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Collaborative Arrangements
3 Months Ended
Mar. 31, 2015
Research and Development [Abstract]  
Collaborative Arrangements
Collaborative Arrangements
GSK Platform Technology Transfer, Collaboration and License Agreement
In July 2014, we entered into a platform technology license agreement (the "License Agreement") with GlaxoSmithKline ("GSK"). Under the terms of the License Agreement, we granted GSK a license to use our proprietary CodeEvolver® protein engineering technology platform.
We received a $6.0 million up-front licensing fee upon signing the License Agreement and subsequently a $5.0 million non-creditable, non-refundable milestone payment upon achievement of a milestone. We are eligible to receive additional contingent payments up to $14.0 million, of which $6.5 million are considered milestone payments, over the next 27 months subject to satisfactory completion of the remaining technology transfer milestones and $7.5 million upon completion of the technology transfer period. We also have the potential to receive additional contingent payments that range from $5.75 million to $38.5 million per project based on GSK's successful application of the licensed technology. The contingent payments are not deemed substantive milestones due to the fact that the achievement of the event underlying the payment predominantly relates to GSK's performance of future development and commercialization activities.
For up to three years following the end of the three-year period during which we will transfer our CodeEvolver® protein engineering technology platform to GSK, GSK can exercise an option, upon payment of certain additional fees, that would extend GSK’s license to include certain improvements to the CodeEvolver® protein engineering technology platform that arise during such period. In addition, we are eligible to receive royalties based on net sales, if any, of a limited set of products developed by GSK using our CodeEvolver® protein engineering technology platform.
The term of the License Agreement continues, unless earlier terminated, until the expiration of all payment obligations under the License Agreement. At any time following the completion of the first technology transfer stage, GSK can terminate the License Agreement by providing 90 days written notice to us. If GSK exercises this termination right during the three-year technology transfer period, GSK will make a one-time termination payment to us.
Under the License Agreement, the significant deliverables were determined to be the license, platform technology transfer, and contingent obligation to supply GSK with enzymes manufactured by us at GSK's expense. We determined that the license did not have stand-alone value, and we determined that the license and the platform technology transfer and our participation in joint steering committee activities in connection with the platform technology transfer represent a single unit of accounting. We determined that our participation in the joint steering committee does not represent a separate unit of accounting because GSK could not negotiate for and/or acquire these services from other third parties and our participation on the joint steering committee is coterminous with the technology transfer period. Amounts to be received under the supply arrangement described above will be recognized as revenue to the extent GSK purchases enzymes from us.
The up-front license fee of $6.0 million is being recognized over the technology transfer period of three years. We recognized license fees of $0.5 million for the three months ended March 31, 2015 and nil for the three months ended March 31, 2014, as biocatalyst research and development revenue. We had a deferred revenue balance from GSK related to the upfront license fee of $4.5 million at March 31, 2015 and $5.0 million at December 31, 2014.
Merck Supply Agreement
On February 1, 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement ("Sitagliptin Catalyst Supply Agreement") whereby Merck Sharp and Dohme Corp. ("Merck") may obtain commercial scale substance for use in the manufacture of its products based on the active ingredient sitagliptin, e.g., Januvia®. Merck may extend the term of the Sitagliptin Catalyst Supply Agreement for an additional five years at its sole discretion.
The Sitagliptin Catalyst Supply Agreement requires Merck to pay an annual license fee for the rights to the Sitagliptin technology each year for the term of the Sitagliptin Catalyst Supply Agreement. The license fee is being recognized as collaborative research and development revenue ratably over the five year term of the Sitagliptin Catalyst Supply Agreement.
We recognized license fees of $0.5 million for each of the three months ended March 31, 2015 and 2014, as biocatalyst research and development revenue. We had a deferred revenue balance from Merck related to license fees of $2.4 million at March 31, 2015 and $0.9 million at December 31, 2014. In addition, pursuant to the Sitagliptin Catalyst Supply Agreement, Merck may purchase supply from us for a fee based on contractually stated prices.