| Significant Agreements | 8. Significant Agreements
Juno Therapeutics Collaboration Agreement
Summary of Agreement
In May 2015, the Company entered into a collaboration and license agreement (the “Collaboration Agreement”) with Juno Therapeutics and in May 2018 the Company and Juno Therapeutics entered into an amended and restated collaboration and license agreement (the Collaboration Agreement, as amended and restated, the “Amended Collaboration Agreement”). The collaboration is focused on the research and development of engineered T cells with chimeric antigen receptors (“CARs”) and T cell receptors (“TCRs”) that have been genetically modified to recognize and kill other cells. Pursuant to the Collaboration Agreement, the parties were pursuing the research and development of CAR and TCR engineered T cell products utilizing the Company’s genome editing technologies with Juno Therapeutics’ CAR and TCR technologies across three research areas, which was increased to four research areas under the Amended Collaboration Agreement.
The collaborative program of research to be undertaken by the parties pursuant to the Amended Collaboration Agreement will be conducted in accordance with a mutually agreed upon research plan which outlines each party’s research and development responsibilities across the four research areas. The Company’s research and development responsibilities under the research plan are related to generating genome editing reagents that modify gene targets selected by Juno Therapeutics. Juno Therapeutics is responsible for evaluating and selecting for further research and development CAR and TCR engineered T cell products modified with the Company’s genome editing reagents. Except with respect to the Company’s obligations under the mutually agreed upon research plan, Juno Therapeutics has sole responsibility, at its own cost, for the worldwide research, development, manufacturing and commercialization of products within each of the four research areas for the diagnosis, treatment or prevention of any cancer in humans through the use of engineered T cells, excluding the diagnosis, treatment or prevention of medullary cystic kidney disease 1 (the “Exclusive Field”).
The initial term of the research program commenced on May 26, 2015 and continues for five years ending on May 26, 2020 (the “Initial Research Program Term”). Juno Therapeutics may extend the Initial Research Program Term for up to two additional one year periods upon the payment of extension fees for each one year extension period, assuming the Company has agreed to the extension request(s) (together, the initial term and any extension period(s) are referred to as the “Research Program Term”). The Research Program Term and the optional extensions were not changed by the Amended Collaboration Agreement.
Under the terms of the Collaboration Agreement, the Company granted to Juno Therapeutics during the Research Program Term a nonexclusive, worldwide, royalty‑free, non-sublicensable license under certain of the intellectual property controlled by the Company solely for the purpose of conducting the following activities required under the specified research under the Collaboration Agreement: (i) conduct activities assigned to Juno Therapeutics under the research plan, (ii) conduct activities assigned to the Company under the research plan that the Company fails or refuses to conduct in a timely manner, (iii) research, evaluate and conduct preclinical testing and development of certain engineered T cells relating to the three research areas that were originally the subject of the arrangement and (iv) evaluate the data developed in the conduct of activities under the research plan. Pursuant to the terms of the Amended Collaboration Agreement, the license rights granted to Juno Therapeutics were expanded to include, during the Research Program Term, a nonexclusive, worldwide, royalty‑free, non-sublicensable license under certain of the intellectual property controlled by the Company to: (i) research, evaluate and conduct preclinical testing and development of certain engineered T cells relating to the fourth research area and (ii) research, develop and use certain research tools (together, the initial research license granted per the terms of the Collaboration Agreement and the incremental research license granted per the terms of the Amended Collaboration Agreement are referred to as the “Research License”).
