6. Collaboration and License Agreements

Summary of Collaboration and License Revenue

We have recognized revenue from our collaboration and license agreements as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014
BMS and Pfizer	$	6,583	$	1,540	$	1,497
Daiichi Sankyo		10,421		4,578		4,287
Bayer and Janssen		8,248		5,740		3,598
Bayer		1,450		–		–
Dermavant		8,750		–		–
Other		52		212		243
Total collaboration and license revenue	$	35,504	$	12,070	$	9,625

Bristol-Myers Squibb Company (“BMS”) and Pfizer Inc. (“Pfizer”)

In January 2014, we entered into a collaboration agreement with BMS and Pfizer to further study andexanet alfa as a reversal agent for their jointly owned FDA approved oral Factor Xa inhibitor, apixaban, through Phase 3 studies. We initiated Phase 3 studies in the first half of 2014. We are responsible for the cost of conducting this clinical study. Pursuant to our agreement with BMS and Pfizer we are obligated to provide research, development and regulatory approval services and participate in the Joint Collaboration Committee (“JCC”) in exchange for a partially refundable upfront fee of $13.0 million and up to $12.0 million of contingent milestone payments due upon achievement of certain development and regulatory events. All consideration received and to be earned under this agreement is subject to a 50% refund contingent upon certain regulatory and/or clinical events.

We identified the following non-cancellable performance deliverables under the January 2014 agreement: 1) the obligation to provide research and development services, which include manufacturing and supplying andexanet alfa and providing various reports, 2) the obligation to provide regulatory approval services, and 3) the obligation to participate in the JCC. We considered the provisions of the multiple-elements arrangement guidance and determined that none of the deliverables have standalone value; all of these obligations will be delivered throughout the estimated period of performance and will be accounted for as a single unit of accounting. The non-contingent upfront consideration under this agreement of $6.5 million is being recognized as collaboration revenue on a straight-line basis over the estimated period of performance. In the third quarter of 2014, we revised the remaining estimated period of performance from the first quarter of 2017 to the first quarter of 2018 to reflect a modification to our clinical development and regulatory plans. The contingent upfront consideration of $6.5 million will be recognized if and when the refundable nature of these amounts lapses based upon the achievement of specified regulatory and/or clinical events.

The contingent milestone payments under the January 2014 agreement are not considered substantive because 50% may be refunded upon certain events. The non-contingent portion of milestone payments received are recognized as collaboration revenue on a straight-line basis over the estimated period of performance and the contingent portion of the milestone payments received are recognized if and when the refundable nature of these amounts lapse based upon the achievement of specified regulatory events. During the year ended December 31, 2016, we received the two remaining contingent milestone payments totaling $3.5 million.

During the years ended December 31, 2016, 2015 and 2014 we recognized $2.2 million, $1.5 million and $1.5 million in collaboration revenue under this agreement, respectively. The deferred revenue balance under this agreement as of December 31, 2016 and 2015 was $11.2 million and $8.4 million, respectively.

In February 2016, we entered into a collaboration and license agreement with BMS and Pfizer whereby BMS and Pfizer obtained exclusive rights to develop and commercialize andexanet alfa in Japan. BMS and Pfizer are responsible for all development, regulatory and commercial activities in Japan and we will reimburse BMS and Pfizer for expenses they incur for research and development activities specific to Factor Xa inhibitors other than apixaban. Pursuant to this agreement, we are obligated to provide certain research and development activities outside of Japan, provide clinical drug supply and related manufacturing services and to participate on various committees in exchange for a non-refundable upfront fee of $15.0 million. We are also eligible to receive, contingent payments totaling up to $20.0 million which may be earned upon achievement of certain regulatory events and up to $70.0 million which may be earned upon achievement of specified annual net sales volumes in Japan. We are also entitled to receive royalties ranging from 5% to15% on net sales of andexanet alfa in Japan.

