Collaboration and Other Agreements | 3 Months Ended |
Mar. 31, 2014 |
Collaboration and Other Agreements [Abstract] | ' |
Collaboration and Other Agreements | ' |
Collaboration and Other Agreements |
The Company recognized revenue related to its collaboration and license arrangements as follows (in thousands): |
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| | | | | | | |
| Three Months Ended March 31, |
| 2014 | | 2013 |
Janssen | $ | 63,135 | | | $ | 2,786 | |
|
Les Laboratoires Servier ("Servier") | 63 | | | 40 | |
|
Other | — | | | 20 | |
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Total | $ | 63,198 | | | $ | 2,846 | |
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Collaboration and License Agreement with Janssen Biotech, Inc. |
Background |
In December 2011, the Company entered into a worldwide collaboration and license agreement (the "Agreement") with Janssen for the development and commercialization of IMBRUVICATM, a novel, orally active, selective covalent inhibitor of Bruton’s Tyrosine Kinase ("BTK"), and certain compounds structurally related to IMBRUVICATM, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the U.S. and outside the U.S. |
The collaboration provides Janssen with an exclusive license to exploit the underlying technology outside of the U.S. (the “License Territory”) and co-exclusively with Pharmacyclics in the U.S. |
The collaboration has no fixed duration or expiration date and provided for payments by Janssen to the Company of a $150,000,000 non-refundable upfront payment upon execution, as well as potential future milestone payments of up to $825,000,000, based upon continued development progress ($250,000,000), regulatory progress ($225,000,000) and approval of the product in both the U.S. and the License Territory ($350,000,000). As of March 31, 2014, $445,000,000 in milestone payments have been earned by the Company under the Agreement and it may receive up to an additional $380,000,000 in development, regulatory and approval milestone payments. However, clinical development entails risks and we have no assurance as to whether or when the milestone targets might be achieved. |
The development, regulatory and approval milestones represents non-refundable amounts that would be paid by Janssen to the Company if certain milestones are achieved in the future. The Company has elected to apply the guidance in ASC 605-28 to the milestones. These milestones, if achieved, are substantive as they relate solely to past performance, are commensurate with estimated enhancement of value associated with the achievement of each milestone as a result of the Company's performance, which are reasonable relative to the other deliverables and terms of the arrangement, and are unrelated to the delivery of any further elements under the arrangement. |
The Agreement includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, in general Janssen is responsible for approximately 60% of collaboration development costs and the Company is responsible for the remaining 40% of collaboration development costs. In general, costs associated with commercialization will be included in determining pre-tax profit or pre-tax loss, which are to be shared 50% by the Company and 50% by Janssen. |
The collaboration with Janssen provides the Company with an annual cap of its share of IMBRUVICATM related research and development expenses and selling, general and administrative expenses offset by pre-tax commercial profits for each calendar year. In the event that the Company's share of aggregate development costs in any given calendar year, together with any other amounts that become due from the Company, plus the Company's share of pre-tax loss (if any) for any calendar quarter in such calendar year, less the Company's share of pre-tax profit (if any) for any calendar quarter in such calendar year, exceeds $50,000,000, then amounts that are in excess of $50,000,000 (the "Excess Amounts") are funded by Janssen. Under the Agreement, total Excess Amounts plus interest may not exceed $225,000,000. |
The total Excess Amounts plus interest may not exceed $225,000,000 at any given time. Interest shall be accrued on the outstanding balance with interest calculated at the average annual European Interbank Offered Rate ("EURIBOR") for the EURO or average annual London Interbank Offered Rate ("LIBOR") for U.S. Dollars as reported in the Wall Street Journal, plus 2%, calculated on the number of days from the date on which the Company's payment would be due to Janssen. The interest rate on outstanding Excess Amounts shall not exceed 5% per annum, and the cumulative interest on Excess Amounts shall not in the aggregate exceed $25,000,000. |
In the event the Excess Amounts plus interest reaches a maximum of $225,000,000, the Company shall be responsible for its share of development costs, together with any other amounts that become due from the Company, plus its share of any pre-tax loss beyond such maximum. For all calendar quarters following the Company's third profitable calendar quarter, as determined in the Agreement, the Company can no longer add to Excess Amounts and shall be responsible for its own share of development costs along with its share of pre-tax losses incurred in such quarters. Janssen may only recoup the Excess Amounts, together with interest from the Company's share of pre-tax profits (if any) in calendar quarters subsequent to its third profitable calendar quarter until the Excess Amounts and applicable interest has been fully repaid. |
The Company recognizes Excess Amounts as a reduction to costs and expenses as the Company's repayment of Excess Amounts to Janssen is contingent and would become payable only after the third profitable calendar quarter for the product. Further, Excess Amounts shall be reimbursable only as a reduction of the Company's share of pre-tax profits (if any) after the third profitable quarter for the product. |
