| Collaboration Agreements | 5. Collaboration Agreements
2010 Agreement and amendments
In April 2010, the Company entered into a collaboration agreement
focused on cancer metabolism with Celgene Corporation, or Celgene,
a related party through ownership of the Company’s common
stock. The agreement was amended in October 2011 and July 2014, as
described below (the agreement together with the amendments, the
“2010 Agreement”). The goal of the collaboration is to
discover, develop and commercialize disease-altering therapies in
oncology based on the Company’s cancer metabolism research
platform. The Company will initially lead discovery, preclinical
and early clinical development for all cancer metabolism programs
under the collaboration.
The discovery phase of the 2010 Agreement was scheduled to expire
in April 2014, subject to Celgene’s option to extend the
discovery phase for up to an additional two years with additional
funding to the Company. In December 2013, Celgene elected to extend
the term of the initial discovery phase from four years to five
years, to April 2015, in exchange for the payment of a $20.0
million extension fee which was received in May 2014. In December
2014, Celgene elected to exercise its final option to extend the
term of the initial discovery phase one additional year, to April
2016, in exchange for the payment of a $20.0 million extension fee
which was received in May 2015. In April 2016, the Company reached
an agreement with Celgene to defer from April 2016 to June 2016 the
selection process for allocating the rights to certain discovery
programs under the 2010 Agreement.
Pursuant to the 2010 Agreement, the Company is responsible for
nominating development candidates, of which two required
confirmation by the Joint Research Committee (“JRC”)
during the discovery phase. During the year ended December 31,
2012 the Company nominated its first development candidate (AG-221)
and during the year ended December 31, 2013 the Company
nominated its second development candidate (AG-120), both of which
have been confirmed by the JRC pursuant to the 2010 Agreement. For
each development candidate, Celgene elected to progress such
development candidate into preclinical development, which required
the Company to conduct studies to meet the requirements for filing
an Investigational New Drug application (“IND”), or
IND-enabling studies. Subsequently, the Company was required to
file an IND for each of the two development candidates and, upon
the FDA’s acceptance of the INDs, Celgene requested that the
Company conduct an initial phase 1 clinical trial relating to each
of the two development candidates.
Celgene may elect to convert each discovery program for which the
Company has nominated a development candidate into a
co-commercialized licensed program, the attributes of which are
described below. The Company has the right, exercisable during a
specified period following FDA acceptance of the applicable IND, to
convert one of every three co-commercialized licensed programs into
a split licensed program, for which the Company will retain the
United States rights, other attributes of which are further
described below. In June 2014, Celgene exercised its option to an
exclusive global license for the development and commercialization
of the Company’s isocitrate dehydrogenase 2
(“IDH2”) program, AG-221. The Company elected to retain
U.S. rights to its isocitrate dehydrogenase 1 (“IDH1”)
program, AG-120, in January 2014. Celgene exercised its rights
under the 2010 Agreement to this program during the three months
ended March 31, 2015. In addition, Celgene may license certain
discovery programs that the Company does not nominate or the JRC
does not confirm as a development candidate and for which Celgene
will lead and fund global development and commercialization.
The July 2014 amendment of the 2010 Agreement allowed for more
flexibility in the design and conduct of phase 1 clinical trials
and additional nonclinical and/or clinical activities that the
Company agreed to perform at Celgene’s request. This
amendment further modified the mechanism and timing for payments to
be made with respect to such development activities.
Under the 2010 Agreement, the Company is eligible to receive up to
$120.0 million in potential milestone payments payable for each
program selected by Celgene. The potential milestone payments for
each such program are comprised of: (i) a $25.0 million
milestone payment upon achievement of a specified clinical
development milestone event, (ii) up to $70.0 million in
milestone payments upon achievement of specified regulatory
milestone events, and (iii) a $25.0 million milestone payment
upon achievement of a specified commercial milestone event. The
Company is also eligible to receive additional milestone payments
specific to co-commercialized licensed programs and split licensed
programs. In addition, the Company is eligible to receive a
substantive milestone payment of $22.5 million upon achievement of
an early clinical development milestone event for certain
co-commercialized licensed programs. Under the 2010 Agreement, in
connection with the first split licensed program under the
collaboration, the Company’s IDH1 program, AG-120, the
Company is eligible to receive an additional one-time payment of
$25.0 million upon the dosing of the last patient in a
Company-sponsored phase 2 clinical trial. In January 2016, the
Company determined that a substantive clinical development
milestone related to the AG-221 program was achieved and received a
milestone payment of $25.0 million.
