BeiGene Agreement

Terms of Agreement

On January 7, 2018, the Company and BeiGene Ltd, ("BeiGene") entered into a Collaboration and License Agreement (the “Agreement”), pursuant to which the Company and BeiGene agreed to collaboratively develop sitravatinib in Asia (excluding Japan and certain other countries), Australia and New Zealand (the “Licensed Territory”). BeiGene is considered a related party as the Company and BeiGene have a common investor. Under the Agreement, the Company granted BeiGene an exclusive license to develop, manufacture and commercialize sitravatinib in the Licensed Territory, with Mirati retaining exclusive rights for the development, manufacture and commercialization of sitravatinib outside the Licensed Territory.

As consideration for the rights granted to BeiGene under the Agreement, BeiGene paid the Company a non-refundable, non-creditable up-front fee of $10.0 million. BeiGene is also required to make milestone payments to the Company of up to an aggregate of $123.0 million upon the first achievement of specified clinical, regulatory and sales milestones. The Agreement additionally provides that BeiGene is obligated to pay to the Company royalties at tiered percentage rates ranging from mid-single digits to twenty percent on annual net sales of licensed products in the Licensed Territory, subject to reduction under specified circumstances. The Agreement also provides that the Company will supply BeiGene with sitravatinib for use in BeiGene’s development activities in the Licensed Territory.

The Agreement will terminate upon the expiration of the last royalty term for the licensed products, which is the latest of (i) the date of expiration of the last valid patent claim related to the licensed products under the Agreement, (ii) 10 years after the first commercial sale of a licensed product and (iii) the expiration of any regulatory exclusivity as to a licensed product. BeiGene may terminate the Agreement at any time by providing 60 days prior written notice to the Company. Either party may terminate the Agreement upon a material breach by the other party that remains uncured following 60 days after the date of written notice of such breach or upon certain bankruptcy events. In addition, the Company may terminate the Agreement upon written notice to BeiGene under specified circumstances if BeiGene challenges the licensed patent rights.

Revenue Recognition

The Company evaluated the Agreement under Topic 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under the Agreement, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the transaction price, including any constraints on variable consideration; (iv) allocated the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company determined the transaction price is equal to the up-front fee of $10.0 million. The transaction price was allocated to the performance obligations on the basis of the relative stand-alone selling price estimated for each performance obligation. In estimating the stand-alone selling price for each performance obligation, the Company developed assumptions that require judgment and included forecasted revenues, expected development timelines, discount rates, probabilities of technical and regulatory success and costs for manufacturing clinical supplies. A description of the performance obligations identified under the Agreement, as well as the amount of revenue allocated to each performance obligation, follows:

Licenses of Intellectual Property. The license to the Company’s intellectual property, bundled with the associated know-how, represents a distinct performance obligation. The license and associated know-how was transferred to BeiGene during the three months ended March 31, 2018, therefore the Company recognized the full revenue related to this performance obligation in the amount of $9.5 million during the three months ended March 31, 2018.

Manufacturing Supply Services. The Company's initial obligation to supply sitravatinib for clinical development in the Licensed Territory represents a distinct performance obligation. As such, the Company deferred $0.5 million of revenue related to the manufacturing supply services, and will recognize revenue when BeiGene obtains control of the goods, upon delivery, and which is expected to occur in late 2018 and continue into 2020. The Company may also become responsible for manufacturing sitravatinib for clinical and commercial supply and will receive reimbursement that approximates stand-alone selling prices. No amounts have been recognized for this performance obligation for the three and six months ended June 30, 2018.

Milestone Payments. The Company evaluated whether the milestones are considered probable of being reached and determined that since the milestone payments are not within the control of the Company or BeiGene (due to the requirement for regulatory approvals), the milestones are not considered probable of being achieved, therefore no revenue was recorded related to the milestones either at the inception of the Agreement or for the three and six months ended June 30, 2018. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint, and if necessary, adjust its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect the reported amount of license and collaboration revenues in the period of adjustment.

Royalties. As the license is deemed to be the predominant item to which sales-based royalties relate, the Company will recognize revenue when the related sales occur. No royalty revenue was recognized during the three and six months ended June 30, 2018.

The following table presents a summary of the activity in the Company's contract liabilities during the six months ended June 30, 2018 (in thousands):



	December 31, 2017		Additions		Deductions		June 30, 2018
Contract liabilities:
Deferred revenue - current	$	—	$	318	$	—	$	318
Deferred revenue - non-current	—		215		—		215
Total contract liabilities:	$	—	$	533	$	—	$	533