We concluded that the January 2014 and February 2016 agreements should each be accounted for as standalone agreements. We identified the following non-cancellable performance deliverables under the February 2016 agreement: 1) grant of intellectual property license, 2) the obligation to provide research and development services, 3) the obligation to manufacture and provide clinical supply of andexanet alfa, and 4) the obligation to participate in various committees. The February 2016 agreement also contains an obligation to manufacture and provide commercial supply of andexanet alfa which we concluded was a contingent deliverable because andexanet alfa is not yet a commercially approved product and is currently subject to additional clinical studies prior to commercial approval in Japan. We considered the provisions of the multiple-elements arrangement guidance and determined that none of the deliverables have standalone value because of our required expertise associated with the manufacturing process of andexanet alfa and the interdependency of the remaining deliverables on the clinical supply of andexanet alfa.

We evaluated the timing of delivery for each of the deliverables and concluded that our obligation to participate on the various committees would be the last delivered element under the arrangement and therefore would be the basis for revenue recognition for the combined unit of accounting. The total upfront consideration under this agreement is being recognized as collaboration revenue on a straight-line basis over the estimated performance period through the first quarter of 2019.

We have determined that the future contingent payments meet the definition of a milestone and that such milestones are substantive in that the consideration is reasonable relative to all of the deliverables and payment terms within the agreement are commensurate with our performance to achieve the milestone after commencement of the agreement. Accordingly, revenue for the achievement of the milestone will be recognized in the period when the milestone is achieved and collectability is reasonably assured. As of December 31, 2016, no amounts had been recognized as collaboration revenue for any of these milestones and all the contingent payments remained eligible for achievement as of December 31, 2016.

During the year ended December 31, 2016 we recognized $4.4 million in collaboration revenue under this agreement. The deferred revenue balance under this agreement as of December 31, 2016 was $10.6 million.

Daiichi Sankyo, Inc. (“Daiichi Sankyo”)

In June 2013, we entered into an agreement with Daiichi Sankyo to include subjects dosed with edoxaban, their fXa inhibitor product, in one of our Phase 2 proof-of-concept studies of andexanet alfa. Daiichi Sankyo paid us an upfront fee of $6.0 million which we recognized over the estimated period of performance which completed in the fourth quarter of 2015.

For the years ended December 31, 2015 and 2014, we recognized $1.0 million and $2.5 million in collaboration revenue associated with the contingent and the non-contingent element of the arrangement, respectively. There was no deferred revenue balance under this agreement as of December 31, 2016 and 2015.

In July 2014, we entered into an agreement with Daiichi Sankyo to study the safety and efficacy of andexanet alfa as a reversal agent to edoxaban, in our Phase 3 and Phase 4 studies. We are responsible for the cost of conducting these clinical studies. Pursuant to our agreement with Daiichi Sankyo we are obligated to provide research, development and regulatory services and to participate in a JCC in exchange for an upfront nonrefundable fee of $15.0 million, up to two contingent payments totaling $5.0 million which are payable upon the initiation of our Phase 3 study and achievement of certain events associated with scaling up our manufacturing process to support a commercial launch, and up to four payments totaling $20.0 million which are payable upon acceptance of filing and regulatory approval of andexanet alfa as a reversal agent to edoxaban by the FDA and EMA.

In October 2016, we amended this agreement to expedite the expansion of our Phase 4 trial in exchange for an upfront fee of $15.0 million, $8.0 million of which is payable back to Daiichi Sanko based solely on quarterly royalty payments of 1% of world-wide net sales of andexanet alfa. We are also eligible to receive up to three contingent payments totaling $10.0 million payable upon achieving specified clinical site activation and patient enrollment targets. Additionally, the $2.5 million contingent payment associated with scaling up our manufacturing process from the original agreement has been removed by this amendment.

