COLLABORATION AND OTHER AGREEMENTS

The following table summarizes total revenue recognized for the periods indicated (in thousands):



	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2019		2018		2019		2018
Product royalties
Pierre Fabre	$	835	$	—	$	1,159	$	—
Ono	102		—		102		—
Total product royalties	$	937	$	—	$	1,261	$	—

Collaboration and other revenue
Pierre Fabre	$	10,704	$	5,347	$	22,160	$	12,370
Mirati	1,500		1,376		3,710		4,187
Loxo	—		2,416		2,403		7,069
Other partners	561		974		3,050		3,003
Total collaboration and other revenue	12,765		10,113		31,323		26,629

License and milestone revenue
Loxo	—		—		44,000		1,107
Pierre Fabre	750		750		17,250		2,250
Ono	4,596		4,665		6,433		6,502
ASLAN	—		23,000		—		23,000
Asahi Kasei	—		—		—		10,000
Other partners	1,382		3,088		2,115		3,505
Total license and milestone revenue	6,728		31,503		69,798		46,364
Total collaboration and license revenue	$	19,493	$	41,616	$	101,121	$	72,993

Reimbursement revenue
Novartis	$	9,169	$	24,751	$	29,970	$	65,338

Product royalties

Product royalties consists of royalty revenue based on international sales of BRAFTOVI and MEKTOVI, which are marketed by Array in the U.S. We have granted Pierre Fabre and Ono Pharmaceutical Co. Ltd. (“Ono”) exclusive rights to commercialize both products in their respective territories outside of the United States and we receive royalty payments based on those sales. The Pierre Fabre and Ono agreements, including our royalty rights are described below.

Collaboration and License Revenue

Collaboration and license revenue consists of revenue related to our drug discovery and development activities in collaboration with partners, which includes reimbursement for research and development of drug candidates that we out-license, up-front and milestone fees and ongoing royalty revenue based on sales by license holders of products which we have wholly out-licensed and are not marketed by Array. Currently approved and marketed products that we have out-licensed and have royalty rights to include Vitrakvi and Ganovo. To date, royalties earned based on sales of Vitrakvi and Ganovo have not been material.

The terms of our collaboration and license agreements include substantial ongoing collaboration and cost-sharing activities between the companies and may require us to perform future development and commercialization activities. In accordance with the revenue recognition criteria under ASC 606, Revenue from Contracts with Customers, we identified the following performance obligations in each of the following collaboration agreements, excluding Loxo: (1) the license rights and (2) clinical development and other services. For each agreement, we determined that the license rights are not distinct from the clinical development and other activities, and as such, are combined with certain other activities to form a performance obligation. Accordingly, any non-refundable upfront payments received under the agreements have been recorded as deferred revenue and are being recognized over the period during which management expects that substantial development activities will be performed.

We re-evaluate the likelihood of achieving future milestones at the end of each reporting period. Any remaining future milestone payments discussed in this Quarterly Report on Form 10-Q are related to performance obligations that have been not yet been satisfied. If the risk of significant reversal for a milestone becomes resolved in the future, then the revenue associated with the respective milestone will be recognized in the period the risk is removed.

Pierre Fabre

On November 10, 2015, we entered into an agreement with Pierre Fabre (the "PF Agreement") pursuant to which we granted Pierre Fabre rights to commercialize encorafenib and binimetinib in all countries except for the U.S., Canada, Japan, Korea and Israel, where we retain our ownership rights (subject to rights granted to Ono Pharmaceutical Co., Ltd. ("Ono") under the agreement with Ono and to Medison Pharma Ltd. The PF Agreement closed in December 2015.

In connection with the PF Agreement, we received a $30.0 million upfront payment during the year ended June 30, 2016 which has been recorded as deferred revenue and is being recognized through 2025, which is the period through which management expects that substantial development activities will be performed. In September 2018, we earned a $15.0 million milestone under the PF Agreement upon regulatory approval in the European Union, which was fully recognized as collaboration and license revenue during the period.