In addition to the milestone payments described above, for each
co-commercialized licensed program, the Company will be reimbursed
for all eligible development costs of the related phase 1 multiple
ascending dose clinical trial. The initial costs will be reimbursed
as a milestone payment equal to the greater of $5.0 million or
eligible development costs incurred by the Company upon the earlier
of the determination of the maximum tolerated dose or
Celgene’s election to license the program. Subsequent to the
initial milestone payment, development costs will be reimbursed on
a quarterly basis. In addition to the milestone payments described
above, for each split licensed program, under the 2010 Agreement
the Company is eligible for reimbursement of the costs of
disease-specific expansion cohort(s) that support the initiation of
a subsequent pivotal clinical trial. Costs will be reimbursed as a
milestone payment equal to the lesser of $10.0 million or fifty
percent of the eligible costs for the disease-specific expansion
cohort(s) upon the first patient dosed under the pivotal clinical
trial. Under the 2010 Agreement, the maximum amount for the
milestone payment will be $10.0 million for each split licensed
program regardless of the number of disease-specific expansion
cohorts and pivotal trials undertaken for each split licensed
program.
Under the 2010 Agreement, the Company may also receive royalties at
tiered, low- to mid-teen percentage rates on net sales and has the
option to participate in the development and commercialization of
certain products in the United States. The royalty payments will be
recognized as revenue in the period in which they are earned. To
date, the Company has not earned any royalty payments under the
2010 Agreement.
Unless terminated earlier by either party, the term of the 2010
Agreement will continue until the expiration of the last-to-expire
of all royalty terms with respect to all royalty-bearing products.
Celgene may terminate this agreement for convenience in its
entirety or with respect to one or more programs upon ninety days
written notice to the Company. If either party is in material
breach and fails to cure such breach within the specified cure
period, the other party may terminate the 2010 Agreement in its
entirety or with respect to one or more programs; however, if such
breach relates solely to a specific program, the non-breaching
party may only terminate the agreement with respect to such
program. Either the Company or Celgene may terminate the agreement
in the event of specified insolvency events involving the other
party.
AG-881 Agreements
On April 27, 2015, the Company entered into a joint worldwide
development and profit share collaboration and license agreement
with Celgene and the Company’s wholly owned subsidiary, Agios
International Sarl, entered into a collaboration and license
agreement with Celgene International II Sarl (collectively, the
“AG-881 Agreements”). The AG-881 Agreements establish a
worldwide collaboration focused on the development and
commercialization of AG-881 products. Under the terms of the AG-881
Agreements, the Company received an initial payment of $10.0
million in May 2015 and is eligible to receive milestone-based
payments described below. The Company and Celgene will equally
split all worldwide development costs, subject to specified
exceptions, as well as any profits from any net sales of, or
commercialization losses related to, licensed AG-881 products.
The Company is eligible to receive up to $70.0 million in potential
milestone payments related to AG-881 under the AG-881 Agreements.
The potential milestone payments are comprised of: (i) a $15.0
million milestone payment for filing of first NDA in a major market
and (ii) up to $55.0 million in milestone payments upon
achievement of specified regulatory milestone events. The Company
may also receive royalties at tiered, low- to mid-teen percentage
rates on net sales if it elects to not participate in the
development and commercialization of AG-881.
Accounting analysis and revenue recognition –
collaboration revenue
Pre-July 2014
Prior to the July 2014 amendment of the 2010 Agreement, the Company
concluded that none of the identified deliverables had stand-alone
value and, therefore, accounted for the deliverables as a single
unit of accounting. The Company further concluded it was unable to
estimate the fair value of the undelivered items within the 2010
Agreement. All considerations were recognized on a straight-line
basis through the period over which the Company expected to fulfill
its performance obligations (the performance period), which was
initially determined to be six years.
July 2014 – April 2015
The July 2014 amendment was determined to be a material
modification of the 2010 Agreement due to a change in the total
potential consideration that was more than insignificant and
changes to certain of the deliverables in the arrangement. Upon
concluding the arrangement had been materially modified in July
2014, the Company identified the remaining deliverables under the
arrangement and determined its best estimates of selling price for
the undelivered elements as of the modification date as vendor
specific objective evidence and third party evidence were not
available. The Company then allocated the total arrangement
consideration, which included the remaining deferred revenue
balance at the modification date and other consideration that was
deemed to be determinable at the modification date, to each unit of
accounting based on its best estimate of selling price. The
difference between the total arrangement consideration and the best
estimate of selling price of the undelivered items was recognized
as revenue at the modification date.