The Agreement also provides that any net profits from the commercialization of products resulting from the collaboration will be shared 50% by the Company and 50% by Janssen. Both parties are responsible for the development, manufacturing and marketing of any products resulting from the Agreement. Janssen has sole responsibility and exclusive rights to commercialize the products in the License Territory. The parties hold joint responsibility and co-exclusive rights to commercialize the products in the U.S., and Pharmacyclics will serve as the lead party in such effort. The Company continues to work with Janssen on protocols and the design, schedules and timing of trials. |
In accordance with ASU No. 2009-13 (and as incorporated into ASC Topic 605-25), the Company identified all of the deliverables at the inception of the Agreement. The significant deliverables were determined to be the license, committee services, development services and commercialization services. The commercialization services represent a contingent deliverable for which there is not a significant incremental discount. |
The Company has determined that the license represents a separate unit of accounting as the license, which includes rights to the underlying technologies for IMBRUVICATM, has standalone value apart from the committee and development services because the development, manufacturing and commercialization rights conveyed would permit Janssen to perform all efforts necessary to bring the compound to commercialization and begin selling the drug upon regulatory approval. The Company has also determined that the committee and development services each represent individual units of accounting as they have standalone value from each other. The Company has determined its best estimate of selling prices for the license unit of accounting based on the income approach as defined in ASC 820-10-35-32. This measurement is based on the value indicated by current estimates about those future amounts and reflects management determined estimates and assumptions. These estimates and assumptions include, but are not limited to, how a market participant would use the license, estimated market opportunity and expected market share and assumed royalty rates that would be paid for sales resulting from products developed using the license, similar arrangements entered into by third parties and entity-specific factors such as the terms of the Company's previous collaborative agreement, the Company's pricing practices and pricing objectives, the likelihood that clinical trials will be successful, the likelihood that regulatory approval will be received and that the products will become commercialized and the markets served. These estimates and assumptions led to an expected future cash flow which was discounted based on estimated weighted average cost of capital of 12% and royalty rates ranging from 30% to 40%. The Company has also determined its best estimate of selling prices for the committee and development services, based on the nature of the services to be performed and estimates of the associated effort as well as estimated market rates for similar services. The arrangement consideration of $150,000,000 was allocated to the units of accounting based on the relative selling price method. |
Of the $150,000,000 upfront payment received, $70,605,000 was allocated to the licenses, $14,982,000 to the committee services and $64,413,000 to the development services. The Company has recognized license revenue upon execution of the arrangement as the associated unit of accounting had been delivered pursuant to the terms of the Agreement. At inception, the $14,982,000 and $64,413,000 allocated to committee and development services, respectively, is being recognized as revenue as the related services are provided over the estimated service periods of 17 years and 9 years, which are equivalent to the estimated remaining life of the underlying technology and the estimated remaining development period, respectively. |
Janssen Collaboration Revenue |
Total revenue recognized with respect to the Agreement consisted of the following (in thousands): |
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| | | | | | | |
| Three Months Ended March 31, |
| 2014 | | 2013 |
License and milestone revenue | $ | 60,000 | | | $ | — | |
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Collaboration services revenue | 3,135 | | | 2,786 | |
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Total | $ | 63,135 | | | $ | 2,786 | |
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For the three months ended March 31, 2014, the Company recognized $60,000,000 of milestone revenue under its collaboration agreement with Janssen. As previously announced, the $60,000,000 milestone payment to the Company was triggered on February 12, 2014 as a result of the FDA approval of IMBRUVICATM as a single agent for the treatment of patients with chronic lymphocytic leukemia (“CLL”) who have received at least one prior therapy. |
As of March 31, 2014, total deferred revenue related to committee and development services under the Agreement with Janssen was $56,946,000, of which $44,648,000 was included in deferred revenue non-current portion. |
Janssen Collaboration Cost Sharing and Excess Amounts |
The Company recognized development costs under the collaboration as a component of research and development expense in the condensed consolidated statements of operations. The Company also recognized certain selling, general and administrative expenses under the collaboration, including marketing costs, patent costs and the Company's share of pre-tax commercial losses on sales of IMBRUVICATM as a component of selling, general and administrative in the condensed consolidated statements of operations. Expenses which were charged to the collaboration are as follows (in thousands): |
