12. License Agreements

Yale University

On February 4, 2011, the Company entered into a license agreement with Yale University, whereby the Company obtained the worldwide exclusive license and right to make, use, sell, import and export PHY906, a development stage botanical compound, and the related technology. In April 2016, the Company entered into a mutual termination agreement with Yale University. All rights and licenses granted under the agreement were immediately terminated and reverted to the party granting such rights.

Symphony Evolution, Inc.

In August 2010, the Company entered into a license agreement with Symphony Evolution, Inc. (Symphony), under which Symphony granted to the Company an exclusive, worldwide, royalty‑bearing, sublicensable license under certain Symphony patents, copyrights and technology to develop, make, use, sell, import and export XL647 and the related technology in the field of oncology and non‑oncology.

The Company is the licensee of granted patents in Australia, Canada, Europe, Japan and the United States. The patents claim tesevatinib as a composition‑of‑matter, as well as use of tesevatinib to treat certain cancers. A pending U.S. application supports additional composition‑of‑matter claims and methods of synthesis. The last to expire U.S. patent in this family has a term that ends in May 2026 based on a calculated Patent Term Adjustment (PTA) and without regard to any potential Patent Term Extension (PTE), which could further extend the term by an additional five years.

The Company is the licensee of a second family of granted patents in China and Europe, as well as applications in Canada, Eurasia, Japan, Taiwan and the United States. These patents and applications disclose the use of tesevatinib to treat PKD. The last to expire U.S. patent in this family would have a term that ends in 2031, though this term could be extended by obtaining a PTA and/or PTE.

The license agreement includes a series of acquisition and worldwide development milestone payments totaling up to $218.4 million, and $14.1 million of these payments and other fees have been paid as of December 31, 2017. Additionally, the license agreement includes commercial milestone payments totaling up to $175.0 million, none of which have been paid as of December 31, 2017, contingent upon the achievement of various sales milestones, as well as single‑digit sales royalties. The royalty term expires with the last to expire patent.

The agreement with Symphony will expire upon the expiration of the last to expire patent within the licensed patents. The Company may terminate the agreement at any time upon six months written notice to Symphony. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period. Symphony may terminate the agreement if the Company challenges the licensed patents. Either party may terminate the agreement upon the bankruptcy or insolvency of the other party.

All other contingent payments will be expensed as research and development as incurred.

Valeant Pharmaceuticals North America LLC

On February 25, 2014, the Company entered into an agreement with Valeant for the co‑promotion of Syprine®, a chelation therapy indicated in the treatment of patients with Wilson’s disease who are intolerant of penicillamine. In February 2016, the Company entered into a mutual termination agreement with Valeant. Upon termination, neither party shall have any rights or obligation including any and all past, present and future payments. Additionally, all rights and licenses granted under the agreement were immediately terminated and reverted to the party granting such rights. As a result of the termination, in February 2016 the Company recorded a gain on settlement of the $3.9 million other milestone payable to Valeant in connection with the acquisition of the drug Infergen.

Princeton University

On December 8, 2010, the Company entered into a license agreement with Princeton University (“Princeton”) whereby the Company obtained from Princeton a worldwide exclusive license and right to make, use and sell products identified by Princeton’s Flux technology (“Princeton License”). The Company was obligated to pay Princeton an annual license fee of $60,000, which was recorded as a research and development expense. In addition, the Princeton License required the Company to make payments contingent on the achievement of certain development milestones totaling $31.0 million, such as receiving certain government approvals. Upon commercial sale, the Company was obligated to pay a low single digit royalty based on net sales levels. No development milestones or sales were achieved as of December 31, 2017 and 2016. In February 2017, the Company entered into a mutual termination agreement with Princeton. All rights and licenses granted under the agreement were immediately terminated and shall revert to the party granting such rights.

MeiraGTx Limited

In April 2015, the Company executed several agreements which transferred its ownership of Kadmon Gene Therapy, LLC to MeiraGTx Limited (“MeiraGTx”), a then wholly‑owned subsidiary of the Company. As part of these agreements, the Company also transferred various property rights, employees and management tied to the intellectual property and contracts identified in the agreements to MeiraGTx. At a later date, MeiraGTx ratified its shareholder agreement and accepted the pending equity subscription agreements, which provided equity ownership to various parties. The execution of these agreements resulted in a 48% ownership in MeiraGTx by the Company. After MeiraGTx was deconsolidated or derecognized, the retained ownership interest was initially recognized at fair value and a gain of $24.0 million was recorded based on the fair value of this equity investment. The Company’s investment is being accounted for under the equity method at zero cost with an estimated fair value at the time of the transaction of $24.0 million. This value was determined based upon the implied value established by the cash raised by MeiraGTx in exchange for equity interests by third parties.

