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Related-Party Transactions
9 Months Ended
Sep. 30, 2017
Related Party Transactions [Abstract]  
Related-Party Transactions

Note 14. Related Party Transactions

 

QIAGEN Agreements

 

In November 2016, the Company entered into a Master Assay Development, Commercialization and Manufacturing Agreement (“Governing Agreement”) with QIAGEN Manchester Limited (“QML”), a wholly owned subsidiary of QIAGEN, N.V. QIAGEN North American Holdings, Inc., a wholly owned subsidiary of QIAGEN N.V., is a greater than 5% holder of the Company’s outstanding common stock.

 

Statement of Work One

 

In June 2017, the Company entered into the first statement of work (“SOW One”) under the Governing Agreement with QML. SOW One addresses the initial activities of the Company and QML in support of the development and potential commercialization of a next generation sequencing-based companion diagnostic assay (the “PDP Assay”) that is the subject of a sponsor project agreement between QML and a biopharmaceutical company (“Pharma One”). The parties expect development activities for the PDP Assay to be the subject of more than one work plan under the sponsor project agreement and a corresponding number of statements of work under the Governing Agreement.

 

The Company has determined that SOW One is a collaborative arrangement under ASC 808 and a multiple-element arrangement under ASC 605-25. After reviewing the deliverables under the arrangement, the Company concluded that all of the fixed and determinable contract consideration should be allocated to the development services to be performed by the Company.

 

QML pays the Company a monthly fee for development work performed by Company and its subcontractors (collectively, the “Monthly Fee”). The Monthly Fee is not contingent upon successful acceptance of project milestones by Pharma One; therefore, the Monthly Fee is recognized as the respective payment amount becomes fixed or determinable and collectability from QML is reasonably assured. The Company and QML also will share any net profits resulting from performance of the development work as determined pursuant to the Governing Agreement. Such profit sharing payment(s) is deemed to be fixed or determinable upon completion of SOW One deliverables, acceptance of corresponding deliverables by Pharma One, and the mutual agreement by QML and the Company on the calculation of net profit.

 

Revenue of $846,368 and $1,123,779 has been included in service revenue in the condensed statements of operations for the three and nine months ended September 30, 2017, respectively, relating to SOW One Monthly Fees. Accounts receivable of $671,765 remains in the condensed balance sheets as of September 30, 2017, and no profit sharing payments have been received or recognized as of September 30, 2017. Costs relating to SOW One of $653,938 and $876,186 have been included in research and development expense in the condensed statements of operations for the three and nine months ended September 30, 2017, respectively. No costs or revenue relating to SOW One were included in the condensed statements of operations for the three and nine months ended September 30, 2016 as SOW One was not established until June 2017.

 

SOW One will expire when all activities and deliverables have been completed by the respective responsible party and all payments from QML to the Company have been delivered, including any required profit sharing, unless terminated earlier in accordance with the terms of the Governing Agreement.

 

Contemporaneous with entry into SOW One, the Governing Agreement was amended to provide that neither the Company nor QML may terminate SOW One or the Governing Agreement to the extent it relates to SOW One in the event of a change of control.

 

Other Agreements with QML

 

In contemplation of the expected signing of the second statement of work (“SOW Two”) under the Governing Agreement in October 2017, QML requested that the Company initiate procurement and histology services for the samples that will be needed for the companies to support the development and potential commercialization of a next generation sequencing-based clinical trial assay that is the subject of a sponsor project agreement between QML and Bristol-Myers Squibb Company (“BMS”). In an effort to avoid project delays during the contracting process for SOW Two and a related three-party agreement, among BMS, QML and the Company, QML and the Company entered a preliminary written agreement for such procurement and histology services during the second quarter of 2017. Fees for sample procurement and histology services have been billed as services have been provided in accordance with the preliminary agreement and revenue is being recognized as the respective payment amount becomes fixed or determinable and collectability from QML is deemed to be reasonably assured.

 

Revenue of $1,284,326 has been included in service revenue in the condensed statements of operations for both the three and nine months ended September 30, 2017, relating to the Company’s performance of the sample procurement and histology service arrangement with QML, all of which collaborative development service revenue remains in accounts receivable in the condensed balance sheets as of September 30, 2017. Costs relating to sample acquisition and the outsourcing of certain services under these arrangements of $1,284,326 have been included in research and development expense in the condensed statements of operations for both the three and nine months ended September 30, 2017.

 

Internal development costs incurred by the Company in anticipation of SOW Two have not been included in revenue or billed to QML as of September 30, 2017, as SOW Two was not executed prior to the end of the third quarter of 2017. With the signing of SOW Two by the parties in October 2017 (see Note 15), the Company will recognize, in the fourth quarter of 2017, additional collaboration revenue of approximately $500,000 for internal development costs incurred from June through September 2017, which will be reimbursable under the terms of the Governing Agreement and SOW Two in the fourth quarter of 2017.

 

See Note 15 for a description of additional transactions relating to QML and its affiliates.