We concluded that the July 2014 agreement and the October 2016 amendment are linked and should be accounted as a combined agreement. We identified the following non-cancellable performance deliverables under the combined agreement: 1) the obligation to provide research and development services, which include manufacturing and supplying andexanet alfa and providing various reports, 2) the obligation to provide regulatory approval services, and 3) the obligation to participate on the JCC. We considered the provisions of the multiple-element arrangement guidance in determining how to recognize the total consideration of the combined agreement. We determined that none of the deliverables have standalone value; all of these obligations will be delivered throughout the estimated period of performance and therefore are accounted for as a single unit of accounting. The $7.0 million nonrefundable portion of the upfront payment received pursuant to the amendment is being recognized as revenue on a straight-line basis over the estimated period of performance through the third quarter of 2018. The $8.0 million refundable portion of the upfront consideration represents an obligation to collaborator and will be relieved as we make royalty payments or written off should we fail to commercialize andexanet alfa.

We have determined all but one of the future contingent payments meets the definition of a milestone and that such milestones are substantive in that the consideration is reasonable relative to all of the deliverables and payment terms within the agreement are commensurate with our performance to achieve the milestone after commencement of the agreement. Accordingly, revenue for the achievement of these milestones will be recognized in the period when the milestone is achieved and collectability is reasonably assured. We recognized $5.0 million as collaboration revenue during the year ended December 31, 2016 associated with the achievement of milestones and seven of the contingent payments remained eligible for achievement as of December 31, 2016.

During the years ended December 31, 2016, 2015 and 2014 we recognized a total of $9.2 million, $3.5 million and $1.8 million in collaboration revenue under this agreement, respectively. The deferred revenue balance under this agreement as of December 31, 2016 and 2015 was $12.6 million and $9.7 million, respectively.

In March 2016, we entered into an agreement with Daiichi Sankyo to perform an ethnic sensitivity study (“ESS-Study”) of Japanese ethnicity, perform any further studies requested by the Japanese regulatory authorities and to deliver services in connection with our collaboration agreement to commercialize andexanet alfa in Japan with BMS and Pfizer. Daiichi Sankyo will reimburse us for 33% of our costs and expenses incurred to conduct the ESS-Study and between 33% and 100% of costs and expenses we incur for other studies that involve edoxaban under the terms of the arrangement.

Pursuant to our agreement with Daiichi Sankyo, we are obligated to provide research and development services, clinical drug supply and related manufacturing services, regulatory approval services and to participate in a JCC in exchange for an upfront nonrefundable fee of $5.0 million. We are eligible to receive, up to two contingent payments totaling $10.0 million payable upon the initial and final regulatory approval for andexanet alfa as a reversal agent to edoxaban in Japan. The $10.0 million contingent payments will be reduced to $7.0 million if the Japanese regulatory approval is attained based only upon the ESS-study results.

We concluded that the March 2016 agreement should each be accounted for as a standalone agreement. We identified the following non-cancellable performance deliverables under the March 2016 agreement: 1) the obligation to provide research and development services 2) the obligation to provide regulatory approval services, 3) the obligation to manufacture and provide clinical supply of andexanet alfa, and 4) the obligation to participate in the JCC. We considered the provisions of the multiple-element arrangement guidance and determined that none of the deliverables have standalone value and accordingly will be accounted for as a single unit of accounting. The total upfront consideration received under this agreement is being recognized as collaboration revenue on a straight-line basis over the estimated performance period associated with our participation in the JCC through the first quarter of 2019.

We have determined that the future contingent payments meet the definition of a milestone and that such milestones are substantive in that the consideration is reasonable relative to all of the deliverables and payment term within the agreement are commensurate with our performance to achieve the milestones after commencement of the agreement. Accordingly, revenue for the achievement of these milestones will be recognized in the period when the milestones are achieved and collectability is reasonably assured. As of December 31, 2016, no amounts had been recognized as collaboration revenue for any of these milestones and the contingent payments remained eligible for achievement as of December 31, 2016.

During the year ended December 31, 2016 we recognized $1.3 million in collaboration revenue under this agreement. The deferred revenue balance under this agreement as of December 31, 2016 was $3.7 million.

Bayer Pharma, AG (“Bayer”) and Janssen Pharmaceuticals, Inc. (“Janssen”)

In February 2013, we entered into a three-way agreement with Bayer and Janssen to include subjects dosed with rivaroxaban, their fXa inhibitor product, in one of our Phase 2 proof-of-concept studies of andexanet alfa. Bayer and Janssen paid us an upfront fee of $5.0 million and $500,000 upon delivery of the final written study report.