The Company assessed the applicability of ASC 810 to the aforementioned agreements and based on the corporate structure, voting rights and contributions of the various parties in connection with these agreements, determined that MeiraGTx is a variable interest entity, however consolidation is not required as the Company is not the primary beneficiary based upon the voting and managerial structure of the entity.

MeiraGTx, a limited company organized under the laws of England and Wales, was established to focus on the development of novel gene therapy treatments for a range of inherited and acquired disorders. MeiraGTx is developing therapies for ocular diseases, including rare inherited blindness, as well as xerostomia following radiation treatment for head and neck cancer. MeiraGTx is also developing an innovative gene regulation platform that has the potential to expand the way that gene therapy can be applied, creating a new paradigm for biologic therapeutics in the biopharmaceutical industry.

The summarized financial information for MeiraGTx as of and for the years ended December 31, 2017 and 2016 is as follows (amounts in thousands):



	2017		2016
Balance Sheet Data:
Cash	$	8,549	$	17,477
Other current assets		2,926		1,613
Noncurrent assets		14,379		3,461
Current liabilities		21,402		6,041
Noncurrent liabilities		479		815
Mezzanine equity		51,410		33,002
Total stockholders’ deficit		(47,437)		(17,308)
Statement of Operations Data:
General and administrative expense	$	9,879	$	6,027
Research and development expense		22,414		14,038
Net loss		(32,717)		(19,792)

As part of a transition services agreement with MeiraGTx, the Company recognized $0.6 million of service revenue to license and other revenue during the year ended December 31, 2017, and recognized $1.0 million of service revenue to license and other revenue during each of the years ended December 31, 2016 and 2015. During April 2016, the Company received 230,000 shares of MeiraGTx’s convertible preferred Class C shares as a settlement for $1.2 million in receivables from MeiraGTx. Under ASC 323, the Class C shares of MeiraGTx do not qualify as common stock or in-substance common stock and the $1.2 million was recorded as a cost method investment. The Company also received cash payments of $0.3 million and $0.2 million during 2017 and 2016, respectively, related to service revenue earned.

The Company assessed the recoverability of both the cost method and equity method investment in MeiraGTx at December 31, 2017 and 2016 and identified no events or changes in circumstances that may have a significant adverse impact on the fair value of this investment. For the years ended December 31, 2017, 2016 and 2015, the Company recorded its share of MeiraGTx’s net loss of $7.6 million, $13.6 million, and $2.8 million, respectively, inclusive of adjustments related to MeiraGTx’s 2015 financial statements that resulted in the Company recording a loss on equity method investment of $3.9 million for the year ended December 31, 2016. The Company maintains a 25.6% ownership in MeiraGTx at December 31, 2017, inclusive of C preferred shares issued by MeiraGTx. For accounting purposes, the Company has determined that the C preferred shares issued by MeiraGTx are not in-substance common stock. Accordingly, the Company records 38.7% of MeiraGTx’s losses, which represents what the Company’s percentage would be if only A ordinary shares were outstanding. The Company’s maximum exposure associated with MeiraGTx is limited to its initial investment of $24.0 million, which has been written down to zero at December 31, 2017 based on the Company’s absorption of MeiraGTx’s net losses.

Nano Terra, Inc.

On April 8, 2011, the Company entered into a series of transactions with Nano Terra, Inc. (“Nano Terra”), pursuant to which the Company (i) paid $2.3 million for Nano Terra’s Series B Preferred Stock, (ii) entered into a joint venture with Surface Logix, Inc. (“Surface Logix”) (Nano Terra’s wholly‑owned subsidiary) through the formation of NT Life Sciences, LLC (“NT Life”), whereby the Company contributed $0.9 million at the date of formation in exchange for a 50% interest in NT Life and (iii) entered into a sub‑licensing arrangement with NT Life and Surface Logix. Pursuant to the sub‑licensing arrangement, the Company was granted a worldwide, exclusive license under certain intellectual property owned by Surface Logix to three clinical-stage product candidates, as well as rights to Surface Logix’s drug discovery platform, Pharmacomer™ Technology, each of which were licensed by Surface Logix to NT Life. In December 2014, the Company received one share of Nano Terra’s Common Stock for every 100 shares of Series B Preferred Stock held by the Company, resulting in approximately a 1% holding in Nano Terra as of December 31, 2017 and 2016. In accordance with ASC 325, “Investments—Other”, the Company continues to account for the investment under the cost method.