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2014 | | 2013 |
| | | |
Collaboration expenses, unadjusted | $ | 32,365 | | | $ | 38,463 | |
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Decrease for cost sharing | (7,963 | ) | | (16,291 | ) |
Research and development | $ | 24,402 | | | $ | 22,172 | |
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| | | |
Collaboration expenses, unadjusted | $ | 18,220 | | | $ | 3,508 | |
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Decrease for cost sharing | (55 | ) | | (811 | ) |
Selling, general and administrative | $ | 18,165 | | | $ | 2,697 | |
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During the three months ended March 31, 2014 and the three months ended March 31, 2013, the Company's share of costs under the Agreement was calculated as follows: |
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2014 | | 2013 |
Research and development | $ | 24,402 | | | $ | 22,172 | |
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Selling, general and administrative | 18,165 | | | 2,697 | |
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| 42,567 | | | 24,869 | |
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Less: Pharmacyclics' 50% share of net product revenue less cost of goods sold | 25,035 | | | — | |
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Total net costs for IMBRUVICATM under the Agreement (1) | $ | 17,532 | | | $ | 24,869 | |
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(1) The Company's total share of net costs under the Agreement did not exceed the $50,000,000 annual cap provided for in the Agreement. As such, no Excess Amounts were recorded for the three months ended March 31, 2014 and March 31, 2013. |
For the three months ended March 31, 2014, Janssen's 50% share from net product revenue less cost of goods sold of IMBRUVICATM of $25,035,000 was included in Costs of collaboration in the Company's condensed consolidated statements of operations. Janssen's share was calculated as follows: |
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| Three Months Ended | | | | |
| 31-Mar-14 | | | | |
Product revenue, net | $ | 56,179 | | | | | |
| | | |
Less: Cost of goods sold | 6,110 | | | | | |
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| 50,069 | | | | | |
| | | |
Janssen's share of pre-tax profits | 50 | % | | | | |
Total Cost of Collaboration (Janssen's 50% share as per the Agreement) | $ | 25,035 | | | | | |
| | | |
Pharmacyclics' 50% share of net product revenue less cost of goods sold | $ | 25,035 | | | | | |
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As of March 31, 2014, the Company had $1,047,000 receivable from Janssen which primarily was related to materials and product purchases. As of December 31, 2013, the Company had $50,230,000 receivable from Janssen related to Excess Amounts and $1,607,000 due from Janssen related to value added taxes. The receivable from Janssen is included within receivable from collaboration partners on the condensed consolidated balance sheets. |
As of March 31, 2014, the Company had $17,890,000 payable to Janssen which primarily consisted of amounts due for Janssen's share of pre-tax profits. As of December 31, 2013, the Company had $3,142,000 payable to Janssen under the cost sharing arrangement and $246,000 due to Janssen related to value added taxes. The payable to Janssen is included within payable to collaboration partner on the condensed consolidated balance sheets. |
As of March 31, 2014, total Excess Amounts of $135,634,000 (which comprises the cumulative amount funded by Janssen to-date of $134,261,000 and interest of $1,373,000) would become payable once the Company reaches a third profitable calendar quarter for the product. Further, Excess Amounts shall be reimbursable only from the Company's share of pre-tax profits (if any) after the third profitable calendar quarter for the product. |
Collaboration and License Agreement with Servier |
In April 2009, the Company entered into a collaboration and license agreement with Servier to research, develop and commercialize abexinostat (PCI-24781), an orally active, novel, small molecule inhibitor of pan-HDAC enzymes. Under the terms of the agreement, Servier acquired the exclusive right to develop and commercialize the pan-HDAC inhibitor product worldwide except for the United States and will pay development and regulatory milestones and a royalty to the Company on sales outside of the United States. Servier is solely responsible for conducting and paying for all development activities outside the United States. The Company continues to own all rights within the United States. |
In May 2009, the Company received an upfront payment from Servier of $11,000,000 ($10,450,000 net of withholding taxes) and the Company received an additional $4,000,000 for research collaboration paid over a twenty-four months period through April 2011. The revenue related to these payments was recognized over the two-years period, which ended in April 2011. |
Under this agreement with Servier, the Company is also eligible to receive up to $24,500,000 in milestone payments upon achievement of pre-specified events; including up to $10,500,000 for the achievement of development milestones ($7,000,000 of which was paid to the Company, in advance, during April 2011), up to $5,000,000 for the achievement of regulatory progress and up to $9,000,000 for regulatory approval of the pan HDAC product in major jurisdictions. In addition, Servier agreed to make royalty payments on net sales of the licensed product as defined in the agreement. In October 2011, the milestone related to the $7,000,000 advance payment was achieved and the Company recognized the amount as revenue. |
