Revenue Recognition

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following tables present our revenues disaggregated by timing of transfer of goods or services (in thousands):

	Year Ended December 31, 2019						Year Ended December 31, 2018
	Product Revenue, net		Collaboration and License Revenue		Total		Product Revenue, net		Collaboration and License Revenue		Total
Timing of revenue recognition:
Transferred at a point in time	$	111,644	$	—	$	111,644	$	24,117	$	—	$	24,117
Transferred over time	—		4,996		4,996		—		16,013		16,013
Total	$	111,644	$	4,996	$	116,640	$	24,117	$	16,013	$	40,130

The following table presents our net product revenues disaggregated by geographic region (in thousands):

	Year Ended December 31,
	2019		2018		2017
United States	$	104,708	$	24,117	$	—
Europe	6,936		—		—
Total revenues	$	111,644	$	24,117	$	—

Net product revenues are attributed to geographic region based on the bill-to location. Collaboration and license revenues are all attributed to the United States based on the location of our collaboration partners’ headquarters.

Product Revenue, Net

To date, our sources of product revenue have been from the U.S. sales of Andexxa and Bevyxxa, which we began shipping to customers in May 2018 and January 2018, respectively, and from the EU sales of Ondexxya, which we began shipping to customers in July 2019. No costs to obtain or fulfill the contracts have been capitalized. For the year ended December 31, 2019 and 2018, we recorded a total of $20.6 million and $3.6 million, respectively, as a reduction to revenue consisting primarily of reserves for product returns, chargebacks and estimated distribution fees.

Product Revenue Reserves

The activities and ending reserve balances for each significant category of product revenue reserves (which constitute variable considerations) were as follows (in thousands):

	Returns			Chargebacks			Others			Total
Balance at December 31, 2017	$	—		$	—		$	—		$	—
Provision related to sales made in:
Current period	2,611			289			633			3,533
Prior period	—			—			—			—
Payments and customer credits issued	(2,312		)	(113		)	(409		)	(2,834		)
Balance at December 31, 2018	$	299		$	176		$	224		$	699
Provision related to sales made in:
Current period	10,254			4,026			3,988			18,268
Prior period	2,373			—			—			2,373
Payments and customer credits issued	(5,366		)	(3,303		)	(1,550		)	(10,219		)
Balance at December 31, 2019	$	7,561		$	899		$	2,661		$	11,121

Collaboration and License Revenue

The following table presents changes in our contract assets and liabilities for the year ended December 31, 2019 (in thousands):

	Balance at Beginning of Period		Addition		Deduction			Balance at End of Period
Contract assets:
Unbilled - collaboration and license revenue	$	9,880	$	5,628	$	(11,725	)	$	3,783
Total contract assets	$	9,880	$	5,628	$	(11,725	)	$	3,783
Contract liabilities:
Deferred revenue	$	6,335	$	2,628	$	(3,445	)	$	5,518
Total contract liabilities	$	6,335	$	2,628	$	(3,445	)	$	5,518

Significant changes in the contract liabilities balances during the period are as follows (in thousands):

	Year Ended December 31, 2019
Revenue recognized according to the current period performance that was included in the contract liability at the beginning of the period	$	884

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2019 (in thousands):

Collaborator	Transaction Price Allocated to the Remaining Performance Obligation as of December 31, 2019		Expected Year By Which Revenue Recognition Will Be Completed	Percentage of Revenue Recognized
BMS and Pfizer - 2016 agreement	$	451	2021	96	%
Daiichi Sankyo - 2014 agreement	673		2021	98	%
Daiichi Sankyo - 2016 agreement	2,355		2025	86	%
Bayer - 2016 agreement	1,697		2025	90	%
Total	$	5,176

 

Milestone payments or refundable advance payments that are not considered probable of being achieved are excluded from the transaction price until they are probable.