The PF Agreement contains additional substantive potential milestone payments of up to $390.0 million for achievement of seven commercialization milestones if certain net sales amounts are achieved for any licensed indications. We are further eligible for multiple tiered double-digit royalties on annual net sales of encorafenib and binimetinib in the PF territory, starting at 20% for annual net sales under €50.0 million and increasing to 35% for annual net sales in excess of €100.0 million subject to certain adjustments of up to $15.0 million cumulative for costs incurred to achieve or maintain the Marketing Authorization Application ("MAA") in Europe which can reduce royalties due to us by up to 50%.

Ono Pharmaceutical Co., Ltd.

Effective May 31, 2017, we entered into a License, Development and Commercialization Agreement (the “Ono Agreement”) with Ono, pursuant to which we granted Ono exclusive rights to commercialize encorafenib and binimetinib in Japan and the Republic of Korea (the “Ono Territory”), along with the right to develop these products in the Ono Territory. We retain all rights outside the Ono Territory, as well as the right to conduct development and manufacturing activities in the Ono Territory, except rights we have granted to Pierre Fabre under the PF Agreement and to Medison Pharma Ltd.

Under the terms of the Ono Agreement, we received a non-refundable upfront cash payment of ¥3.5 billion, or $31.2 million, and we retain all rights to conduct, either on our own or through third parties, all clinical studies and file related regulatory filings with respect to encorafenib and binimetinib and to develop, manufacture and commercialize encorafenib and binimetinib outside the Ono Territory (subject to rights we have granted to Pierre Fabre in certain countries). The upfront payment has been recorded as deferred revenue and is being recognized through 2025 which is the period through which management expects that substantial development activities will be performed. We are entitled to receive potential milestone payments of up to ¥500.0 million for the achievement of one remaining development milestone, ¥5.0 billion for the achievement of eight regulatory milestones relating to certain Marketing Authorization Application filings and approval in Japan for two specified indications, and ¥10.5 billion for the achievement of five commercialization milestones if certain annual net sales targets are achieved. A portion of these milestones is related to the advancement of the Phase 3 BEACON CRC trial in the Ono Territory. We are further eligible for tiered double-digit royalties on annual net sales of encorafenib and binimetinib in the Ono Territory, starting at 22% for annual net sales under ¥10.0 billion and increasing to 25% for annual net sales in excess of ¥10.0 billion subject to certain adjustments. As of March 31, 2019, ¥1.0 billion was the equivalent of approximately $9.0 million.

Loxo

We are party to a Drug Discovery Collaboration Agreement, as amended, with Loxo (the “Loxo Agreement”). Under the terms of the Loxo Agreement, Loxo funded discovery and preclinical programs conducted by us, including LOXO-101, which is currently marketed as Vitrakvi, LOXO-195, a next generation selective TRK inhibitor, LOXO-292, a RET inhibitor, and FGFR programs (the "Loxo Programs"). The research phase concluded in September 2018. Loxo is responsible for all additional preclinical and clinical development and commercialization. In connection with Eli Lilly's February 2019 acquisition of Loxo, Bayer secured exclusive licensing rights for the global development and commercialization of Vitrakvi and LOXO-195. The licensing agreement between Array and Loxo remains in effect, and Array remains entitled to royalties on sales of Vitrakvi.

We identified the following performance obligations: (1) the conduct of the research activities under the discovery program, including related technology transfer (the "research services deliverable"), (2) an exclusive worldwide license granted to Loxo to certain of our technology and our interest in collaboration technology, as well as exclusive worldwide marketing rights (the "license deliverable") and (3) participation on the Joint Research Committee ("JRC"). The Loxo Agreement provides for no general right of return for any non-contingent performance obligation. All the identified non-contingent performance obligations were considered distinct; therefore they are treated as separate performance obligations. Delivery of the research services and JRC participation obligations were completed throughout the research discovery program term. The license deliverable was complete as of September 30, 2013.

