2. Collaboration Agreements

Fred Hutchinson Cancer Research Center

In October 2013, the Company entered into a collaboration agreement with FHCRC, focused on research and development of cancer immunotherapy products. The agreement has a six year term and can be extended if mutually agreed upon. The research will be conducted in accordance with a research plan and budget approved by the parties. The Company is committed to aggregate research funding of $9.3 million over a period of six years relating to the research and development of cellular immunology products. The Company recognized $2.0 million and $0.5 million of research and development expenses in connection with its collaboration agreement with FHCRC for the three months ended March 31, 2015 and 2014, respectively.

The Company granted FHCRC rights to certain share-based success payments. Under the terms of this arrangement, the Company may be required to make success payments to FHCRC based on increases in the estimated fair value of the Company’s common stock. The potential payments are based on multiples of increased value ranging from 5x to 40x based on a comparison of the fair value of the common stock relative to its original $4.00 issuance price. The payments are based on whether the value of the Company’s common stock meets or exceeds certain specified threshold values ascending from $20.00 per share to $160.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. In June 2014, the Company entered into an agreement with FHCRC in which it can offset certain indirect costs related to the collaboration projects conducted by FHCRC against any success payments. The aggregate success payments to FHCRC are not to exceed $375 million which would only occur upon a 40x increase in value. The term of the success payment agreement ranges from eight to eleven years depending upon when or if the company receives FDA approval of certain of its product candidates as specified in the agreement.

The following table summarizes the potential success payments, which are payable in cash or publicly-traded equity at the Company’s discretion:


Multiple of Equity Value at issuance		5.0x		7.5x		10.0x		15.0x		20.0x		25.0x		30.0x		35.0x		40.0x
Per share common stock price required for payment	$	20.00	$	30.00	$	40.00	$	60.00	$	80.00	$	100.00	$	120.00	$	140.00	$	160.00
Success payment(s) (in millions)	$	10	$	25	$	40	$	50	$	50	$	50	$	50	$	50	$	50

The success payments will be owed if the value of our common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by events which include an initial public offering of the Company’s stock, a merger, an asset sale, or the sale of the majority of the shares held by certain of the Company’s stockholders or the last day of the term of the success payment agreement. If a higher success payment tier is first met at the same time a lower tier is first met, both tiers will be owed. Any previous success payments made to FHCRC are credited against the success payment owed as of any valuation measurement date, so that FHCRC does not receive multiple success payments in connection with the same threshold. A payment may be triggered on the first anniversary of the closing of the IPO (or the date that is 90 days following such anniversary, at the Company’s option, if the Company is contemplating a capital market transaction during such 90 day period). The value of any such success payment will be determined by the average trading price of a share of the Company’s common stock over the consecutive 90-day period preceding such determination date.

The Company’s liability for share-based success payments under the FHCRC collaboration is carried at fair value and recognized as expense over the term of the six-year collaboration agreement. To determine the estimated fair value of the success payment liability the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of March 31, 2015:


Assumptions	March 31, 2015		December 31, 2014
Fair value of common stock	$	60.66	$	52.22
Risk free interest rate		1.63%-1.91%		1.94%-2.16%
Expected volatility		75%		75%
Expected term (years)		6.55-9.55		6.79-9.79

The computation of expected volatility was based on available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption. The risk free interest rate and expected term assumptions ranged from 1.63% to 1.91% and 6.55 to 9.55 years, respectively, depending on the estimated timing of FDA approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability. As of March 31, 2015 and December 31, 2014, the estimated fair value of the total success payment obligation to FHCRC was approximately $162.9 million and $139.1 million, respectively. The Company recognized research and development expense of $27.2 million and $0.1 million in the three months ended March 31, 2015 and 2014, respectively. The expense associated with the success payment obligation is amortized to research and development expense using the accelerated attribution method over the service period. The success payment liabilities as of March 31, 2015 and December 31, 2014 was $88.4 million and $61.2 million, respectively.

