XML 52 R11.htm IDEA: XBRL DOCUMENT v3.3.0.814
Collaborative Arrangements
9 Months Ended
Sep. 30, 2015
Research and Development [Abstract]  
Collaborative Arrangements
Collaborative Arrangements
GSK Platform Technology Transfer, Collaboration and License Agreement
In July 2014, we entered into a CodeEvolver® platform technology transfer, collaboration and license agreement (the "GSK License Agreement") with GlaxoSmithKline ("GSK"). Under the terms of the GSK License Agreement, we granted GSK a non-exclusive license to use the CodeEvolver® Platform Technology to develop novel enzymes for use in the manufacture of GSK's pharmaceutical and health care products.
We received a $6.0 million up-front licensing fee upon signing the GSK License Agreement and subsequently a $5.0 million non-creditable, non-refundable milestone payment upon achievement of the first milestone. During the three months ended September 30, 2015, we achieved the second milestone of the agreement earning another milestone payment of $6.5 million. We are eligible to receive an additional contingent payment of $7.5 million upon the 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 the CodeEvolver® Platform Technology 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® Platform Technology that arise during such period. In addition, we will also be eligible to receive royalties based on net sales, if any, of a limited set of products developed by GSK using the CodeEvolver® Platform Technology.
The term of the GSK License Agreement continues, unless earlier terminated, until the expiration of all payment obligations under the GSK License Agreement. At any time following the completion of the first technology transfer stage, GSK can terminate the GSK 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 GSK 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 and $1.5 million for the three and nine months ended September 30, 2015, respectively, and $0.5 million for the three and nine months ended September 30, 2014 as biocatalyst research and development revenues. We had a deferred revenue balance from GSK related to the upfront license fee of $3.5 million at September 30, 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") with Merck Sharp and Dohme Corp., known as MSD outside the United States and Canada ("Merck") whereby 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 revenues 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 September 30, 2015 and 2014 and $1.5 million for each of the nine months ended September 30, 2015 and 2014 as biocatalyst research and development revenues. We had a deferred revenue balance from Merck related to license fees of $1.4 million at September 30, 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.
Merck Platform Technology Transfer and License Agreement
On August 3, 2015 ("Effective Date"), we entered into a CodeEvolver® platform technology transfer and license agreement (the "Merck License Agreement") with Merck. The Agreement allows Merck to use the CodeEvolver® Platform Technology in the field of human and animal healthcare.
We received a $5.0 million up-front licensing fee upon signing the Merck License Agreement. During the three months ended September 30, 2015, we achieved the first milestone of the Merck License Agreement earning a milestone payment of $5.0 million. We are eligible to receive an additional $8.0 million subject to the satisfactory completion of the second milestone of the technology transfer process. We will also be eligible to receive payments of up to a maximum of $15.0 million for each commercial active pharmaceutical ingredient ("API") that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver® Platform Technology.
Under the terms of the Merck License Agreement, we granted to Merck a non-exclusive, worldwide license to use the CodeEvolver® Platform Technology to research, develop and manufacture novel enzymes for use by Merck in its internal research programs ("Merck Non-Exclusive Field"). The license to Merck is exclusive for the research, development and manufacture of novel enzymes for use by Merck in the chemical synthesis of therapeutic products owned or controlled by Merck ("Merck Exclusive Field"). Merck has the right to grant sublicenses to affiliates of Merck and, in certain limited circumstances, to third parties. We also granted to Merck a license to make or have made products manufactured using the CodeEvolver® Platform Technology with a right to grant sublicenses solely to affiliates of Merck, contract manufacturing organizations and contract research organizations. The manufacturing license is exclusive in the Merck Exclusive Field and non-exclusive in the Merck Non-Exclusive Field. The licenses are subject to certain limitations based on pre-existing contractual obligations that apply to the technology and intellectual property that are the subject of the license grants. The licenses do not permit the use of the CodeEvolver® Platform Technology to discover any therapeutic enzyme, diagnostic product or vaccine. In addition, Merck is prohibited from using the CodeEvolver® Platform Technology to develop or produce enzymes or any other compounds for or on behalf of any third parties except in a very limited manner when Merck divests a therapeutic product that is manufactured using an enzyme developed using the CodeEvolver® Platform Technology.
Under the Merck License Agreement, we will transfer the CodeEvolver® Platform Technology to Merck over an approximately 15 to 24 month period starting on the Effective Date (the "Technology Transfer Period"). As part of this technology transfer, we will provide to Merck our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of our and Merck scientists will participate in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Merck laboratory. Upon completion of technology transfer, Merck will have CodeEvolver® Platform Technology installed at its designated site.
The licenses to Merck are granted under patents, patent applications and know-how that we own or control as of the Effective Date and that cover the CodeEvolver® Platform Technology. Any improvements to the CodeEvolver® Platform Technology during the Technology Transfer Period will also be included in the license grants from Codexis to Merck. At the end of the Technology Transfer Period, Merck can exercise annual options that, upon payment of certain option fees, would extend Merck's license to include certain improvements to the CodeEvolver® Platform Technology that arise during the three-year period that begins at the end of the Technology Transfer Period.
During the 15-month period that started on the Effective Date, we will provide additional enzyme evolution services to Merck at our laboratories in Redwood City.
The up-front license fee of $5.0 million is being recognized ratably over a two-year period. We recognized license fees of $0.4 million for the three months ended September 30, 2015, as biocatalyst research and development revenues and had a deferred revenue balance from Merck related to the Merck License Agreement license fees of $4.6 million at September 30, 2015.
Under the Merck License Agreement, we will own any improvements to our protein engineering methods, processes and algorithms that arise and any enzyme technology or process technology that are developed during a technology transfer project, an evolution program or additional services. Merck will own (the "Merck-Owned Technology") (a) any enzyme technology that is developed solely by Merck under the Agreement using the CodeEvolver® Platform Technology (a "Project Enzyme") and (b) the methods of use of any Project Enzyme or any enzyme developed jointly by Merck and us using the CodeEvolver® Platform Technology. Merck granted to us a worldwide, non-exclusive, fully paid-up, royalty-free license, with the right to grant sublicenses, to use the Merck-Owned Technology outside of the Merck Exclusive Field.
For each API that Merck manufactures using an enzyme developed with the CodeEvolver® Platform Technology, we will have a right of first refusal to supply Merck with the enzyme used to manufacture the API if Merck outsources the supply of the enzyme. Our right of first refusal applies during the period that begins on the completion of a Phase III clinical trial for the product containing the API and ends five years following regulatory approval for such product.
The Merck License Agreement has a term that begins on the Effective Date and continues, unless earlier terminated, until the expiration of all payment obligations under the agreement. Merck may terminate the Merck License Agreement by providing 90 days written notice to us. If Merck exercises this termination right during the Technology Transfer Period, Merck will make a one-term termination payment to us of $8.0 million. We can terminate the Merck License Agreement by providing 30 days written notice to Merck if we determine, pursuant to our contractual audit rights under the agreement, that Merck has repeatedly failed to make required payments to us and/or materially underpaid us an amount due under the Merck License Agreement. In the event the Merck License Agreement is terminated earlier by Merck, or by us due to an uncured material breach by Merck, or if Merck sells or transfers to a third party any Merck business or facility that includes any of our proprietary materials, information or technology, we have the right to conduct an audit of Merck's facilities to confirm that all of our proprietary materials, information and technology have been destroyed. The Merck License Agreement contains indemnification provisions under which Merck and we indemnify each other against certain third party claims.