As it relates to two of the three research areas that were originally the subject of the arrangement, under the terms of the Collaboration Agreement, the Company granted to Juno Therapeutics an exclusive, milestone and royalty‑bearing, sublicensable license under certain of the intellectual property controlled by the Company to research, develop, make and have made, use, offer for sale, sell, import and export selected CAR and TCR engineered T cell products in the Exclusive Field on a worldwide basis, specifically as it relates to certain targets selected by Juno Therapeutics pursuant to the research program. Furthermore, as it relates to the same two research areas, under the terms of the Collaboration Agreement, the Company granted to Juno Therapeutics a non‑exclusive, milestone and royalty‑bearing, sublicensable license under certain of the intellectual property controlled by the Company to use genome editing reagents generated under the research program that are used in the creation of certain CAR or TCR engineered T cell products on which Juno Therapeutics has filed an investigational new drug (“IND”) application in the Exclusive Field for the treatment or prevention of a cancer in humans to research, develop, make and have made, use, offer for sale, sell, import and export those CAR or TCR engineered T cell products in all fields outside of the Exclusive Field (the “Non‑Exclusive Field”) on a worldwide basis, specifically as it relates to certain targets selected by Juno Therapeutics pursuant to the research program (together, the license in the Exclusive Field and the license in the Non‑Exclusive Field are referred to as the “Development and Commercialization License” for each particular research area). Additionally, as it relates to the third research area that was originally the subject of the arrangement, under the terms of the Collaboration Agreement, the Company granted to Juno Therapeutics a milestone and royalty‑bearing, sublicensable license under certain of the intellectual property controlled by the Company to research, develop, make and have made, use, offer for sale, sell, import or export selected CAR and TCR engineered T cell products that utilize the genome editing reagents generated under the research program associated with those CAR and TCR engineered T cell products in the Exclusive Field on a worldwide basis, specifically as it relates to certain products selected by Juno Therapeutics pursuant to the research program. The license associated with the third research area is exclusive as it relates to CAR or TCR engineered T cell products directed to certain targets as selected by Juno Therapeutics, but is otherwise non‑exclusive (referred to as the “Development and Commercialization License” for the third research area). Pursuant to the terms of the Amended Collaboration Agreement, as it relates to the fourth area of research that was added to the collaboration, the Company granted to Juno Therapeutics a milestone and royalty‑bearing, sublicensable license under certain of the intellectual property controlled by the Company to research, develop, make and have made, use, offer for sale, sell, import or export selected CAR and TCR engineered T cell products that utilize the genome editing reagents generated under the research program associated with those CAR and TCR engineered T cell products in the Exclusive Field on a worldwide basis, specifically as it relates to certain products selected by Juno Therapeutics pursuant to the research program. The license associated with the fourth research area is exclusive as it relates to CAR or TCR engineered T cell products directed to certain targets as selected by Juno Therapeutics, but is otherwise non‑exclusive (referred to as the “Development and Commercialization License” for the fourth research area).
The Amended Collaboration Agreement is being managed on an overall basis by a project leader from each of the Company and Juno Therapeutics. The project leaders serve as the contact point between the parties with respect to the research program and are primarily responsible for facilitating the flow of information, interaction, and collaboration between the parties. In addition, the research and development activities under the Amended Collaboration Agreement during the Research Program Term are governed by a joint research committee (“JRC”) formed by an equal number of representatives from the Company and Juno Therapeutics. The JRC oversees, reviews and recommends direction of the research program. Among other responsibilities, the JRC monitors and reports research progress and ensures open and frequent exchange between the parties regarding research program activities. The Amended Collaboration Agreement did not alter the governance provisions in the Collaboration Agreement.
Under the terms of the Collaboration Agreement, the Company received a $25.0 million up‑front, non‑refundable, non‑creditable cash payment. In connection with the entry into the Amended Collaboration Agreement, the Company received an additional $5.0 million up-front, non-refundable, non-creditable cash payment. Moreover, the Company became entitled to receive two $2.5 million milestones related to technical progress in one of the research areas upon the execution of the Amended Collaboration Agreement. In addition, Juno Therapeutics is obligated to pay to the Company an aggregate of up to $22.0 million in research and development funding over the Initial Research Program Term across the four research areas consisting primarily of funding for up to a specified maximum number of full time equivalents personnel each year over the Initial Research Program Term across four research areas. Consistent with the terms of the Collaboration Agreement, under the terms of the Amended Collaboration Agreement, there is no incremental compensation due to the Company with respect to the Development and Commercialization License granted to Juno Therapeutics associated with the first target or product, as applicable, designated by Juno Therapeutics within each of the four research areas. However, for two of the three research areas that were originally the subject of the arrangement, Juno Therapeutics continues to have the option to purchase up to three additional Development and Commercialization Licenses associated with other gene targets for an additional fee of approximately $2.5 million per target. In addition, Juno Therapeutics is required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, for the first product to achieve the associated event in each of the three research areas that were originally the subject of the arrangement, the Company is eligible to receive up to $77.5 million in development milestone payments and up to $80.0 million in regulatory milestone payments, while the Company is eligible to receive up to $80.0 million in development milestone payments and up to $80.0 million in regulatory milestone payments for the first product to achieve the associated event in the fourth area of research that was added to the collaboration. In addition, the Company is eligible to receive additional development and regulatory milestone payments for subsequent products developed within each of the four research areas. Moreover, the Company is eligible for up to $75.0 million in commercial milestone payments associated with aggregate sales of all products within each of the four research areas. Development milestone payments are generally triggered upon the achievement of certain specified development criteria or upon initiation of a defined phase of clinical research for a product candidate. Regulatory milestone payments are triggered upon approval to market a product candidate by the United States Food and Drug Administration (“FDA”) or other global regulatory authorities. Commercial milestone payments are triggered when an approved pharmaceutical product reaches certain defined levels of net sales by the licensee. The milestone payments and related triggering events associated with the three research areas that were originally the subject of the Collaboration Agreement were not modified in the Amended Collaboration Agreement.