Sales-based royalties, including milestone payments based on the level of sales, related to license arrangements are excluded from variable consideration and will be recognized at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

BMS and Pfizer

Agreement Terms

In January 2014, we entered into an agreement with BMS and Pfizer to further study Andexxa as a reversal agent for their jointly-owned, U.S. FDA-approved oral Factor Xa inhibitor, apixaban, through Phase 3 studies (the “2014 BMS and Pfizer Agreement”). We are responsible for the cost of conducting this clinical study.

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 Andexxa in Japan (the “2016 BMS and Pfizer Agreement”). 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% to 15% on net sales of Andexxa in Japan.

Revenue Recognition

We assessed the 2014 BMS and Pfizer Agreement and the 2016 BMS and Pfizer Agreement in accordance with ASC 606 and concluded that BMS and Pfizer are customers.

For the 2014 BMS and Pfizer Agreement, we determined that the duration of the contract began on the effective date in January 2014 and ends upon Andexxa approval in the United States and Europe, which was achieved in 2019. All the performance obligations under this agreement were delivered and we recognized all related revenues by the first quarter of 2019. For the years ended December 31, 2019, 2018, and 2017, we recognized less than $0.1 million, $1.5 million, and $1.8 million, respectively, as license and collaboration revenue under the 2014 BMS and Pfizer Agreement.

For the 2016 BMS and Pfizer Agreement, we determined that the duration of the contract begins on the effective date in February 2016 and ends upon estimated completion of the Andexxa Phase 4 expansion clinical trial in Japan.

We determined that the transaction price of the 2016 BMS and Pfizer Agreement was $10.6 million as of December 31, 2019 which includes routine updates for estimated costs that BMS and Pfizer will incur in developing Andexxa in Japan. In determining the transaction price, we evaluated all the payments to be received during the duration of the contract. As of December 31, 2019, the transaction price included a $15.0 million upfront payment, $5.0 million for acceptance of the Japan New Drug Application (“JNDA”) in Japan, as management expects it to be probable of achievement, $4.3 million of estimated variable consideration for cost-sharing payments from BMS and Pfizer for agreed upon research and development services for clinical trials outside of Japan, and $0.7 million for the cost of Andexxa clinical supply provided to BMS and Pfizer for Andexxa Phase 4 expansion clinical trial in Japan. Our transaction price is reduced by $14.4 million for estimated payments to be made to BMS and Pfizer for costs they will incur in developing Andexxa in Japan. Regulatory approval milestones were fully constrained and therefore are not included in the transaction price, as the receipts of such milestones are outside of our control. In determining whether to constrain other milestones, we considered numerous factors, including whether receipt of the milestones is within our control, contingent upon success in future clinical trials and/or the licensee’s efforts. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to BMS and Pfizer and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

For the year ended ended December 31, 2019, we recognized a $1.1 million reversal of license and collaboration revenue under the 2016 BMS and Pfizer Agreement and recorded $4.8 million as deferred revenue under contract liabilities as of December 31, 2019 on our Consolidated Balance Sheets.

For the year ended December 31, 2018, we recognized $0.8 million as license and collaboration revenue under the 2016 BMS and Pfizer Agreement and recorded $6.3 million as deferred revenue under contract liabilities as of December 31, 2018 on our Consolidated Balance Sheets.

For the year ended December 31, 2017, we recognized $3.1 million as license and collaboration revenue under the 2016 BMS and Pfizer Agreement.

Daiichi Sankyo, Inc. (“Daiichi Sankyo”)

Agreement Terms 

In July 2014, we entered into an agreement with Daiichi Sankyo to study the safety and efficacy of Andexxa as a reversal agent to edoxaban, in our Phase 3 and Phase 4 studies (the “2014 Daiichi Sankyo Agreement”). 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 manufacture and supply Andexxa 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 Andexxa as a reversal agent to edoxaban by the FDA and the 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 Andexxa. 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.

In March 2016, we entered into an agreement with Daiichi Sankyo 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 Andexxa in Japan with BMS and Pfizer (the “2016 Daiichi Sankyo Agreement”). 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.