We recognized the consideration under this agreement over the estimated period of performance which completed in the fourth quarter of 2015. For the years ended December 31, 2015 and 2014, we recognized $500,000 and $1.1 million in collaboration revenue, respectively. There was no deferred revenue under this agreement as of December 31, 2016 or 2015.

In January 2014, we entered into a three-way agreement with Bayer and Janssen to study the safety and efficacy of andexanet alfa as a reversal agent to rivaroxaban in our Phase 3 studies. We are responsible for the cost of conducting this clinical study. Pursuant to our agreement with Bayer and Janssen we are obligated to provide research, development and regulatory services and to participate in a JCC in exchange for an upfront nonrefundable fee of $10.0 million, up to three contingent payments totaling $7.0 million which are payable upon achievement of certain events associated with scaling up our manufacturing process to support a commercial launch, and up to three payments totaling $8.0 million which are payable upon initiation of our Phase 3 study and regulatory approval of andexanet alfa as a reversal agent to rivaroxaban by the FDA and EMA.

We identified the following non-cancellable performance deliverables under the agreement: 1) the obligation to provide research and development services, which include manufacturing and supplying andexanet alfa and providing various reports, 2) the obligation to provide regulatory approval services, and 3) the obligation to participate on the JCC. We considered the provisions of the multiple-element arrangement guidance in determining how to recognize the total consideration of the agreement. We determined that none of the deliverables have standalone value; all of these obligations will be delivered throughout the estimated period of performance and therefore are accounted for as a single unit of accounting. The total upfront consideration under this agreement is being recognized as revenue on a straight-line basis over the estimated period of performance. In the third quarter of 2014 we updated our estimated period of performance from the first quarter of 2017 to the first quarter of 2018 to reflect a modification to our clinical development and regulatory plans.

We have determined all but one of the future contingent payments meet the definition of a milestone and that such milestones are substantive in that the consideration is reasonable relative to all of the deliverables and payment terms within the agreement and commensurate with our performance to achieve the milestone after commencement of the agreement. Accordingly, revenue for the achievement of these milestones will be recognized in the period when the milestone is achieved and collectability is reasonably assured. For the year ended December 31, 2016, we recognized $5.0 million in collaboration revenue associated with achievement of milestones.The contingent payment of $3.0 million was not considered to be a substantive milestone and was received in the third quarter of 2014 and is being recognized as collaboration revenue on a straight-line basis over the estimated remaining performance period through the first quarter of 2018. One remaining contingent payment remained eligible for achievement as of December 31, 2016.

During the years ended December 31, 2016 and 2015, we recognized $8.2 million and $5.2 million in collaboration revenue under this agreement, respectively. The deferred revenue balance under this agreement as of December 31, 2016 and 2015 was $4.0 million and $7.2 million, respectively.

Bayer

In February 2016, we entered into an agreement with Bayer to perform an ESS-Study of Japanese ethnicity, perform any further studies requested by the Japanese regulatory authorities and to deliver services, in connection with our collaboration agreement to commercialize andexanet alfa in Japan with BMS and Pfizer. Bayer will reimburse us 33% of our costs and expenses incurred to conduct the ESS-Study and between 33% and 100% of costs and expenses we incur for other studies that involve rivaroxaban under the terms of the arrangement.

Pursuant to our agreement with Bayer we are obligated to provide research and development services, provide clinical drug supply and related manufacturing services, provide regulatory approval services and to participate in a JCC in exchange for an upfront nonrefundable fee of $5.0 million. We are also eligible to receive, one contingent payment of $10.0 million which is payable upon the initial regulatory approval for andexanet alfa for rivaroxaban in Japan. The $10.0 million contingent payment will be reduced to $7.0 million if Japanese regulatory approval is attained based only upon the ESS-study results.

