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Collaboration Agreements
12 Months Ended
Dec. 31, 2016
Deferred Revenue Disclosure [Abstract]  
Collaboration Agreements
Collaboration Agreements
The Company uses a proportional performance model to recognize collaboration revenue over the Company’s performance period for the related collaboration agreement. Costs incurred to date compared to total expected costs are used to determine proportional performance, as this is considered to be representative of the delivery of outputs under the arrangement. Revenue recognized at any point in time is limited to cash received and amounts contractually due. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. All amounts received or due are classified as collaboration revenue as they are earned.
Celgene Corporation
In March 2014, the Company entered into a collaboration agreement with Celgene Corporation (“Celgene”) to develop, seek regulatory approval for, and commercialize a companion diagnostic using the nCounter Analysis System to identify a subset of patients with Diffuse Large B-Cell Lymphoma. The Company is eligible to receive payments totaling up to $45.0 million, of which $5.8 million was received as an upfront payment upon delivery of certain information to Celgene, $17.0 million is for potential success-based development and regulatory milestones, and the remainder is for potential commercial payments in the event sales of the test do not exceed certain pre-specified minimum annual revenue during the first three years following regulatory approval. There have been several amendments to the collaboration agreement to expand the scope of development work and in return the Company has received additional payments totaling $2.1 million.
The Company will retain all commercial rights to the diagnostic test developed under this collaboration, subject to certain backup rights granted to Celgene to commercialize the diagnostic test in a particular country if the Company elects to cease distribution or elects not to distribute the diagnostic in such country. Assuming success in the clinical trial process, and subject to regulatory approval, the Company will market and sell the diagnostic assay and Celgene has agreed to make certain potential commercial payments to the Company in the event sales of the assay do not exceed certain pre-specified minimum annual revenues during the first three years following regulatory approval.
The Company achieved and was paid for milestones totaling $6.0 million during 2014. The process of successfully developing a product candidate, obtaining regulatory approval and ultimately commercializing a product candidate is highly uncertain and the attainment of any additional milestones is therefore uncertain and difficult to predict. In addition, certain milestones are outside the Company’s control and are dependent on the performance of Celgene and the outcome of a clinical trial and related regulatory processes. Accordingly, the Company is not able to reasonably estimate when, if at all, any additional milestone payments may be payable to the Company by Celgene.
The Company recognized collaboration revenue related to the Celgene agreement of $3.2 million, $2.2 million and $2.9 million for the years ended December 31, 2016, 2015, and 2014, respectively. At December 31, 2016, the Company had recorded $5.5 million of deferred revenue related to the Celgene collaboration, of which $1.2 million is estimated to be recognizable as revenue within one year.
Merck & Co., Inc.
In May 2015, the Company entered into a clinical research collaboration agreement with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc. (“Merck”), to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from Merck’s anti-PD-1therapy, KEYTRUDA. Under the terms of the collaboration agreement, the Company received $3.9 million in payments during 2015.
In February 2016, the Company expanded its collaboration with Merck by entering into a new development collaboration agreement to clinically develop and commercialize a novel diagnostic test, based on an optimized gene expression signature, to predict response to KEYTRUDA in multiple tumor types. In connection with the execution of the development collaboration agreement, the Company and Merck terminated the May 2015 clinical research collaboration and moved all remaining activities under the related work plan to the new development collaboration agreement. Under the terms of the new collaboration agreement, the Company is responsible for developing and validating the diagnostic test and, if the parties thereafter determine to proceed, will also be responsible for seeking regulatory approval for and commercializing the related test products. During 2016, the Company received $12.0 million upfront as a technology access fee and is eligible to receive up to an additional $12.0 million of near-term preclinical milestone payments, of which $8.5 million has been received during the year ended December 31, 2016, and other potential downstream regulatory milestone payments. In addition, the Company is eligible to receive funding for certain development costs and for the year ended December 31, 2016, development funding totaled $9.6 million.
The Company recognized collaboration revenue related to the Merck agreement of $8.6 million and $3.7 million for the years ended December 31, 2016 and 2015, respectively, and none for the year ended December 31, 2014. As of December 31, 2016, the Company had recorded $21.4 million of deferred revenue related to the Merck collaboration, $10.1 million of which is estimated to be recognized as revenue within one year.
Medivation, Inc. and Astellas Pharma, Inc.
In January 2016, the Company entered into a collaboration agreement with Medivation, Inc. ("Medivation") and Astellas Pharma Inc. (“Astellas”) to pursue the translation of a novel gene expression signature algorithm discovered by Medivation into a companion diagnostic assay using the nCounter Analysis System. Under the terms of the collaboration agreement, the Company will modify its PAM50-based Prosigna Breast Cancer Assay for potential use as a companion diagnostic test for XTANDI (enzalutamide) for triple negative breast cancer. XTANDI is currently approved by the U.S. Food and Drug Administration for the treatment of metastatic castration-resistant prostate cancer.
The modified Prosigna test will be based upon data from a Phase 2 trial conducted by Medivation and Astellas that evaluated enzalutamide in patients with triple negative breast cancer. Under the terms of the collaboration agreement, the Company will be responsible for developing and validating the diagnostic test and, if the parties thereafter determine to proceed, will also be responsible for seeking regulatory approval for and commercializing the test. During 2016, the Company received $6.0 million upfront for technology access, $6.0 million in pre-clinical milestones, and is eligible to receive up to $10.0 million in development funding over the term of the agreement, in addition to other potential downstream milestone payments. For the year ended December 31, 2016, development funding totaled $2.9 million.
The Company recognized collaboration revenue of $4.8 million related to the Medivation/Astellas agreement for the year ended December 31, 2016, and none for the years ended December 31, 2015 and 2014. As of December 31, 2016, the Company had recorded $10.0 million of deferred revenue related to the Medivation/Astellas collaboration, $4.0 million of which is estimated to be recognized as revenue within one year.