Collaboration agreement with AbbVie

3 Months Ended

Mar. 31, 2024

Collaboration agreement with AbbVie

Collaboration agreement with AbbVie

4. Collaboration agreement with AbbVie

In January 2023, the Company entered into a Collaboration and Option Agreement, or the Collaboration Agreement, with AbbVie Global Enterprises Ltd., or AbbVie, pursuant to which the Company is using its discovery platform to discover and validate targets derived from patients with three specified tumor types, and antibodies that bind to such targets, which may be the subject of further development and commercialization by AbbVie. Pursuant to the terms of the Collaboration Agreement, the Company granted AbbVie an exclusive option to purchase all rights to each novel target-antibody pair, or a Validated Target Pair or VTP, that the Company generates that meets certain mutually agreed criteria, up to a maximum of 10 in total, for all human and non-human diagnostic, prophylactic and therapeutic uses throughout the world, including the development and commercialization of certain products, or Products, derived from the assigned VTP.

AbbVie paid the Company a nonrefundable upfront payment of $30.0 million in January 2023 and will be required to pay certain additional platform access payments of up to $70.0 million in aggregate based on the Company’s use of its discovery platform in connection with activities under each stage of the research plan and delivery of VTPs to AbbVie. If AbbVie exercises its option to purchase a VTP, then AbbVie will be required to pay an option exercise fee in the low single-digit millions for each of up to 10 VTPs for which it exercises an option. For each Product, the Company is eligible to receive development and commercial based milestones of up to $120.0 million in the aggregate and sales milestones of up to $150.0 million in the aggregate for the achievement of specified levels of annual net sales. The Company is also eligible to receive tiered royalties at percentage rates in the low single digits on annual net sales of any Products that are commercialized by AbbVie.

AbbVie’s obligation to pay royalties will terminate, on a Product-by-Product and country-by-country basis, upon the earlier of (a) the later of (i) 10 years following the first commercial sale for such Product in such country, or (ii) expiration of all valid claims of patent rights covering the Product in such country, and (b) the expiration of all applicable regulatory exclusivities for such Product in such country. AbbVie may terminate the Collaboration Agreement at any time for convenience upon a specified period of prior written notice.

The Company determined that the Collaboration Agreement represents a contract with a customer and consists of one performance obligation to provide research and development services, or R&D services, to AbbVie. The Company evaluated the options to continue the R&D services and options to purchase licenses to each VTP and concluded that these options did not represent material rights.

The Company determined the initial transaction price of the single performance obligation to be $30.0 million, as the variable consideration for additional R&D services, option exercise payments, and development milestone payments are all subject to constraint at contract inception. At each reporting period, the Company will reevaluate the variable consideration subject to constraint and, if necessary, will adjust its estimate of the overall transaction price. For the sales-based royalties, the Company will recognize revenue when the related sales occur.

Revenue from the Collaboration Agreement will be recognized over the estimated performance of the R&D services using the cost-to-cost input method which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the performance obligation. The Company recognized $1.0 million and $2.4 million of collaboration revenue for the three months ended March 31, 2024 and 2023, respectively.

The following table summarizes the change in deferred revenue (in thousands):

	Three Months Ended March 31, 2024
Balance as of December 31, 2023	$	15,982
Recognition of revenue		(1,029)
Balance as of March 31, 2024	$	14,953

As of March 31, 2024, the Company expects to recognize the deferred revenue associated with the non-refundable upfront fee over the estimated research and development period of approximately 1.25 years.