In addition, to the extent any of the product candidates covered by the licenses conveyed to Juno Therapeutics under the Amended Collaboration Agreement are commercialized, the Company would be entitled to receive tiered royalty payments of low double digits based on a percentage of net sales. Similar to the milestones, pursuant to the Amended Collaboration Agreement, the Company is eligible to receive an independent royalty stream associated with the fourth area of research that was added to the collaboration. Royalty payments are subject to certain reductions, including for any royalty payments required to be made by Juno Therapeutics related to a third‑party’s intellectual property rights, subject to an aggregate minimum floor. Royalties are due on a licensed product‑by‑licensed product and country‑by‑country basis from the date of the first commercial sale of each product in a country until the later of: (i) the tenth anniversary of the first commercial sale of such licensed product in such country and (ii) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such licensed product in such country. The Company achieved $2.5 million development milestones under the Collaboration Agreement resulting from technical progress in a research program in each of May 2016 and July 2017. The Company achieved two additional $2.5 million development milestones under the Amended Collaboration Agreement resulting from technical progress in a research program in May 2018. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, no additional milestone or royalty payments may ever be received from Juno Therapeutics.
Unless earlier terminated, the Amended Collaboration Agreement will continue in full force and effect, on a licensed product‑by‑licensed product and country‑by‑country basis until the date no further payments are due to the Company from Juno Therapeutics. Either party may terminate the Amended Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Either party may terminate the Amended Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. Juno Therapeutics may terminate the Amended Collaboration Agreement for convenience upon not less than six months prior written notice to the Company. The Company may terminate the Amended Collaboration Agreement in the event that Juno Therapeutics brings, assumes, or participates in, or knowingly, willfully or recklessly assists in bringing a dispute or challenge against the Company related to its intellectual property.
Termination of the Amended Collaboration Agreement for any reason does not release either party from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination nor preclude either party from pursuing any rights and remedies it may have under the agreement or at law or in equity with respect to any breach of the Amended Collaboration Agreement. If Juno Therapeutics terminates the Amended Collaboration Agreement as a result of the Company’s uncured material breach or default, then: (i) the licenses and rights conveyed to Juno Therapeutics will continue as set forth in the agreement, (ii) Juno Therapeutics’ obligations related to milestones and royalties will continue as set forth in the agreement and (iii) Juno Therapeutics’ rights to prosecute, maintain and enforce certain intellectual property rights will continue as set forth in the agreement. If Juno Therapeutics terminates the Amended Collaboration Agreement for convenience or if the Company terminates the Amended Collaboration Agreement as a result of Juno Therapeutics’ uncured material breach or default, then the licenses conveyed to Juno Therapeutics will terminate. The Amended Collaboration Agreement did not modify the termination provisions in the Collaboration Agreement.
Accounting Analysis
The Company evaluated the Amended Collaboration Agreement in accordance with the provisions of ASC 606. The Company has accounted for the amendment resulting from the Amended Collaboration Agreement as a modification to the original contract and not as a separate contract. The Company combined the Amended Collaboration Agreement with the Collaboration Agreement because the scope of the arrangement did not solely increase due to the addition of distinct promised goods or services with pricing that reflects the associated standalone selling prices. For the remaining goods and services that are distinct from the goods and services that were transferred on or before the date of the effectiveness of the Amended Collaboration Agreement, the Company has accounted for the modification on a prospective basis as if it were a termination of the existing contract and the creation of a new contract. Conversely, the remaining goods and services that are not distinct from the goods and services that were transferred on or before the date of the effectiveness of the Amended Collaboration Agreement were deemed to form part of a single performance obligation that is partially satisfied so they have been accounted for as part of the existing contract for which an adjustment was recorded on a cumulative catch-up basis at the date of the modification.