The undelivered items from the July 2014 modification, the related
best estimate of selling price, the method of recognizing the
allocated consideration, and the revenue recognized related to each
unit of account for the three months ended March 31, 2015 was
as follows:
• License for the split licensed
program – AG-120: The Company developed the best estimate of
selling price of the license by probability weighting multiple cash
flow scenarios using the income approach. There were significant
judgments and estimates inherent in the determination of the best
estimate of selling price of this unit of accounting. Should
different reasonable assumptions be utilized, the best estimate of
selling price and the associated revenue recognized would be
different. The Company allocated $21.2 million to the license which
was delivered in January 2015. During the three months ended
March 31, 2015, the Company recognized the non-contingent
consideration allocated to this unit of accounting of $15.8 million
as collaboration revenue.
•
Development services for five separate on-going phase
1 clinical trials (each of which is a separate unit of accounting):
The Company developed the best estimate of selling price of the
on-going phase 1 clinical trial development services of $50.8
million for all five studies using management’s best estimate
of the cost of obtaining these services at arm’s length from
a third-party provider, as well as internal full time equivalent
costs to support the development services. The amount allocated to
these units of accounting is recognized as revenue on a
proportional performance basis as services are provided. As
committed to on the date of the July 2014 amendment, the Company
has completed services for three of the on-going phase 1 clinical
trials and expected services for the remaining two on-going phase 1
clinical trials are expected to be performed through the second
quarter of 2016. As additional consideration is earned and
allocated to the three fully delivered units of accounting it is
recognized immediately. During the three months ended
March 31, 2015 the Company recognized the non-contingent
consideration allocated to these units of accounting of $14.3
million as collaboration revenue.
• On-going research and development:
The Company developed the best estimate of selling price of the
research and development services of $13.6 million using
management’s best estimate of the cost of obtaining these
services at arm’s length from a third-party provider. The
amount allocated to this unit of accounting was recognized as
revenue ratably over the performance period. During the three
months ended March 31, 2015 the Company recognized the
non-contingent consideration allocated to this unit of accounting
of $4.0 million as collaboration revenue.
• Committee participation: The Company
developed the best estimate of selling price of the committee
participation services of $0.2 million using management’s
best estimate of the anticipated participation hours multiplied by
a market rate for comparable participants. The amount allocated to
this unit of accounting was recognized as revenue ratably over the
performance period. During the three months ended March 31,
2015 the Company recognized the non-contingent consideration
allocated to this unit of accounting of $0.1 million as
collaboration revenue.
In December 2014, Celgene elected to extend the term of the
discovery period over which the Company was providing on-going
research and development services from five to six years, to April
2016. As a result of the extension, the Company received a $20.0
million extension payment from Celgene in May 2015. The Company
evaluated the extension and concluded that upon exercise it is
obligated to provide its committee participation and research and
development services for a period of one year from April 2015
through April 2016, and as such revenue should be recognized
ratably over the performance period of April 2015 to April 2016 as
services are rendered. The Company did not recognize any revenues
related to the extension during the three months ended
March 31, 2015.
Beginning in the first quarter of 2015, the Company and Celgene
agreed to plans to advance AG-221 into later stage development
studies. Pursuant to the terms of the 2010 Agreement, the parties
agreed to transition primary development responsibilities for
AG-221 to Celgene for later stage development at which point
Celgene became the lead development party for AG-221. During the
transition, the Company continued to manage certain arrangements
with third-party service providers whose contracts were assigned to
Celgene. The Company determined it is no longer the primary obligor
of these arrangements and, when considering the other factors
included within ASC 605-45, Revenue Recognition –
Principal Agent Considerations
During the period January 1, 2015 through April 27, 2015,
the execution date of the AG-881 Agreements, the Company performed
planning services on behalf of Celgene related to an expanded phase
1 clinical trial of AG-221. The Company determined the work
represented a substantive option under the 2010 Agreement. The
Company also determined it is not the primary obligor of the
underlying third-party contracts and determined that reimbursements
of amounts incurred under the contracts should be reported on a net
basis in research and development expense. Reimbursements of
services performed directly by the Company are presented on a gross
basis as collaboration revenue. During the three months ended
March 31, 2015, the Company recognized $0.1 million in revenue
and recorded $0.6 million as a reduction in research and
development costs related to these services.