We concluded that the January 2014 agreement with Bayer and Janssen and February 2016 agreement with Bayer should each be accounted for as standalone agreements. We identified the following non-cancellable performance deliverables under the February 2016 agreement: 1) the obligation to provide research and development services 2) the obligation to provide regulatory approval services, 3) the obligation to manufacture and provide clinical supply of andexanet alfa, and 4) the obligation to participate in the JCC. We considered the provisions of the multiple-element arrangement guidance and determined that none of the deliverables had standalone value, all of these obligations will be delivered throughout the estimated period of performance and accounted for as a single unit of accounting. The total upfront consideration under this agreement is being recognized as collaboration revenue on a straight-line basis over the estimated performance period through the first quarter of 2019.

We have determined that the future contingent payment meets the definition of a milestone and that such milestone is substantive in that the consideration is reasonable relative to all of the deliverables and payment terms within the agreement are commensurate with our performance to achieve the milestone after commencement of the agreement. Accordingly, revenue for the achievement of the milestone will be recognized in the period when the milestone is achieved and collectability is reasonably assured. As of December 31, 2016, no amounts had been recognized as collaboration revenue for this milestone and the contingent payment remained eligible for achievement as of December 31, 2016.

During the year ended December 31, 2016 we recognized $1.5 million in collaboration revenue under this agreement. The deferred revenue balance under this agreement as of December 31, 2016 was $3.5 million.

Dermavant Sciences GmbH (“Dermavant”)

In December 2016, we granted an exclusive, worldwide license to Dermavant to develop and commercialize cerdulatinib in topical formulation for all indications, excluding oncology, in exchange for a non-refundable upfront payment of $8.8 million and contingent development and regulatory milestones of $36.3 million and up to $100.0 million in commercial milestone payments based on worldwide annual net sales. Additionally, Dermavant is required to pay us a 9% royalty on worldwide net sales of all products commercialized under the agreement throughout the license term, which continues on a country-by-country basis until the later of the 10th anniversary of the first commercial sale or the expiration of the last valid patent.

We identified the following non-contingent deliverables under the agreement, all of which had been satisfied as of December 31, 2016: 1) grant of an exclusive license to develop and commercialize cerdulatinib in topical formulation, excluding oncology; 2) obligation to transfer scientific knowledge and know-how; and 3) obligation to transfer manufacturing knowledge and know-how. Other deliverables referenced in the agreement were either contingent or deemed to be inconsequential and perfunctory; Dermavant has sole responsibility to develop, manufacture and commercialize the product.

During the year ended December 31, 2016 we recognized $8.8 million in revenue under this agreement as we completed our obligations under these deliverables.

Refer to Note 8 “Asset Acquisition and License Agreements” for discussion regarding sublicensing fees due to Astellas Pharma, Inc. (“Astellas”) resulting from this agreement.

Ora, Inc. (“Ora”)

In May 2015, we entered into a license and collaboration agreement with Ora pursuant to which we granted Ora an exclusive license to co-develop and co-commercialize one of our specific Syk inhibitors, PRT2761. Ora has the primary responsibility for conducting the research and development and regulatory activities under this agreement. We are obligated to provide assistance in accordance with the agreed-upon development plan as well as participate on various committees.

Under the terms of this risk and cost sharing agreement, each party will incur its own share of development costs. Third-party related development costs will be shared by Ora and us at approximately 60% and 40%, respectively, until an End of Phase 2 meeting with the FDA, and equally thereafter. We are entitled to receive either 50% of the profits, if any, generated by future sales of the products developed under the agreement or royalty payments on such sales, should we opt out of the agreement.

We may opt out of the agreement any time prior to 90 days after an End of Phase 2 meeting with the FDA. The timing of the exercise of our opt out rights would impact future royalties we would be entitled to receive from Ora. Each party may also buy out the rights and interests in the licensed compound by paying the greater of $6.0 million or two times the actual aggregate development cost incurred by both parties before or 90 days after an End of Phase 2 meeting with the FDA.

All costs we incur in connection with this agreement will be recognized as research and development expenses. During the years ended December 31, 2016 and 2015 costs of $629,000 and $206,000 have been incurred related to this agreement.