The Company has identified the following performance obligations under the combined arrangement: (i) Research License and the related research and development services during the Initial Research Program Term (the “Research License and Related Services”), (ii) four material rights related to the first Development and Commercialization Licenses related to each of the four research areas (each, a “First Development and Commercialization License Material Right”) and (iii) six material rights related to the option to purchase up to three additional Development and Commercialization Licenses for two of the research areas (each, an “Additional Development and Commercialization License Material Right”). Upon exercise of the option to obtain a Development and Commercialization License under any of the four research areas, the Company will provide Juno Therapeutics with a license covering the further development and potential commercialization of the underlying target or product, as applicable. The Company has determined that the ability to obtain Development and Commercialization Licenses under the arrangement represents a material right because Juno Therapeutics is entitled to incremental licenses for additional consideration that represents a significant discount from amounts that would otherwise be offered for the related goods to comparable customers outside of the contract.
The Company has concluded that the Research License is not distinct from the research and development services during the Initial Research Program Term as Juno Therapeutics cannot obtain the benefit of the Research License without the Company performing the research and development services. The services incorporate proprietary technology, unique skills and specialized expertise, particularly as it relates to genome editing technology that is not available in the marketplace. As a result, the Research License, inclusive of the incremental license granted in connection with the Amended Collaboration Agreement, has been combined with the research and development services into a bundled performance obligation. The Company has concluded that the First Development and Commercialization License Material Rights for each respective research area and the Additional Development and Commercialization License Material Rights for the two research areas to which they relate are each a separate performance obligation. These material rights, of which there are ten in total, are distinct from the other performance obligations in the arrangement as they are options in the contract that are not required for Juno Therapeutics to obtain the benefit of the other promised goods and services in the arrangement. Accordingly, in accounting for the modification resulting from the Amended Collaboration Agreement, the Research License and Related Services performance obligation was treated as part of the existing contract, whereas the material right performance obligations were treated as a termination of the existing contract and the creation of a new contract.
As of May 3, 2018, the date of the modification and the Amended Collaboration Agreement, the total transaction price associated with the remaining consideration was determined to be $47.5 million, consisting of: (i) $25.0 million upfront non-refundable, non-creditable cash payment associated with the Collaboration Agreement, (ii) $5.0 million upfront non-refundable, non-creditable cash payment associated with the Amended Collaboration Agreement, (iii) $9.8 million of remaining research and development funding, (iv) $2.7 million of milestone payments received by the Company under the Collaboration Agreement that were not yet recognized as revenue and (v) $5.0 million of milestone payments due to the Company upon execution of the Amended Collaboration Agreement. The research and development funding is being paid by Juno Therapeutic to the Company based on the number of the Company’s full time equivalents of its personnel conducting the research under the Amended Collaboration Agreement. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. The Company also utilizes the most likely amount method to estimate any development and regulatory milestone payments to be received. As of June 30, 2018, there were no milestones that had not been earned and received included in the transaction price. The Company considers the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or Juno Therapeutics. The outstanding milestone payments were fully constrained as of June 30, 2018, as a result of the uncertainty whether any of the milestones will be achieved. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license(s) to be granted and therefore have also been excluded from the transaction price. The Company reevaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. Through the date of the Amended Collaboration Agreement, the Company had recognized approximately $12.3 million of revenue associated with the Research License and Related Services which was excluded from the modification date transaction price.
The modification date transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation or, in the case of certain variable consideration, to one or more performance obligations. The estimated standalone selling price for the Research License and Related Services is primarily based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts. The Company developed the estimated standalone selling price for the material rights based on the difference between the value of the license granted and any additional consideration to be received upon exercise of the underlying option, adjusted for the probability of exercise. The value of the license granted was determined based on the probability-weighted present value of expected future cash flows associated with each license related to each specific research area. In developing such estimate, the Company also considered applicable market conditions and relevant entity-specific factors, including those factors contemplated in negotiating the agreement, probability of success and the time needed to commercialize a product candidate pursuant to the associated license.
The modification date transaction price allocated to each performance obligation was as follows: (i) Research License and Related Services: $17.5 million, (ii) First Development and Commercialization License Material Right related to the first research area: $3.6 million, (iii) First Development and Commercialization License Material Right related to the second research area: $6.0 million, (iv) First Development and Commercialization License Material Right related to the third research area: $0.1 million, (v) First Development and Commercialization License Material Right related to the fourth research area: $18.3 million, (vi) the first Additional Development and Commercialization License Material Right for the first research area: $0.3 million, (vii) the second Additional Development and Commercialization License Material Right for the first research area: $0.2 million, (viii) the third Additional Development and Commercialization License Material Right for the first research area: $0.1 million, (ix) the first Additional Development and Commercialization License Material Right for the second research area: $0.8 million, (x) the second Additional Development and Commercialization License Material Right for the second research area: $0.5 million, and (xi) the third Additional Development and Commercialization License Material Right for the second research area: $0.3 million.
