License Revenue

12 Months Ended

Dec. 31, 2022

License Revenue [Abstract]

License Revenue

3. License Revenue

On November 3, 2020, the Company entered into the South Korea Agreement with KPM and Telcon (together, the “Licensee”). Pursuant to the South Korea Agreement, among other things, the Company granted the Licensee a license under certain patents and other intellectual property to develop and commercialize the Company’s lead product candidate, lenzilumab, for treatment of COVID-19 pneumonia, in South Korea and the Philippines (the “Territory”), subject to certain reservations and limitations. The Licensee will be responsible for gaining regulatory approval for, and subsequent commercialization of, lenzilumab in the Territory.

As consideration for the license, the Licensee has agreed to pay the Company (i) an up-front license fee of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties), payable promptly following the execution of the License Agreement, which was received in the fourth quarter of 2020, (ii) up to an aggregate of $14.0 million in two payments based on achievement by the Company of two specified milestones in the US, of which the first milestone was met in the first quarter of 2021 and $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties) was received in the second quarter of 2021, and (iii) subsequent to the receipt by the Licensee of the requisite regulatory approvals, double-digit royalties on the net sales of lenzilumab in South Korea and the Philippines. The Licensee has agreed to certain development and commercial performance obligations. It is expected that the Company will supply lenzilumab to the Licensee for a minimum of 7.5 years at a cost-plus basis from an existing or future manufacturer. The Licensee has agreed to certain minimum purchases of lenzilumab on an annual basis.

The Company assessed the South Korea Agreement in accordance with ASC 606 and ASC 808 – Collaborative Arrangements and determined that its performance obligations under the South Korea agreement include (i) the exclusive, royalty-bearing, sublicensable license to lenzilumab, (ii) the manufacturing supply services to be provided by the Company, (iii) cooperation and assistance to be provided by the Company to the Licensee with regulatory authorities in the Territory and (iv) its obligation to serve on a joint steering committee (Items iii and iv above collectively, the “Research and Development Services” or the “Services”). The Company concluded that in the initial period leading up to regulatory approval in the Territory (the “Initial Period”), the license was not distinct since it was of no benefit to Licensee without the aforementioned Services and that, as such, the license and the Services should be bundled as a single performance obligation.

The Company has concluded that the nature of its promise is to stand ready to provide Research and Development Services as needed during the Performance Period (as defined below). The Company has further concluded that for all of the increments of time during the Performance Period its promise of standing ready to provide the Services is substantially the same. While the specific tasks performed during each increment of time will vary, the nature of the overall promise to provide the Services remains the same throughout the Performance Period.

Since the provision of the license and the Services are considered a single performance obligation, the $4.5 million upfront payment ($6.0 million net of withholding taxes and other fees and royalties) was initially being recognized as revenue ratably over the 29-month period through March of 2023 (the “Performance Period”), the expected period over which the Company conservatively expected the Services to be performed with approval in the Territory originally expected by the end of March 2023. In addition, since the milestone was achieved during the Performance Period, the Company recognized revenue to the extent of the proportion of the straight-line basis achieved as of the first quarter of 2021, with the remainder recorded as deferred revenue to be amortized over the remaining Performance Period. During the quarter ended September 30, 2022, the performance period was reevaluated, and the estimated end date of the performance period was adjusted to December 31, 2025. The change in estimate resulted in a decrease of $0.8 million in quarterly license revenue as compared to amounts that would have been recorded under the previous timeline. In the years ended December 21, 2022 and 2021, the Company has recognized license revenue totaling approximately $2.5 million and $3.6 million, respectively. Prospective periods will reflect the impact of this change in estimate.

Licensee’s purchases of lenzilumab for development purposes or for commercial requirements, represent options under the agreement and revenues will therefore be recognized when control of the product is transferred to Licensee.

Contract Liabilities

A contract liability of $2.6 million, $0.9 million of which represented the current portion, was recorded on the Consolidated Balance Sheets as deferred revenue as of December 31, 2022 related to the South Korea agreement. There were no contract asset or deferred contract acquisition costs as of December 31, 2022 associated with the South Korea agreement.

The following table presents changes in the Company’s contract liability for the years ended December 31, 2022 and 2021 (in thousands):

Balance at January 1, 2021	$	4,216
Additions(1)		4,542
Deductions for performance obligations satisfied:
In current period		(1,721	)
In prior period		(1,874	)
Balance at December 31, 2021		5,163
Deductions for performance obligations satisfied:
In current period		(2,514	)
Balance at December 31, 2022	$	2,649
(1) Milestone payment of $6.0 million (or $4.5 million net of withholding taxes and other fees and royalties).