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Collaboration Agreements
12 Months Ended
Dec. 31, 2019
Deferred Revenue Disclosure [Abstract]  
Collaboration Agreements
Collaboration Agreements
At the time of entering into collaboration agreements, the Company evaluates the appropriate presentation and classification of payments within its consolidated financial statements based on the nature of the arrangement, the nature of its business operations and the contractual terms of the arrangement. The Company has determined that amounts to be received from collaborators in connection with its collaboration agreements entered into through December 31, 2019 are related to revenue generating activities.
The Company uses a contingency-adjusted proportional performance model to recognize revenue over the Company’s performance period for each collaboration agreement that includes up front, or milestone-based or other contractual payments. 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 a factor of and limited to cash received and amounts contractually due. Changes in estimates of total expected costs are accounted for prospectively in the period of change.
The Company recognizes revenue from collaboration agreements that do not include up front, milestone-based, or other contractual payments when earned, which is generally in the same period that related costs are incurred. Amounts due to collaboration partners are recognized when the related activities have occurred and are classified in the statement of operations, generally as research and development expense, based on the nature of the related activities.
Lam Research Corporation
In August 2017, the Company entered into a collaboration agreement with Lam with respect to the development of the Company’s Hyb & Seq platform and related assays. Pursuant to the terms of the collaboration agreement, Lam contributed up to an aggregate of $50.0 million towards the project. Lam is eligible to receive certain single-digit percentage royalty payments from the Company on net sales of certain products and technologies developed under the collaboration agreement, if any such net sales are ever recorded. The maximum amount of royalties payable to Lam will be capped at an amount up to three times the amount of development funding actually provided by Lam. The Company retains exclusive rights to obtain regulatory approval, manufacture and commercialize the Hyb & Seq products. Lam participates in research and product development through a joint steering committee. The Company will reimburse Lam for the cost of up to 10 full-time Lam employees each year in accordance with the product development plan.
In connection with the execution of the collaboration agreement, the Company issued Lam a warrant to purchase up to 1.0 million shares of the Company’s common stock with the number of underlying shares exercisable at any time proportionate to the amount of the $50.0 million commitment that has been provided by Lam. The exercise price of the warrant is $16.75 per share, and the warrant will expire on the seventh anniversary of the issuance date. The warrant was determined to have a fair value of $6.7 million upon issuance, and such amount will be recorded as additional paid in capital proportionately from the quarterly collaboration payments made by Lam.
The Company recognized revenue related to the Lam agreement of $16.3 million, $18.6 million and $3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company received development funding of $14.9 million, $21.7 million and $13.4 million related to the Lam collaboration for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, the Company received the maximum amount of development funding from Lam of $50.0 million and does not expect to receive further development funding from Lam.
As of December 31, 2019, the Company had recorded customer deposits of $5.5 million representing amounts received in advance. The Company incurred costs of $0.8 million for the year ended December 31, 2019 related to services provided by Lam employees under the terms of the agreement. As of December 31, 2019, Lam had not exercised any warrants. In January 2020, having received the full commitment of development funding from Lam, the remaining warrants for shares of the Company’s common stock became exercisable and Lam elected to exercise, in full, its warrant for 1.0 million shares of common stock, for which the Company issued an aggregate of 407,247 shares to Lam. In connection with Lam’s exercise of the warrant, the Company agreed to waive certain restrictions associated with the sale of the common stock in exchange for commitments by Lam related to the method and timing of Lam’s sale of the shares.
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. In February 2018, the Company and Celgene entered into an amendment to their collaboration agreement in which Celgene agreed to provide the Company additional funding for work intended to enable a subtype and prognostic indication for the test being developed under the agreement for Celgene’s drug REVLIMID. In connection with this amendment, the Company agreed to remove the right to receive payments from Celgene in the event commercial sales of the companion diagnostic test do not exceed certain pre-specified minimum annual revenues during the first three years following regulatory approval. In addition, the amendment allows Celgene, at its election, to use trial samples with additional technologies for companion diagnostics.
Pursuant to the Company’s agreement as amended in February 2018, the Company is eligible to receive payments from Celgene totaling up to $24.8 million, of which $5.8 million was received as an upfront payment upon delivery of certain information to Celgene and $19.0 million is for development funding and potential success-based development and regulatory milestones. There have been several amendments to the collaboration agreement and in return the Company has received additional payments totaling $2.1 million.
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. Pursuant to its collaboration with Celgene, the Company had been developing an in vitro diagnostic test, LymphMark, as a potential companion diagnostic to aid in identifying patients with diffuse large B-cell lymphoma (DLBCL) for treatment. In April 2019, Celgene announced that the trial evaluating REVLIMID for the treatment of DLBCL did not meet its primary endpoint. In May 2019, the Company’s collaboration agreement with Celgene was terminated effective July 2019, resulting in the recognition of substantially all of the remaining deferred revenue from the agreement.
The Company recognized revenue related to the Celgene agreement of $4.4 million, $2.6 million and $0.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company received development funding of $1.1 million, $0.6 million and $0.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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-1 therapy, 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, seek regulatory approval for, and commercialize a companion diagnostic test 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 clinical research collaboration work plan to the new development collaboration agreement. During 2016, the Company received $12.0 million upfront as a technology access fee and $8.5 million of preclinical milestone payments. In October 2017, Merck notified the Company of its decision not to pursue regulatory approval of the companion diagnostic test for KEYTRUDA and, in August 2018, the Company and Merck agreed to mutually terminate their development collaboration agreement, effective as of September 30, 2018, following the completion of certain close-out activities. As part of the mutual termination agreement, Merck granted to the Company a non-exclusive license to certain intellectual property that relates to Merck’s tumor inflammation signature. The Company recognized revenue related to the Merck agreement of $1.6 million and $27.0 million for the years ended December 31, 2018 and 2017, respectively. The Company received development funding of $1.1 million and $6.8 million for the years ended December 31, 2018 and 2017, respectively.
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. In September 2016, Medivation was acquired by Pfizer, Inc. (“Pfizer”) and became a wholly owned subsidiary of Pfizer. In May 2017, the Company received notification from Pfizer and Astellas terminating the collaboration agreement as a result of a decision to discontinue the related clinical trial.
The Company recognized revenue related to the Medivation/Astellas agreement of $11.5 million for the years ended December 31, 2017. The Company received development funding of $0.9 million for the year ended December 31, 2017.