The Company recognizes revenue related to amounts allocated to the Research License and Related Services as the underlying services are performed using a proportional performance model. The Company measures proportional performance based on full time employee hours relative to projected full time employee hours to complete the research services which best reflects the progress towards satisfaction of the performance obligation. Revenue related to each of the material rights will be recognized upon the earlier of when the respective options are exercised and the Company transfers control of the related license or when the respective options lapse. The rights to be conveyed to Juno Therapeutics pursuant to each of the Development and Commercialization Licenses extend exclusively to an individual target or product, as applicable; therefore, control is deemed to be transferred upon the designation by Juno Therapeutics of the specific target or product, as applicable, whereupon the license becomes effective upon Juno Therapeutics exercising their option. None of the options associated with the material rights had been exercised or had lapsed as of June 30, 2018.
During the three months ended June 30, 2018 and 2017, the Company recognized revenue under the Collaboration Agreement and the Amended Collaboration Agreement totaling approximately $3.5 million and $0.7 million, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized revenue under the Collaboration Agreement and the Amended Collaboration Agreement totaling approximately $4.5 million and $1.4 million, respectively. Included in the revenue recognized during the three months ended June 30, 2018 is approximately $3.0 million of additional revenue related to a cumulative catch-up adjustment. No revenue had been recognized through the date of the Amended Collaboration Agreement for the material rights performance obligations and there were no cumulative catch-up adjustments recorded for such performance obligations as a result of the modification. Amounts allocated to each of the material rights will be recognized as revenue prospectively when the material right has been exercised or when the respective option has lapsed.
The revenue is classified as collaboration and other research and development revenue in the accompanying condensed consolidated statements of operations. As of June 30, 2018 and December 31, 2017, there was approximately $33.9 million and $26.4 million of deferred revenue, respectively, related to the Amended Collaboration Agreement and the Collaboration Agreement, respectively, of which $33.2 million and $26.4 million was classified as long term, respectively, in the accompanying condensed consolidated balance sheets. In addition, as of June 30, 2018 and December 31, 2017, the Company has recorded accounts receivable of $0.3 million and $0.5 million, respectively, related to reimbursable research and development costs under the Amended Collaboration Agreement and the Collaboration Agreement, respectively, for activities performed during the second quarter of 2018 and fourth quarter of 2017, respectively.
During the three months ended June 30, 2018, the Company accrued $1.7 million in sublicense fees that were owed to certain of the Company’s licensors in connection with the Amended Collaboration Agreement, which the Company recorded as accrued expenses and research and development expenses during such period. The Company did not pay any sublicense fees during the three or six months ended June 30, 2017 related to the Amended Collaboration Agreement.
Allergan Pharmaceuticals Strategic Alliance and Option Agreement
Summary of Agreement
In March 2017, the Company entered into a Strategic Alliance and Option Agreement with Allergan to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders (the “Allergan Agreement”). Over a seven-year research term, Allergan will have an exclusive option to exclusively license from the Company up to five collaboration development programs for the treatment of ocular disorders (each a “CDP”), including the Company’s Leber Congenital Amaurosis type 10 program (the “LCA10 Program”).
Under the Allergan Agreement, the Company will use commercially reasonable efforts to develop at least five CDPs and deliver preclinical results and data meeting specified criteria with respect to each CDP (each, an “Option Package” and such criteria, the “Option Package Criteria”) to Allergan. The list of proposed targets that may be subject to a CDP may be amended from time to time by mutual agreement of the Company and Allergan. The Company is responsible for the preparation and delivery of a written development plan for each particular CDP setting forth the discovery and research activities to be conducted which is subject to the approval of the alliance steering committee that was formed under the Allergan Agreement, comprised of three members from each of the Company and Allergan (the “Steering Committee”). The Company will maintain primary responsibility for the development efforts under each CDP. The Company is responsible for all research and development costs prior to the achievement of the Option Package Criteria. Allergan will have the ability for a defined period of time (“Initial Option Period”) to exercise an option (each, an “Option”) to obtain a w orld-wide right and license to the Company’s background intellectual property and the Company’s interest in the CDP intellectual property to develop, commercialize, make, have made, use, offer for sale, sell, and import any gene editing therapy product that results from such CDP during the term of the Allergan Agreement (a “Licensed Product”) in any category of human diseases and conditions other than the diagnosis, treatment or prevention of any cancer in humans through the use of engineered T-cells and subject to specified other limitations . Allergan has the option to extend the |