Revenue Recognition

We assessed the 2014 Daiichi Sankyo Agreement as amended in October 2016 and the 2016 Daiichi Sankyo Agreement in accordance with ASC 606 and concluded that Daiichi Sankyo is a customer.

For the 2014 Daiichi Sankyo Agreement, we determined that the duration of the contract begins on the effective date in July 2014 and ends upon Andexxa approval as a reversal agent to edoxaban in the United States and Europe, which we expect to be achieved in 2021. The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. We analyzed the impact of Daiichi Sankyo’s terminating the agreement prior to Andexxa approval and determined that there were substantive non-monetary penalties to Daiichi Sankyo for doing so. We considered quantitative and qualitative factors to reach this conclusion.

We determined that the transaction price of the 2014 Daiichi Sankyo Agreement and October 2016 amendment of this agreement was $34.0 million as of December 31, 2019. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of December 31, 2019, the transaction price included $22.0 million of upfront payments and $12.0 million in milestones already received upon achievement of specified events. As of December 31, 2019, we had $5.5 million of further milestone payments eligible to be included in the transaction price but have determined that achievement of these milestones is not probable and therefore constrained. As part of our evaluation of the constraint, we considered numerous factors, including whether receipt of the milestones is outside of our control and/or contingent upon success in a future clinical trial. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

For the year ended December 31, 2019, we recognized $0.9 million as license and collaboration revenue under the combined 2014 Daiichi Sankyo Agreement and October 2016 amendment and recorded $0.7 million as deferred revenue under contract liabilities as of December 31, 2019 on our Consolidated Balance Sheets. There were no costs incurred to obtain or fulfill the contract.

For the year ended December 31, 2018, we recognized $2.9 million, as license and collaboration revenue under the combined 2014 Daiichi Sankyo Agreement and October 2016 amendment and recorded $1.4 million as Unbilled - collaboration and license revenue as of December 31, 2018 on our Consolidated Balance Sheets. There were no costs incurred to obtain or fulfill the contract.

For the year ended December 31, 2017, we recognized $6.4 million as license and collaboration revenue under the combined 2014 Daiichi Sankyo Agreement and October 2016 amendment.

For the 2016 Daiichi Sankyo Agreement, we determined that the transaction price of the 2016 Daiichi Sankyo Agreement was $16.4 million as of December 31, 2019 which includes routine updates for estimated reimbursable costs to be incurred in future periods. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of December 31, 2019, the transaction price included $5.0 million of upfront payment and $4.5 million of estimated variable consideration for cost-sharing payments from Daiichi Sankyo for agreed upon research and development services incurred and to be incurred outside of Japan including the ESS-study, and $6.9 million of estimated variable consideration for cost-sharing payments from Daiichi Sankyo associated with the development of Andexxa in Japan. As of December 31, 2019, we had $10.0 million of further regulatory milestone payments eligible for achievement, however, regulatory milestones have been fully constrained and thus are not included in the transaction price. In determining whether to constrain these milestones, we considered numerous factors, including whether receipt of the milestones is within our control and/or contingent upon success in future clinical trials. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

For the year ended December 31, 2019, we recognized $2.4 million as license and collaboration revenue under the 2016 Daiichi Sankyo Agreement and recorded $1.6 million as Unbilled - collaboration and license revenue as of December 31, 2019 on our Consolidated Balance Sheets. None of the costs to obtain or fulfill the contract were capitalized.

For the year ended December 31, 2018, we recognized $3.5 million as license and collaboration revenue under the 2016 Daiichi Sankyo Agreement and recorded $3.1 million as Unbilled - collaboration and license revenue as of December 31, 2018 on our Consolidated Balance Sheets. None of the costs to obtain or fulfill the contract were capitalized.

For the year ended December 31, 2017, we recognized $1.1 million as license and collaboration revenue under the 2016 Daiichi Sankyo Agreement.

