| Collaboration with GlaxoSmithKline Intellectual Property Development Limited | (11) Collaboration with GlaxoSmithKline Intellectual Property
Development Limited
In November 2015, the Company entered into a collaboration and
license agreement with GlaxoSmithKline Intellectual Property
Development Limited (“GSK”) to license, research,
develop and commercialize pharmaceutical compounds from the
Company’s 3GA technology for the treatment of selected
targets in renal disease (the “GSK Agreement”). The
initial collaboration term is currently anticipated to last between
two and four years. In connection with the GSK Agreement, GSK
identified an initial target for the Company to attempt to identify
a potential population of development candidates to address such
target under a mutually agreed upon research plan, currently
estimated to take 27 months to complete. From the population of
identified development candidates, GSK may designate one
development candidate in its sole discretion to move forward into
clinical development. Once GSK designates a development candidate,
GSK would be solely responsible for the development and
commercialization activities for that designated development
candidate.
At any time during the first two years of the GSK Agreement, GSK
has the option to select up to two additional targets, for further
research under mutually agreed upon research plans. GSK may then
designate one development candidate for each additional target, at
which time GSK would have sole responsibility to develop and
commercialize each such designated development candidate.
In accordance with the GSK Agreement, a Joint Steering Committee
(JSC) was formed with equal representation from Idera and GSK. The
responsibilities of the JSC, include, but are not limited to
monitoring the progress of the collaboration, reviewing research
plans and dealing with disputes that may arise between the parties.
If a dispute cannot be resolved by the JSC, GSK has final decision
making authority.
Under the terms of the GSK Agreement, the Company received a
$2,500,000 upfront, non-refundable, non-creditable cash payment
upon the execution of the GSK Agreement. The Company is
eligible to receive up to approximately $100,000,000 in license,
research, clinical development and commercialization milestone
payments. Approximately $9,000,000 of these milestone payments
are payable by GSK upon the identification of the additional
targets, the completion of current and future research plans and
the designation of development candidates. Approximately
$89,000,000 is payable by GSK upon the achievement of clinical
milestones and commercial milestones. In addition, the Company is
eligible to receive royalty payments on sales upon
commercialization at varying rates of up to five percent on annual
net sales, as defined in the GSK Agreement.
Accounting Analysis
The Company evaluated the GSK Agreement in accordance with the
provisions of ASC 605-25. The GSK Agreement contains the following
initial deliverables: (i) a collaboration license for
Idera’s proprietary technology related to the initial target
(the “Collaboration License”), (ii) research
services (the “Research Services”), and
(iii) participation in the JSC (the “JSC
Deliverable”).
The Company has determined that GSK’s options to choose up to
two additional targets and to purchase additional collaboration
licenses for the Company’s proprietary technology related to
each additional target are substantive options. GSK is not
contractually obligated to exercise the options. Moreover, as a
result of the uncertain outcome of the research activities, there
is significant uncertainty as to whether GSK will decide to
exercise its options for any additional targets. Consequently, the
Company is at risk with regard to whether GSK will exercise the
options. The Company has determined that GSK’s options to
choose up to two additional targets and to purchase additional
collaboration licenses for the Company’s proprietary
technology related to each additional target are not priced at a
significant and incremental discount.
The Company has concluded that the Collaboration License does not
qualify for separation from the Research Services. As it relates to
the assessment of standalone value, the Company has determined that
GSK cannot fully exploit the value of the Collaboration License
without receipt of the Research Services from the Company. The
Research Services involve unique skills and specialized expertise,
particularly as it relates to the Company’s proprietary
technology, which is not available in the marketplace. Accordingly,
GSK must obtain the Research Services from the Company which
significantly limits the ability for GSK to utilize the
Collaboration License for its intended purpose on a standalone
basis. Therefore, the Collaboration License does not have
standalone value from the Research Services. As a result, the
Collaboration License and the Research Services have been combined
as a single unit of accounting (the R&D Services Unit of
Accounting). The Company has concluded that the JSC Deliverable
identified at the inception of the arrangement has standalone value
from the other deliverables noted based on its nature. Factors
considered in this determination included, among other things, the
capabilities of the collaboration partner, whether any other vendor
sells the item separately, whether the value of the deliverable is
dependent on the other elements in the arrangement, whether there
are other vendors that can provide the items and if the customer
could use the item for its intended purpose without the other
deliverables in the arrangement.
Therefore, the Company has identified two units of accounting in
connection with its initial deliverables under the GSK Agreement as
follows: (i) R&D Services Unit of Accounting, and
(ii) JSC Deliverable.
Allocable arrangement consideration at inception of the GSK
Agreement is comprised of the up-front payment of $2,500,000, which
was allocated to the R&D Services Unit of Accounting. No amount
was allocated to the JSC Deliverable because the related best
estimate of selling price was determined to be de minimus. The
$2,500,000 was recorded as deferred revenue in the Company’s
balance sheet and is being recognized as revenue on a straight line
basis as the Research Services are delivered over the estimated 27
month research plan period.
The Company has determined that certain of the payments that may be
received under the GSK Agreement are related to substantive
milestones. Factors considered in the evaluation of the milestones
included the degree of risk associated with the achievement 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. Revenues from substantive milestones,
if they are nonrefundable and non-creditable, are recognized as
revenue upon successful achievement of the related milestone,
including the successful completion of research plans. Clinical and
commercial milestones are deemed non-substantive as they are based
solely on GSK’s performance. Non-substantive milestones will
be recognized when achieved to the extent the Company has no
remaining performance obligations under the arrangement. Payments
received in connection with GSK’s identification of
additional targets will be recognized as revenue as the Research
Services are delivered under the related research plans.
The Company will recognize royalty revenue in the period of sale of
the related product(s), based on the underlying contract terms,
provided that the reported sales are reliably measurable and the
Company has no remaining performance obligations, assuming all
other revenue recognition criteria are met.
The Company recognized as revenue approximately $278,000 and
$555,000 of deferred revenue related to the GSK Agreement during
the three and six months ended June 30, 2016, respectively. This
revenue is classified as alliance revenue in the accompanying
statements of operations and comprehensive loss. There was
approximately $1,818,000 of deferred revenue related to the GSK
Agreement at June 30, 2016, including approximately $1,111,000
classified as current portion of deferred revenue in the
accompanying balance sheet |
