Collaborations and Contingencies | 3 Months Ended |
Mar. 31, 2014 |
Collaborations and Contingencies | ' |
Collaborations and Contingencies | ' |
6. Collaborations and Contingencies |
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Collaboration Arrangements |
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From time to time, the Company enters into collaborative arrangements for its research and development and manufacturing activities. Each collaboration is unique in nature and the Company’s significant agreements are discussed below. |
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Bayer |
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In August 2010, the Company entered into a license agreement with Bayer Consumer Care AG that provided Bayer with an exclusive license to develop, manufacture and commercialize ATX-101 outside of the United States and Canada. In connection with the License Agreement the Company also entered into a related Services, Research, Development and Collaboration Agreement with Bayer’s affiliate, Intendis GmbH. These agreements were referred to jointly as the collaboration arrangement with Bayer, and Bayer Consumer Care AG and Intendis GmbH are referred to jointly as Bayer. In connection with the entry into the collaboration arrangement, Bayer paid the Company an upfront license fee of approximately $21,319,000 and approximately $22,247,000 for research and development to fund a portion of Bayer’s European Phase III clinical trials. The Company was eligible to receive up to approximately $297,000,000 for certain development, manufacturing, regulatory and commercialization contingent payments upon the achievement by Bayer of specified events under our collaborative arrangement, as well as escalating royalties from the mid- to high-teens on Bayer’s net product sales of ATX-101. The first contingent event-based payment of $15,800,000 was received on May 31, 2012, triggered by the completion of Bayer’s European Phase III clinical trials for ATX-101, the receipt of two consecutive validated manufacturing lots and Bayer’s subsequent decision to pursue continued development and seek regulatory approval of ATX-101. This amount was recorded as revenue upon receipt as all revenue recognition criteria had been met. At this time, Bayer also elected to pursue additional research and development activities related to ATX-101, which are distinct from the original development activities, and subsequently funded $17,400,000 for these additional Bayer development activities. This payment was recorded as restricted cash and deferred development funds and was recognized as an offset to development expense as the restricted cash was utilized to fund Bayer’s development activities. As of March 2014, the Company acquired rights to ATX-101 outside of the United States and Canada from Bayer and no longer expects future revenues from Bayer. |
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Amounts to fund collaboration efforts of $22,247,000 and $17,400,000 were recorded as restricted cash and deferred development funds and were recognized as an offset to research and development expenses as the restricted cash was utilized to fund development activities. Amounts recognized as offsets to research and development expenses were $2,391,000 and $3,095,000 for the three months ended March 31, 2014 and 2013, respectively. Deferred development funds remaining at the time that the Company purchased the rights to ATX-101 outside of the United States and Canada in March 2014 of $967,000 were no longer considered restricted cash and were deducted from the one-time charge to in-process research and development, reducing the in-process research and development expense recorded in March 2014. The remaining current portion of restricted cash at March 31, 2014 represents amounts due under the collaboration agreement which have not yet been paid. |
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In March 2014, the Company entered into an agreement whereby it acquired the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer. Under the new agreement, KYTHERA Holdings Ltd., a wholly-owned Bermuda subsidiary of KYTHERA Biopharmaceuticals, Inc., purchased these rights. As a result of this agreement, Bayer was issued 698,103 shares of the Company’s common stock valued at $33,000,000 based on an average closing stock price of $47.27 over a period set forth in the agreement. Additionally, the Company issued an unsecured promissory note for $51,000,000, which is subordinated to amounts owed under our existing credit facility, bears interest at 5% per annum and is payable no later than 2024. Additionally, Bayer is eligible to receive up to $123,800,000 upon the achievement of certain long-term sales milestone payments on annual sales of ATX-101 outside of the United States and Canada. As of March 31, 2014, the achievement of the related sales levels is not considered to be probable. |
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The acquisition date costs allocated to the acquired rights consists of the following: |
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Fair value of common stock issued | | $ | 31,429,000 | |
Fair value of note payable to Bayer | | 21,600,000 | |
Other | | (272,000 | ) |
Total in-process research and development | | $ | 52,757,000 | |
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The fair value of the common stock issued is based on the closing price of our common stock on the acquisition date of $45.02 per share. As the note payable to Bayer includes an interest rate which is below the borrowing rate currently available to the Company, it was recorded at its fair value of $21,600,000, which is the present value of the future cash flows assuming a borrowing rate of 15%, which approximates market. Other represents the net impact of the reduction in costs resulting from the residual restricted cash of $967,000 that reverted to the Company, partially offset by $695,000 of transaction costs related to the acquisition. |
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As the acquired rights to ATX-101, represent acquired-in-process research and development, with no alternative future uses, the costs allocated to such rights, $52,757,000, were immediately expensed upon acquisition and reflected as in-process research and development in the condensed consolidated statement of operations. |
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See Note 4, “Notes Payable” for a more detailed discussion of the promissory note. |
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Los Angeles Biomedical Research Institute |
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In August 2005, the Company entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which it obtained a worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to the use of the active ingredient in ATX-101. The exclusive license requires the Company to pay LA Biomed a milestone payment of $500,000 upon receipt of marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to a total of $5,000,000, 50% of which the Company may elect to satisfy through the issuance of capital stock. Additionally, upon commercialization of a licensed product or service, the Company is obligated to pay low- to mid- single digit royalties on net product sales of ATX-101. In August 2010, due to the receipt of the upfront license fee from Bayer, the Company incurred non-royalty sublicense fees of $1,950,000, which was deferred and was recognized as sublicense fee expense on a straight-line basis over the same period as the license income. During 2010, the Company made payments of cash and stock to LA Biomed totaling $390,000 related to the non-royalty sublicense fee incurred. The remainder of $1,560,000 was paid upon the Company’s IPO in 50% cash and 50% stock. |
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Additionally, due to the receipt of the contingent event-based payment of $15,800,000 payable from Bayer on May 31, 2012, the Company incurred an additional non-royalty sublicense fee of $1,580,000 payable to LA Biomed, which was paid in 50% cash and 50% stock. |
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Contingencies |
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From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company is not currently subject to any such matters where there is at least a reasonable possibility that a material loss may have been incurred. |