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

Agreement Terms

In January 2014, we entered into an agreement with Bayer and Janssen to study Andexxa as a reversal agent to rivaroxaban in our Phase 3 studies and to seek regulatory approval in the United States and Europe (the “2014 Bayer and Janssen Agreement”). We are responsible for the costs associated with this agreement.

Revenue Recognition

We assessed the 2014 Bayer and Janssen Agreement in accordance with ASC 606 and concluded that Bayer and Janssen are customers.

For the 2014 Bayer and Janssen Agreement, we determined that the duration of the contract begins on the effective date of the 2014 Bayer and Janssen Agreement and ends upon Andexxa approval in the United States and Europe for rivaroxaban, which was achieved in 2019. All the performance obligations under this agreement were delivered and we recognized all related revenues by the first quarter of 2019.

For the year ended December 31, 2019, we recognized less than $0.1 million as license and collaboration revenue under the 2014 Bayer and Janssen Agreement. None of the costs to obtain or fulfill the contract were capitalized.

For the year ended December 31, 2018, we recognized $4.1 million as license and collaboration revenue under the 2014 Bayer and Janssen Agreement and recorded $2.0 million as Unbilled - collaboration and license revenue as of December 31, 2018 on our consolidated balance sheets. None of the costs to obtain or fulfill the contract were capitalized.

For the year ended December 31, 2017, we recognized $5.4 million as license and collaboration revenue under the 2014 Bayer and Janssen Agreement.

Bayer Pharma, AG (“Bayer”)

Agreement Terms 

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 Andexxa in Japan with BMS and Pfizer (the “2016 Bayer Agreement”). 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.

We are obligated to provide research and development services, to provide clinical drug supply and related manufacturing services and to provide regulatory approval services in exchange for an upfront nonrefundable fee of $5.0 million. We are also eligible to receive, one payment of $10.0 million which is payable upon the initial regulatory approval for Andexxa for rivaroxaban in Japan.  The $10.0 million payment will be reduced to $7.0 million if Japanese regulatory approval is attained based only upon the ESS Study results.

Revenue Recognition

We assessed the 2016 Bayer Agreement in accordance with ASC 606 and concluded that Bayer is a customer.

We determined that the transaction price of the 2016 Bayer Agreement was $16.4 million as of December 31, 2019 which includes routine updates for estimated reimbursable costs to be incurred in future periods. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. As of December 31, 2019, the transaction price included a $5.0 million upfront payment, $4.5 million of estimated variable consideration for cost-sharing payments from Bayer for agreed upon research and development services incurred and to be incurred outside of Japan including the ESS-study and $6.9 million of estimated variable consideration for cost-sharing payments from Bayer associated with the development of Andexxa in Japan. As of December 31, 2019, we had $10.0 million of further regulatory milestone payments eligible for achievement, however, regulatory milestones have been fully constrained and thus are not included in the transaction price. In determining whether to constrain these milestones, we considered numerous factors, including whether receipt of the milestones is within our control and/or contingent upon success in future clinical trials. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

For the year ended December 31, 2019, we recognized $2.7 million as license and collaboration revenue under the 2016 Bayer Agreement and recorded $2.2 million as Unbilled - collaboration and license revenue as of December 31, 2019 on our Consolidated Balance Sheets. There were no costs incurred to obtain or fulfill the contract.

For the year ended December 31, 2018, we recognized $3.4 million as license and collaboration revenue under the 2016 Bayer Agreement and have recorded $3.5 million as Unbilled - collaboration and license revenue as of December 31, 2018 on our Consolidated Balance Sheets. There were no costs incurred to obtain or fulfill the contract.

For the year ended December 31, 2017, we recognized $1.0 million as license and collaboration revenue under the 2016 Bayer and Janssen Agreement.

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, 2017, we recognized $3.8 million in revenue under this agreement as we completed our obligations under these deliverables. There was no revenue recognized in 2019 and 2018.

Refer to Note 7 “Asset Acquisition and License Agreements” for discussion regarding sublicensing fees due to Astellas Pharma, Inc. (“Astellas”) resulting from this agreement.