Post-April 2015
The AG-881 Agreements, executed on April 27, 2015, were
determined to be a modification of the 2010 Agreement due to the
AG-881 Agreements including a compound originally identified within
the 2010 Agreement. As a result of the modification the Company
identified the remaining deliverables under the 2010 Agreement and
the AG-881 Agreements with Celgene and determined the best estimate
of selling price for the undelivered elements as of the
modification date. The Company then allocated the total arrangement
consideration, which included the remaining deferred revenue
balance at the modification date, the initial payment of $10.0
million under the AG-881 Agreements and other consideration under
the 2010 Agreement and the AG-881 Agreements that was deemed to be
determinable at the modification date, to each unit of accounting
relative to its best estimate of selling price. The undelivered
items, which are each considered by the Company to have stand-alone
value and therefore are separate units of accounting, the related
best estimate of selling price at April 27, 2015, and the
method of recognizing the allocated consideration, for each unit of
accounting are as follows:
•
Licenses for the AG-881 program: The Company developed
the best estimate of selling price of the U.S. license and the rest
of world license by probability weighting multiple cash flow
scenarios using the income approach. Management estimates within
the models include the expected, probability-weighted net profits
from estimated future sales, an estimate of the direct cost
incurred to generate future cash flows, a discount rate and other
business forecast factors. There are significant judgments and
estimates inherent in the determination of the best estimate of
selling price of these units of accounting. These judgments and
estimates include assumptions regarding future operating
performance, the timelines of the clinical trials and regulatory
approvals and the estimated patient populations. Should different
reasonable assumptions be utilized, the best estimate of selling
price and the associated revenue recognized would be different. The
Company developed a best estimate of selling price of the licenses
of $33.2 million. The Company recognizes the non-contingent
consideration allocated to these units of accounting upon delivery
of the licenses to Celgene which occurred immediately upon the
execution of the AG-881 Agreements. During the three months ended
March 31, 2016, the Company recognized the non-contingent
consideration allocated to this unit of accounting of $0.9 million
as collaboration revenue.
• Four separate on-going development
services for which the Company determined it is acting as the
principal of all development activities (each of which is a
separate unit of accounting): The Company developed the best
estimate of selling price for all four of the on-going development
services of $12.7 million using management’s best estimate of
the cost of obtaining these services at arm’s length from a
third-party provider, as well as internal full time equivalent
costs to support the development services. The estimated costs were
determined to represent management’s best estimate of the
price these services could be sold for separately. The amount
allocated to these units of accounting is being recognized as
revenue on a proportional performance basis as services are
provided. The Company expects the services to be performed through
2017. When considering the factors included within ASC 605-45, the
Company determined it is the principal of all development
activities and is required to present reimbursement of amounts
incurred for these services as revenue. During the three months
ended March 31, 2016, the Company recognized the
non-contingent consideration allocated to these units of accounting
of $1.0 million as collaboration revenue.
• Four separate on-going development
services for which the Company determined it is not acting as the
principal of all development activities (each of which is a
separate unit of accounting): The Company developed the best
estimate of selling price for all four of the on-going development
services of $97.3 million using management’s best estimate of
the cost of obtaining these services at arm’s length from a
third-party provider, as well as internal full time equivalent
costs to support the development services. The estimated costs were
determined to represent management’s best estimate of the
price these services could be sold for separately. The amount
allocated to these units of accounting is being recognized on a
proportional performance basis as services are provided. The
Company expects the services to be performed through 2017. When
considering the factors included within ASC 605-45, the Company
determined it is not the principal of all development activities
and is required to present reimbursement of amounts incurred for
these services on a net basis as a reduction of research and
development expenses. During the three months ended March 31,
2016, the Company recognized the non-contingent consideration
allocated to these units of accounting of $4.8 million as a
reduction of research and development costs related to these
services.
• On-going research and development:
The Company developed the best estimate of selling price of the
research and development services of $30.5 million using
management’s best estimate of the cost of obtaining these
services at arm’s length from a third-party provider. The
amount allocated to this unit of accounting is being recognized as
revenue ratably over the performance period through April 2016. For
the three months ended March 31, 2016, the Company recognized
the non-contingent consideration allocated to this unit of
accounting of $3.6 million as collaboration revenue.