Total revenue recognized with respect to the Company's collaboration and license agreement with Servier consisted of the following (in thousands): |
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2014 | | 2013 |
Collaboration services revenue | $ | 63 | | | $ | 40 | |
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Total | $ | 63 | | | $ | 40 | |
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License agreement with Novo Nordisk A/S |
In October 2012, the Company entered into a license agreement with Novo Nordisk A/S ("Novo Nordisk"). Under the terms of the agreement, Novo Nordisk acquired the exclusive worldwide rights for the Company's small molecule Factor VIIa inhibitor, PCI-27483 as an excipient in a product containing a Novo Nordisk active pharmaceutical ingredient for a restricted disease indication outside of oncology. Novo Nordisk will utilize PCI-27483 as an excipient in a product within Novo Nordisk's biopharmaceutical unit. Novo Nordisk is solely responsible for all further research and development activities within the restricted disease indication outside of oncology. |
In connection with entering into the license agreement with Novo Nordisk, the Company received an upfront payment of $5,000,000 in October 2012. In addition, the Company may receive up to $55,000,000 based on the achievement of certain development, regulatory and sales milestones. Upon commercialization, the Company will also receive low single digit tiered royalties on Novo Nordisk's net sales of biopharmaceutical formulations utilizing the addition of PCI-27483. |
On June 28, 2013, the Company entered into an amended and restated license agreement with Novo Nordisk to expand the scope of the license granted by the Company to Novo Nordisk in October 2012. Under the amended and restated license agreement with Novo Nordisk, the Company has no additional obligations related to the delivery of the license. |
Celera Corporation |
In April 2006, the Company acquired multiple small molecule drug candidates for the treatment of cancer and other diseases from Celera Genomics, an Applera Corporation business (now Celera Corporation - a subsidiary of Quest Diagnostics Incorporated). Future milestone payments under the agreement, as amended, could total as much as approximately $97,000,000, although the Company currently cannot predict if or when any of the milestones will be achieved. Approximately two-thirds of the milestone payments relate to the Company's HDAC inhibitor program and approximately one-third relates to the Company's Factor VIIa inhibitor program. Approximately 90% of the potential future milestone payments would be paid to Celera after obtaining regulatory approval in various countries. To date, no milestone payments have been triggered related to the Company's HDAC inhibitor or Factor VIIa programs. |
In addition to the milestone payments, the Company is required to make single-digit royalty payments based on annual sales of IMBRUVICATM and would be required to make single-digit royalty payments based on annual sales of drugs commercialized from the Company's HDAC inhibitor, Factor VIIa inhibitor and certain other BTK inhibitor programs. For the three months ended March 31, 2014, the Company recognized royalty expense under the Celera agreement of approximately $3,931,000 on net product sales of IMBRUVICATM in the United States. Royalty expense related to net product sales of IMBRUVICATM is included within cost of goods sold in the condensed consolidated statement of operations. No royalty expense was recognized under the Celera agreement for the three months ended March 31, 2013. |
For any BTK inhibitor product or Factor VIIa inhibitor product obtained from Celera, the agreement with Celera expires on a product-by-product and country-by-country basis. The term of the agreement for a given BTK inhibitor product shall expire in a given country upon the expiration of the last-to-expire Celera patent assigned to the Company that covers the manufacture, use, sale, offer for sale, or importation of such product in such country. For any HDAC inhibitor product obtained from Celera, the agreement with Celera expires on a product-by-product and country-by-country basis. The term of the agreement for a given HDAC inhibitor product shall expire in a given country upon the expiration of the last-to-expire Celera patent assigned to the Company that covers the sale of such product in such country. |
The Company may terminate the agreement with Celera in its entirety, or with respect to one or more of the three classes of products (BTK inhibitor products, HDAC inhibitor products and Factor VIIa inhibitor products) obtained from Celera, at any time by giving Celera at least 60 days' prior written notice. If the Company terminates the agreement with respect to a particular class of products, ownership of the Celera intellectual property assigned to the Company relating to the products in the terminated product class will revert to Celera. If the Company terminates the agreement in its entirety, ownership of all of the Celera intellectual property assigned to the Company will revert to Celera. |
The agreement with Celera may be terminated effective immediately upon a party's written notice to the other party for a breach by the other party that remains uncured for 90 days after notice of the breach is given to the breaching party. If the Company breaches the agreement only with respect to one or two of the three classes of products obtained from Celera, but not with respect to all three classes of products, and if the Company's breach remains uncured for 90 days after the Company has received notice of breach from Celera, Celera may terminate the agreement solely with respect to the class or classes of products affected by the Company's breach, but may not terminate the agreement with respect to the class or classes of products unaffected by the Company's breach. |