In August 2018, we earned a $4.0 million milestone under the Loxo Agreement for the initiation of a registration enabling study for LOXO-292, which was fully recognized as collaboration and license revenue during the period. In December 2018, we recognized milestone revenue of $40.0 million related to the first commercial sale of Vitrakvi by Loxo. We received a $20.0 million cash payment in December 2018 and will receive two additional payments of $10.0 million on each of the one year and two year anniversaries of the first commercial sale. In accordance with ASC 606, we recognized the entire $40.0 million in December 2018 as our performance obligations have been satisfied, payment is contingent upon only the passage of time, and we determined that it is not probable that a significant reversal of revenue would occur. The $20.0 million of additional payments are reflected as $10.0 million in other current assets and $10.0 million in other non-current assets in our unaudited condensed consolidated balance sheets as of March 31, 2019.

The Drug Discovery Collaboration Agreement with Loxo contains substantive potential milestone payments of up to $7.0 million for two remaining development milestones and up to $595.0 million for the achievement of twenty commercialization milestones if certain net sales amounts are achieved for any licensed drug candidates in the U.S., the European Union and Japan plus mid-to-high single digit royalties on sales of any resulting drugs subject to certain adjustments.

Mirati

We are party to agreements with Mirati Therapeutics, Inc. ("Mirati" and the "Mirati Agreements").

Mirati is developing MRTX849, a small molecule inhibitor of KRAS G12C, invented by Array and Mirati Therapeutics. Mirati is evaluating MRTX849 in a Phase 1/2 clinical trial in patients with advanced solid tumors that harbor KRAS G12C mutations. Array and Mirati are also collaborating on a KRAS G12D inhibitor preclinical program. Array has freedom to operate on all other forms of Ras proteins.

In April 2018, Mirati elected to exercise an option to take an exclusive, worldwide license to an active compound under one such agreement for which we received $2.0 million and we continue to receive additional fees as reimbursement for research and development services. The option exercise fee, received in the three months ended June 30, 2018, was recorded as deferred revenue and is being recognized as revenue over two years, the period during which we expect that substantial development activities will be performed.

The Mirati Agreements contain substantive potential milestone payments of up to $17.3 million for six remaining developmental milestones and up to $674.0 million for the achievement of fourteen commercialization milestones if certain net sales amounts are achieved in the U.S., the European Union and Japan, plus royalties in the high single digits to mid-teens on sales.

Dr. Charles Baum, a current member of our Board of Directors, is the President and Chief Executive Officer of Mirati.

Other Collaboration Arrangements

In addition to the collaboration arrangements described above, we have entered into a number of other collaborative arrangements that include the potential for us to receive future milestone payments of up to $48.5 million for development milestones, up to $73.0 million for regulatory milestones, up to $159.5 million for sales milestones over a period of several years in addition to royalties on potential future product sales. Our ability to receive payments under these collaborations is contingent upon our collaboration partners' continued involvement in the programs and the lack of any adverse events which could cause the discontinuance of the programs.

Deferred Revenue

Deferred revenue balances were as follows for the dates indicated (in thousands):



	March 31,			June 30,
	2019			2018
Ono	$	24,799		$	27,555
Pierre Fabre (1)	26,098			22,394
Mirati	1,042			2,468
Loxo	—			2,403
Other	—			2,000
Total deferred revenue	51,939			56,820
Less: Current portion	(13,627		)	(12,350		)
Deferred revenue, non-current portion	$	38,312		$	44,470

(1) Balance as of March 31, 2019 includes a $6.0 million prepayment for commercial drug supply of BRAFTOVI + MEKTOVI

Reimbursement Revenue

On March 2, 2015, we regained development and commercialization rights to binimetinib under the Termination and Asset Transfer Agreement with Novartis and to encorafenib under the Asset Transfer Agreement with Novartis (which we collectively refer to as the “Novartis Agreements”). Along with global ownership of both assets, the Novartis Agreements transferred to us a 2% royalty obligation offset by certain expenses, which is payable based on net sales of encorafenib and is expensed as costs of goods sold as incurred.

Amounts provided by Novartis related to the development and commercialization of binimetinib and encorafenib are reported as reimbursement revenue on our unaudited condensed consolidated statements of operations. See Note 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 for additional details related to our agreements with Novartis related to encorafenib and binimetinib.