisory services to be provided to Healios under the
Healios Agreement were also determined to have stand-alone value
and considered separate units of accounting at the inception of the
arrangement.
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 the 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.
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 commercial supply
agreement. Upon the removal of these contingencies or modifications
to the deliverables under the arrangement, we will reevaluate the
allocation of revenue to the remaining undelivered items, including
the estimated selling prices and the overall consideration of the
arrangement, with any changes in estimates accounted for on a
prospective basis.
In January 2017, we signed a clinical trial supply agreement for
the manufacturing of investigational product for Healios for its
Japan clinical study, the terms of which were consistent with the
license agreement. The clinical trial supply agreement was amended
in July 2017 and clarifies the operational elements, terms and
cost-sharing arrangement associated with our supply of clinical
material. The manufacturing proceeds from Healios that relate
specifically to the cost-sharing arrangement may result in a
reduction in the proceeds we receive from Healios upon the
achievement of two future milestones, and an increase to a
late-stage commercial milestone. Of the aggregate $225 million
of potential proceeds from success-based development, regulatory
approval and sales milestones, the maximum decrease related to
current cost-sharing proceeds amounts to less than 6% of the
aggregate milestones, and the maximum increase amounts to less than
3%. The cost-sharing proceeds received are not recognized as
revenue until the related milestone is achieved, at which time, the
culmination of the earnings process will be complete. Until that
time, the cost-sharing proceeds, upon receipt, will be reflected on
the balance sheet. We expect to receive the first cost-sharing
proceeds from Healios in the fourth quarter of 2017.
In September 2017, we entered into a services agreement with
Healios, in which Healios provides financial support to establish a
contract manufacturer in Japan to produce product for Healios. The
arrangement includes a potential decrease to the amount we may
receive from a future milestone if Healios is unable to obtain
product from the contract manufacturer within a specified period of
time. We expect the services under this arrangement to commence in
the fourth quarter of 2017.
Furthermore, in September 2017, we amended the Healios Agreement to
confer to Healios a limited license to manufacture MultiStem in the
event that we are acquired by a third-party.
Other
In January 2017, we received an option fee related to an agreement
that was entered into in December 2016 with a global leader in the
animal health business segment to evaluate our cell therapy
technology for application in an animal health area. Under the
terms of the agreement, we received the payment in exchange for an
exclusive period to evaluate our cell therapy technology with an
option to negotiate for a license for the development and
commercialization of the technology for the animal health area. The
option fee is recorded as deferred revenue at September 30,
2017 since the performance obligation of granting a license has not
occurred. If the option is exercised, we will include the option
fee in the overall consideration for the license arrangement, to be
evaluated at that time. If the option is not exercised, the option
fee will be recognized as revenue at that time since there will be
no more performance obligations. The evaluation of our technology
for this application is currently ongoing.
Under our agreement with RTI Surgical, Inc. to develop and
commercialize biologic implants using our technology for certain
orthopedic applications in the bone graft substitutes market, we
are eligible to receive cash payments upon the successful
achievement of certain commercial milestones. The first commercial
milestone was achieved in the first quarter of 2017, with a payment
in the amount of $1.0 million, which we received in April
2017. In addition, we continue to receive tiered royalties on
worldwide commercial sales of implants using our technologies based
on a royalty rate starting in the mid-single mid-teens. |
