Settlement of a Related Party Relationship

12 Months Ended

Dec. 31, 2018

Settlement of relatedparty relationship

Settlement of a Related Party Relationship

Exclusive License Agreement with Precigen

On October

2018

, the Company entered into the license agreement with

Precigen

. As between the Company and

Precigen

, the terms of the License Agreement replace the terms of: (a) the Channel Agreement, including all amendments to

the Channel

Agreement

; (b) certain rights and obligations pursuant to

the Ares Trading Agreement; (c) the

MD Anderson License

; and (d) that certain Research and Development Agreement between the Company,

Intrexon

and MD Anderson with an effective date of August

2015

(the

“

Research and Development Agreement

”)

, and any amendments or statements of work thereto.

Pursuant to the terms of the License Agreement, Precigen has granted the Company an exclusive, worldwide, royalty-bearing, sub-licensable license to research, develop and commercialize (i) products utilizing Precigen’s RheoSwitch

gene switch, or RTS, for the treatment of cancer, referred to as IL-12 Products, (ii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) a second target, subject to the rights of Ares Trading (now Intrexon) to pursue such target under the Ares Trading Agreement, and (iii) T-cell receptor, or TCR, products designed for neoantigens for the treatment of cancer. Precigen has also granted the Company an exclusive, worldwide, royalty-bearing, sub-licensable license for certain patents relating to the

Sleeping Beauty

technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.

The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts to develop and commercialize IL-12 Products and CD19 Products and after a two-year period, the TCR Products. Precigen has also granted the Company an exclusive, worldwide, royalty-bearing, sub-licensable license to research, develop and commercialize products utilizing an additional construct that expresses RTS IL-12 for the treatment of cancer, referred to as Gorilla IL-12 Products.

Ziopharm agreed to reimburse Precigen for certain historical costs of the licensed programs up to $1.0 million, payable quarterly. The Company determined that the fair value of this program was $1.0 million and this was expensed in accordance with ASC 730, Research and Development during the year ended December 31, 2018 and it has been included in accrued expense on the balance sheet.

The agreement also calls for an annual license fee of $100 thousand as long as the agreement is effective. The Company will also make milestone payments totaling up to an additional $52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay Precigen tiered royalties ranging from low-single digit to high-single digit on the net sales derived from the sales of any approved IL-12 Products and CAR Products. The Company will also pay Precigen royalties ranging from low-single digit to mid-single digit on the net sales derived from the sales of any approved TCR Products, up to a maximum royalty amount of $100.0 million in the aggregate. The Company will also pay Precigen 20% of any sublicensing income received by the Company relating to the licensed products.

The Company is responsible for all development costs associated with each of the licensed products, other than Gorilla IL-12 Products. The Company and Precigen will share the development costs and operating profits for Gorilla IL-12 Products, with the Company responsible for 80% of the development costs and receiving 80% of the operating profits, and Precigen responsible for the remaining 20% of the development costs and receiving 20% of the operating profits.

Precigen will pay the Company royalties ranging from low-single digits to mid-single digits on the net sales derived from the sale of Precigen’s CAR products, up to $50.0 million.

In consideration of the Company entering into the License Agreement, Intrexon forfeited and returned to the Company all shares of the Company’s Series 1 preferred stock held by or payable to Intrexon as of the date of the License Agreement. In addition, Precigen is required to transfer all of Ziopharm’s rights and obligations under the Ares Trading Agreement to Intrexon (or its’ affiliate). As a result, Ziopharm shall not be responsible for any remaining obligations under the Merck Agreement. Additionally, Intrexon forfeited and returned to the Company all shares of the Company’s Series 1 preferred stock held by or payable to Intrexon as of the date of the License Agreement.

The Company determined that this transaction represented a capital transaction between related parties. The Company fair valued the preferred stock and the derivative liability on the date of the transaction, noting a total fair value of $163.3 million. The relinquishment of the Ziopharm’s obligation under the Ares Trading Agreement was also considered part of the overall capital transaction. The Company recognized an additional credit to accumulated deficit of $49.5 million as a result of the relief of the obligation under the Ares Trading Agreement (Note 8). The total amount of the settlement was $212.8 million.

The Company incurred approximately $7.4 million of transaction advisory costs with third-party vendors, of which $5.4 million was considered a direct cost associated with the Series 1 preferred stock extinguishment and is also included as part of the consideration transferred. The remaining $2.0 million of transaction costs were recognized as an expense during the year ended December 31, 2018.

The Company recognized a net credit to accumulated deficit of $207.3 million, calculated as the difference in the carrying value of the Series 1 preferred stock, derivative liability, and contract liability, and the consideration transferred of $5.4 million, in connection with the transaction. This amount is included in net income available to common shareholders in the calculation of earnings per share (Note 3).