The primary product candidates are currently in early to mid‑stage clinical development for a variety of diseases and target several novel pathways of disease by inhibiting the activity of specific enzymes.

Nano Terra and NT Life are research and development companies, each of which independently maintains intellectual property for the purpose of pursuing medical discoveries. The Company is a minority shareholder of Nano Terra and thereby is unable to exercise significant influence with regard to the entity’s daily operations. The Company is represented on the board of managers of NT Life and is a party to decisions which influence the direction of the organization.

Since inception, the Company has continuously assessed the applicability of ASC 810, based on the corporate structure, voting rights and contributions of the various parties in connection with these agreements, and determined that Nano Terra and NT Life are not variable interest entities and not subject to consolidation. On April 8, 2011 the Company recorded its $2.3 million investment in Nano Terra in accordance with ASC 325, and its investment of $0.9 million in NT Life in accordance with ASC 323, of which was $450,000 was recorded as a loss on equity investment and $450,000 was recorded as an impairment loss in 2011. In accordance with ASC 325‑20‑35, the Company assessed the recoverability of the investment in Nano Terra as of December 31, 2017 and 2016 and identified no events or changes in circumstances that may have a significant adverse impact on the fair value of this investment. There was no activity of the joint venture during the years ended December 31, 2017, 2016 and 2015 which resulted in income or loss to the Company. The Company’s maximum exposure associated with Nano Terra and NT Life is limited to cash contributions made.

Additionally, subject to certain exceptions, the Company must pay to the previous shareholders of Surface Logix from which Nano Terra acquired Surface Logix a mid-single digit percentage royalty of net sales of the applicable licensed products and a percentage that ranges between a low twenty percent and a low forty percent of all sublicensing revenue the Company receives in the event the Company further assigns or sublicenses its rights under the sub-licensing arrangement to certain third parties. In addition, the Company must pay to NT Life a ten percent royalty of any remaining net sales amount of the applicable licensed products and all of such sublicensing revenue after taking into account the royalties and sublicensing revenue paid to the previous shareholders of Surface Logix. No sublicensing revenue or sales were achieved as of December 31, 2017 and 2016.

Dyax Corp. (acquired by Shire Plc in January 2016)

On July 22, 2011 the Company entered into a license agreement with Dyax Corp. (“Dyax”) for the rights to use the Dyax Antibody Libraries, Dyax Materials and Dyax Know‑How (collectively “Dyax Property”). The agreement terminated on September 22, 2015, but the Company had a right to a commercial license of any research target within two years of expiration of the agreement. The Company exercised its right to a commercial license of two targets in September 2017, resulting in a license fee payable to Shire Plc of $1.5 million which was recorded to research and development expense for the year ended December 31, 2017. The agreement includes the world‑wide, non‑exclusive, royalty‑free, non‑transferable license to use the Dyax Property to be used in the research field, without the right to sublicense. Additionally, the Company has the option to obtain a sublicense for use in the commercial field if any research target is obtained. The Company was required to pay Dyax $0.6 million upon entering into the agreement and $0.3 million annually to maintain the agreement. The initial payment was deferred and recorded as prepaid expense; $0.3 million of which will be amortized over the term of the agreement, and $0.3 million of which was amortized in a manner consistent with that of the annual payments. All subsequent annual payments will be and have been recorded as prepaid expense and amortized over the applicable term of one year.

On September 13, 2012 the Company entered into a separate license agreement with Dyax whereby the Company obtained from Dyax the exclusive, worldwide license to use research, develop, manufacture and commercialize DX‑2400 in exchange for a payment of $0.5 million. All payments associated with this agreement were recorded as research and development expense at the time the agreement was executed.

The DX‑2400 license requires the Company to make additional payments contingent on the achievement of certain development milestones (such as receiving certain regulatory approvals and commencing certain clinical trials) and sales targets. None of these targets have been achieved and, as such, no assets or liabilities associated with the milestones have been recorded in the accompanying consolidated financial statements for the year ended December 31, 2017. The DX‑2400 license also includes royalty payments commencing on the first commercial sale of any licensed product, which had not occurred as of December 31, 2017 and 2016.

Chiromics

On November 18, 2011 the Company entered into a non‑exclusive, royalty free license agreement with Chiromics LLC (“Chiromics”) for access to two chemical compound libraries for the research, discovery and development of biological and/or pharmaceutical products. The Company was required to pay $0.2 million upon execution of the agreement and $0.2 million following the delivery of each of the chemical compounds included within the related library. The Company was additionally required to make quarterly payments of $0.2 million for the eight quarters following delivery of all compounds; such payments were expensed to research and development expense in those quarters.

