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Collaborative Research and Development Agreements
9 Months Ended
Sep. 30, 2013
Collaborative Research and Development Agreements [Abstract]  
Collaborative Research and Development Agreements
Collaborative Research and Development Agreements
Shell and Raízen
In November 2006, the Company entered into a collaborative research agreement and a license agreement with Shell to develop biocatalysts and associated processes that use such biocatalysts.
In November 2007, the Company entered into a new and expanded five-year collaborative research agreement (“Shell Research Agreement”) and a license agreement (the “Shell License Agreement”) with Shell. In connection with the Shell Research Agreement, the Company agreed to use its proprietary technology platform to discover and develop enzymes and microorganisms for use in converting cellulosic biomass into biofuels and related products and Shell agreed to pay (i) research funding at specified rates per FTE working on the project during the research term, (ii) payments upon the achievement of milestones, and (iii) royalties on future product sales. The Shell Research Agreement also specified certain minimum levels of FTE services that the Company was required to allocate to the collaboration efforts that increased over the term of the agreement, which was originally set to expire on November 1, 2012.
In September 2012, the Company entered into an agreement with Shell (the “New Shell Agreement”) which among other things, terminated the Shell Research Agreement effective August 31, 2012, except for certain provisions of the Shell Research Agreement which survived such termination, including provisions regarding intellectual property rights, patent prosecution and maintenance, confidentiality and indemnification. The New Shell Agreement required Shell to pay approximately $7.5 million as full, complete and final satisfaction of amounts that Shell may have owed the Company under the Shell Research Agreement with respect to (i) FTEs assigned to the Shell Research Agreement and (ii) milestones achieved or achievable by the Company under the Shell Research Agreement. The $7.5 million was recognized as revenue during the third quarter of 2012 when all of the Company's obligations were fulfilled under the New Shell Agreement and was collected during the fourth quarter of 2012.
Under the New Shell Agreement, Shell granted the Company royalty-bearing, non-exclusive rights and licenses to develop, manufacture, use and sell biocatalysts and microbes in the field of converting cellulosic biomass into fermentable sugars on a worldwide basis, except for Brazil, where such sugars are converted into liquid fuels, fuel additives or lubricants (the “Field of Use”). Raízen Energia S.A. (“Raízen”) holds the exclusive rights to use the Company's enzymes and microbes for converting cellulosic biomass into fermentable sugars in Brazil, where such sugars are converted into ethanol.
Under the New Shell Agreement, the Company also granted to Shell a non-exclusive, royalty-free license to manufacture, use and import, solely for the use of Shell and its affiliates, (i) enzymes developed by the Company during the ten year period following August 31, 2012 outside of the Shell Research Agreement for use in the Field of Use and (ii) improvements to any microbe developed by the Company during the ten year period following August 31, 2012 outside of the Shell Research Agreement that is derivative of an identified microbe for use in the Field of Use. Shell remained subject to existing royalty obligations to the Company for future sales of products covered by the intellectual property and technology that remained exclusively licensed to Shell under the License Agreement.
The New Shell Agreement has a term that commences on August 31, 2012 and continues until the later of August 31, 2032 or the date of the last to expire patent rights included in the Company's collaboration that claim a biocatalyst or a microbe for use in the Field of Use.
Research and Development Collaboration
On February 1, 2012, the Company entered into a five year Sitagliptin Catalyst Supply Agreement ("Sitagliptin Agreement") whereby Merck Sharp and Dohme Corp. ("Merck") may obtain commercial scale substance for their use in the manufacture of their products. Merck may extend the term of the Sitagliptin Agreement for an additional five years at its sole discretion.
The Sitagliptin Agreement calls for Merck to pay an annual license fee for the rights to the Sitagliptin technology each year for the term of the Sitagliptin Agreement. As of September 30, 2013, the Company has a deferred revenue balance of $1.2 million from Merck related to the license fee. The license fee is being recognized as collaborative research and development revenue ratably over the five year term of the Sitagliptin Agreement. During the three and nine months ended September 30, 2013, the Company recognized $0.5 million and $1.3 million of the license fee as collaborative research and development revenue. Pursuant to the Sitagliptin Agreement, Merck may purchase substance from the Company for a fee based on contractually stated prices. No product revenue was recognized during the three months ended September 30, 2013 under the Sitagliptin Agreement. During the nine months ended September 30, 2013, the Company recognized $0.5 million in product revenue related to the agreement. No revenue was recognized under the Sitagliptin Agreement during the three and nine months ended September 30, 2012.
Manufacturing Collaboration
In November 2012, the Company entered into a commercial arrangement with Arch Pharmalabs Limited ("Arch") by simultaneously terminating all of the Company's existing supply agreements with Arch and entering into the New Arch Enzyme Supply Agreement pursuant to which Arch agreed to exclusively purchase enzymes from the Company for use in the manufacture of certain of Arch's products and the Company agreed to exclusively supply, with limited exceptions, certain of the Company's enzymes to Arch at an agreed upon price for use in such manufacture. Under the New Arch Enzyme Supply Agreement, Arch will no longer produce atorva-family active pharmaceutical ingredients (“APIs”) and intermediates for the Company. Arch will instead market these products directly to end customers, and as a result Arch will no longer pay the Company royalties on their sale of such APIs and intermediates to customers and the Company will no longer have exclusive rights to market such APIs and intermediates in certain markets. No revenue was recognized under the New Arch Enzyme Supply Agreement during the three months ended September 30, 2013. For the nine months ended September 30, 2013, the Company recognized $2.1 million in product revenue for the sale of enzyme inventory to Arch pursuant to the agreement. Royalty revenues earned from Arch under the prior agreements were $0.05 million and $0.1 million for the three and nine months ended September 30, 2012 and are reflected in collaborative research and development revenue on the condensed consolidated statement of operations.