• Committee participations under the
2010 Agreement and AG-881 Agreements: The Company developed the
best estimate of selling price of the committee participation
services of $0.8 million using management’s best estimate of
the anticipated participation hours multiplied by a market rate for
comparable participants. The amount allocated to this unit of
accounting is being recognized as revenue ratably over the
performance period, through the fourth quarter of 2016. During the
three months ended March 31, 2016, the Company recognized the
non-contingent consideration allocated to this unit of accounting
of $0.1 million as collaboration revenue.
The total estimated arrangement consideration, as well as the
expected timing of revenue recognition, is adjusted based on
changes in estimated arrangement consideration as a result of
changes in estimate for on-going development services. The
allocable consideration will increase as the Company performs
certain services for which it is eligible to receive additional
consideration. These amounts will be recognized on a cumulative
catch-up basis for any in-process units of accounting or
immediately for any fully delivered units of accounting. The
estimated arrangement consideration may decrease if the Company
receives less reimbursement than initially estimated.
As a result of Celgene assuming the primary development
responsibilities for AG-221 in the first quarter of 2015, the
Company recorded $0.5 million of third party costs incurred on
behalf of Celgene during the three months ended March 31, 2016
as a reduction of research and development costs.
Beginning in the third quarter of 2015, the Company initiated a
phase 1b frontline combination clinical trial of AG-221 and AG-120
for which it will receive reimbursement from Celgene. The new
combination trial was determined to be a substantive option under
the 2010 Agreement. When considering the factors included within
ASC 605-45, management determined that the Company is the principal
for the efforts related to the AG-221 arm of the combination trial
but is acting in the role of an agent for the efforts related to
the AG-120 arm of the combination trial. Accordingly, consideration
earned related to the AG-221 arm of the combination trial is
recognized as collaboration revenue in the period earned and
consideration earned related to the AG-120 arm of the combination
trial is reported as a reduction of research and development
expense in the period earned. During the three months ended
March 31, 2016, the Company recognized $0.7 million in
collaboration revenue and recorded $0.2 million as a reduction
of research and development costs related to the combination
trial.
During the three months ended March 31, 2016, the Company
incurred an additional $2.8 million and $0.5 million in
reimbursable development expenses related to the AG-120 and AG-881
programs, respectively, that was not contemplated as of the April
2015 modification. The amounts are recorded as a reduction of
research and development costs of each respective program.
During the three months ended March 31, 2016 and 2015, the
Company recognized a total of $6.3 million and $34.2 million,
respectively, as collaboration revenue and recognized $8.8 million
and $4.4 million, respectively, as a reduction of research and
development expenses.
In determining the current and noncurrent classification of
deferred revenue, the Company considers the total consideration
expected to be earned in the next twelve months for services to be
performed under certain units of accounting and the estimated
proportional performance and timing of delivery of certain
deliverables to determine the deferred revenue balance that will
remain twelve months from the balance sheet date. As of
March 31, 2016 and December 31, 2015, the Company has
recorded a collaboration receivable of $6.8 million and $8.2
million, respectively, related to reimbursable development
costs.
Accounting analysis and revenue recognition – milestone
revenue
The Company concluded that certain of the clinical development and
regulatory milestone payments that may be received under the 2010
Agreement and the AG-881 Agreements, if the Company is involved in
future product development and commercialization, are substantive.
Factors considered in the evaluation of the milestones included the
degree of risk associated with performance of the milestone, the
level of effort and investment required, whether the milestone
consideration was reasonable relative to the deliverables and
whether the milestone was earned at least in part based on the
Company’s performance. Revenue from substantive milestones,
if they are nonrefundable, are recognized as revenue upon
successful accomplishment of the milestones. Clinical and
regulatory milestones are deemed non-substantive if they are based
solely on the collaborator’s performance. Non-substantive
milestones will be recognized when achieved to the extent the
Company has no remaining performance obligations under the
arrangement. Milestone payments earned upon achievement of
commercial milestone events will be recognized when earned.
In January 2016, the Company determined that a substantive clinical
development milestone related to the AG-221 program was achieved
and received a milestone payment of $25.0 million, which was
recognized as revenue during the three months ended March 31,
2016. |