Zydus

In June 2008, the Company entered into an asset purchase agreement with Zydus Pharmaceuticals USA, Inc. (“Zydus”) and Cadila Healthcare Limited where the Company purchased all of Zydus’ rights, title and interest to high dosages of ribavirin. Under the terms of the agreement, the Company paid a one‑time purchase price of $1.1 million. The Company was required to pay a royalty based on net sales of products in the low twenty percents, subject to specified reductions and offsets. In April 2013, the Company entered into an amendment to the asset purchase agreement with Zydus which reduced the royalty payable on net sales of products from the low twenty percents to the mid-teens percents.

In June 2008, the Company also entered into a non‑exclusive patent license agreement with Zydus, under which Zydus granted to the Company a non‑exclusive, royalty free, fully paid up, non‑transferable license under certain Zydus patent rights related to ribavirin. This agreement will expire upon the expiration or termination of a specific licensed patent. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period or upon the bankruptcy or insolvency of the other party.

The Company recorded royalty expense of $0.1 million, $1.2 million and $2.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Jinghua

In November 2015, the Company entered into a license agreement with Jinghua Pharmaceutical Group Co., Ltd. (“Jinghua”). Under this agreement, the Company granted to Jinghua an exclusive, royalty‑bearing, sublicensable license under certain of its intellectual property and know‑how to use, develop, manufacture, and commercialize certain monoclonal antibodies in China, Hong Kong, Macau and Taiwan.

In partial consideration for the rights granted to Jinghua under the agreement, the Company received an upfront payment of $10.0 million in the form of an equity investment in Class E redeemable convertible units of the Company. The Company is eligible to receive from Jinghua a royalty equal to a percentage of net sales of product in the territory in the low ten percents. In addition to such payments, the Company is eligible to receive milestone payments for the achievement of certain development milestones, totaling up to $40.0 million. The Company earned a $2.0 million milestone payment in March 2016, which was recorded as license and other revenue during the year ended December 31, 2016. The Company earned a $2.0 million milestone payment in January 2017, which was received in February 2017, and was recorded as license and other revenue during the year ended December 31, 2017.The Company is also eligible to receive a portion of sublicensing revenue from Jinghua ranging from the low ten percents to the low thirty percents based on the development stage of a product. No such revenue was earned during the years ended December 31, 2017, 2016 and 2015

The Company’s agreement with Jinghua will continue on a product‑by‑product and country‑by‑country basis until the later of ten years after the first commercial sale of the product in such country or the date on which there is no longer a valid claim covering the licensed antibody contained in the product in such country. Either party may terminate the agreement for any material breach by the other party that is not cured within a specified time period or upon the bankruptcy or insolvency of the other party. No patents were licensed to the Company under this agreement.

Camber Pharmaceuticals, Inc.

In February 2016, we entered into a supply and distribution agreement with Camber Pharmaceuticals, Inc. (Camber) for the purposes of marketing, selling and distributing tetrabenazine, a medicine that is used to treat the involuntary movements (chorea) of Huntington’s disease. The initial term of the agreement was twelve months. In May 2016, we amended our agreement with Camber to include the marketing, selling and distributing of valganciclovir, a medicine that is used for the treatment of CMV retinitis, a viral inflammation of the retina of the eye, in patients with acquired immunodeficiency syndrome (AIDS) and for the prevention of CMV disease, a common viral infection complicating solid organ transplants, in kidney, heart and kidney pancreas transplant patients. In August 2016, we amended our agreement with Camber to include the marketing, selling and distributing of several other products that have not had meaningful sales to date. In February 2017, we entered into a third amendment to the supply and distribution agreement with Camber extending the initial term of the agreement by an additional twelve months. The supply and distribution agreement with Camber terminated on February 23, 2018.

Under the agreement, as amended, we obtained commercial supplies of the Camber products at a contracted price and distributed them through our existing sales force and commercial network. We retained 100% of the revenue generated from the sale of the Camber products. The Company recognized revenue from the sales of tetrabenazine of $1.0 million and $0.6 million during the years ended December 31, 2017 and 2016, respectively. No revenue was generated from sales of tetrabenazine in 2015. The Company recognized revenue from sales of valganciclovir of $0.2 million and $0.9 million during the years ended December 31, 2017 and 2016. No revenue was generated from sales of valganciclovir in 2015. No meaningful revenue was generated from sales of the other Camber products for the years ended December 31, 2017, 2016 and 2015.