KKC Agreements

12 Months Ended

Jun. 30, 2020

Note 2. KKC Agreements

KKC License, Development and Commercialization Agreement

In April 2020, we entered into a License, Development and Commercialization Agreement with Kyowa Kirin Company (formerly “Kyowa Hakko Kirin Co., Ltd.”) (“KKC”) a Japanese life sciences company (the “KKC Commercialization Agreement”). We granted to KKC a

co-exclusive,

sublicensable, payment-bearing license under certain patents and

know-how

controlled by us to develop and commercialize zandelisib and any pharmaceutical product containing zandelisib for all human indications in the U.S. (the “U.S. License”), and an exclusive (subject to certain retained rights to perform obligations under the KKC Commercialization Agreement), sublicensable, payment-bearing, license under certain patents and

know-how

controlled by us to develop and commercialize zandelisib and any pharmaceutical product containing zandelisib for all human indications in countries outside of the United States (the

“Ex-U.S.”)

(the

“Ex-U.S.

license”). KKC granted to us a

co-exclusive,

sublicensable, license under certain patents and

know-how

controlled by KKC to develop and commercialize zandelisib for all human indications in the U.S., and a

co-exclusive,

sublicensable, royalty-free, fully paid license under certain patents and

know-how

controlled by KKC to perform our obligations in the

Ex-U.S.

under the KKC Commercialization Agreement. KKC paid us an initial payment

$100

million in May 2020. Of the $100 million,

$20.4

million was remitted to the Japanese taxing authorities as a result of the U.S. Internal Revenue Service being closed due to the COVID pandemic, and therefore being unable to provide necessary documentation to support an exemption from the required foreign withholding. We expect to receive the amount paid to the Japanese taxing authorities in fiscal year 2021. Additionally, we may earn up to approximately

$582.5

million in potential development, regulatory and commercialization milestone payments, plus royalties on net sales of zandelisib in the

Ex-U.S.,

which are tiered beginning in the teens.

KKC will be responsible for the development and commercialization of zandelisib in the

Ex-U.S.

and, subject to certain exceptions, will be solely responsible for all costs related thereto. We and KKC will

co-develop

and

co-promote

zandelisib in the U.S., with us recording all revenue from U.S. sales. We and KKC will share U.S. profits and costs (including development costs) on a

50-50

basis. We will also provide to KKC certain drug supplies necessary for the development and commercialization of zandelisib in the

Ex-U.S.,

with the understanding that KKC will assume responsibility for manufacturing for the

Ex-U.S.

as soon as practicable.

We assessed the KKC Commercialization Agreement in accordance with Topic 808 and Topic 606 and determined that our obligations comprise the U.S. License, the

Ex-U.S.

License, and development services (the “Development Services”). We determined that the KKC Commercialization Agreement is a collaborative arrangement in accordance with Topic 808 that contains multiple units of account, as we and KKC are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on commercial success of the activities of the arrangement. The U.S. License is a unit of account under the scope of Topic 808 and is not a deliverable under Topic 606, while the

Ex-U.S.

License and Development Services performance obligations are also under the scope of Topic 606.

We determined that the total transaction price of $191.5 million is comprised of the upfront payment of $100.0 million, expected milestone payments of $20.0 million, estimated development cost-sharing of $66.3 million, and deferred revenue of $5.2

million from the KKC Japan License Agreement. We included the amount of estimated variable consideration that is not constrained for development cost-sharing in the transaction price, and also determined that any variable consideration related to sales-based royalties and commercial milestones related to licenses of intellectual property as it is determined when the sale or usage occurs and is therefore excluded from the transaction price. In addition, we are eligible to receive future development and regulatory milestones upon the achievement of certain criteria; however, these amounts are excluded from variable consideration as the risk of significant revenue reversal will only be resolved depending on future research and development and/or regulatory approval outcomes. We will

re-evaluate

the estimated variable consideration included in the transaction price and any related constraints at the end of each reporting period.

We allocated the initial transaction price to each unit of account. Variable consideration that relates specifically to our efforts to satisfy specific performance obligations are allocated entirely to those performance obligations. Other components of the transaction price are allocated based on the relative stand-alone selling price, over which management has applied significant judgment. We developed the estimated stand-alone selling price for the licenses using the risk-adjusted net present values of estimated cash flows, and the estimated stand-alone selling price of the development services performance obligations by estimating costs to be incurred, and an appropriate margin, using an income approach.

We determined that control of the U.S. License and

Ex-U.S.

License were transferred to KKC during the year ended June 30, 2020, and recognized revenue of

$21.0

million related to the

Ex-U.S.

License. The $64.3 million transaction price allocated to the U.S. License obligation accounted for under Topic 808 is recorded as

non-current

deferred revenue and will begin to be recognized upon future commercialization as

non-ASC

606 revenue. We recorded deferred revenue of

$18.1

million for the transaction price allocated to the Development Services performance obligations and will recognize this revenue based on the proportional performance of these development activities, which we expect to recognize through fiscal year 2026.

KKC Japan License Agreement

In October 2018, we, as licensor, entered into a license agreement with KKC for zandelisib (“the KKC Japan License Agreement”). Under the terms of the KKC Japan License Agreement, KKC was granted the exclusive right to develop and commercialize zandelisib in Japan. We also granted KKC the right to purchase supply of zandelisib for commercial requirements at cost plus a

pre-negotiated

percentage, as well as manufacturing rights in Japan. In return, we received an upfront payment of $10.0 million and were eligible to receive additional development and commercialization milestones, as well as royalties on net sales of zandelisib in Japan. In April 2020, we and KKC agreed to terminate the KKC Japan License Agreement. The KKC Japan License Agreement was replaced with the KKC Commercialization Agreement. Pursuant to the terms of the KKC Commercialization Agreement, we agreed to collaborate with KKC on the development, manufacturing and commercialization of zandelisib in Japan.

We assessed the KKC Japan License Agreement in accordance with ASC 606 and determined that our performance obligations comprised the license, research and development obligations, and our obligation to provide clinical trial materials to KKC. We determined that the transaction price amounted to the upfront payment of $10.0 million.

We determined that control of the license was transferred to KKC during the year ended June 30, 2019. Revenue allocated to the research and development obligations was recognized based on the proportional performance of these research and development activities. Revenue allocated to providing clinical trial materials was recognized upon delivery.