Memorial Sloan Kettering Cancer Center

In November 2013, the Company entered into a sponsored research agreement with MSK, focused on research and development relating to chimeric antigen receptor T cell technology. The research will be conducted in accordance with a research plan and budget approved by the parties. The Company is committed to aggregate research funding of $2.2 million over a period of five years. The Company also entered into a master clinical study agreement, with MSK, pursuant to which the Company committed to provide aggregate funding to MSK of up to $7.2 million for six clinical studies to be conducted at MSK on the Company’s behalf. Each such study will be conducted in accordance with a written plan and budget and protocol approved by the parties. The Company recognized $1.0 million and $0.3 million of research and development expenses in connection with its collaboration agreement with MSK for the three months ended March 31, 2015 and 2014, respectively.

The Company granted MSK rights to certain share-based success payments. Under the terms of this arrangement, the Company may be required to make success payments to MSK based on the increases in the estimated fair value of the Company’s common stock. The potential payments are based on multiples of increased value ranging from 10x to 30x based on a comparison of the fair value of the common stock relative to its original $4.00 issuance price. The payments are based on whether the value of the Company’s common stock meets or exceeds certain specified threshold values ascending from $40.00 per share to $120.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. The aggregate success payments to MSK are not to exceed $150 million, which would only occur upon a 30x increase in value. The term of the success payment agreement ranges from eight to eleven years depending upon when or if the company receives FDA approval of certain of its product candidates as specified in the agreement.

The following table summarizes the potential success payments, which are payable in cash or publicly-traded equity at the Company’s discretion:


Multiple of Equity Value at issuance		10.0x		15.0x		30.0x
Per share common stock price required for payment	$	40.00	$	60.00	$	120.00
Success payment(s) (in millions)	$	10	$	70	$	70

The success payments will be owed, if the value of our common stock on contractually specified valuation measurement dates equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by events which include an initial public offering of the Company’s stock, a merger, an asset sale, or the sale of the majority of the shares held by certain of the Company’s stockholders or the last day of the term of the success payment agreement. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous success payments made to MSK are credited against the success payment owed as of any valuation measurement date, so that MSK does not receive multiple success payments in connection with the same threshold. A payment may be triggered on the first anniversary of the closing of the IPO (or the date that is 90 days following such anniversary, at the Company’s option, if the Company is contemplating a capital market transaction during such 90 day period). The value of any such success payment will be determined by the average trading price of a share of the Company’s common stock over the consecutive 90-day period preceding such determination date.

The Company’s liability for share-based success payments under the MSK collaboration is carried at fair value and recognized as expense over the term of the five-year collaboration agreement. To determine the estimated fair value of the success payment liability the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of March 31, 2015:


Assumptions	March 31, 2015		December 31, 2014
Fair value of common stock	$	60.66	$	52.22
Risk free interest rate		1.65%-1.91%		1.95%-2.16%
Expected volatility		75%		75%
Expected term (years)		6.64-9.65		6.89-9.89

The computation of expected volatility was based on available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption. The risk free interest rate and expected term assumptions ranged from 1.65% to 1.91% and 6.64 to 9.65 years, respectively, depending on the estimated timing of FDA approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability. As of March 31, 2015 and December 31, 2014, the estimated fair value of the total success payment obligation to MSK was approximately $67.4 million and $56.8 million, respectively. The Company recognized research and development expense of $11.7 million and $0.1 million in the three months ended March 31, 2015 and 2014, respectively. The expense associated with the success payment obligation is amortized to research and development expense using the accelerated attribution method over the service period. The success payment liabilities as of March 31, 2015 and December 31, 2014 was $35.4 million and $23.7 million, respectively.

Seattle Children’s Research Institute

In February 2014, the Company entered into a sponsored research agreement with Seattle Children’s Research Institute (“SCRI”) pursuant to which the Company committed to provide research funding to SCRI totaling not less than $2.1 million over a period of five years. Effective April 1, 2015, the sponsored research agreement was amended to extend the term of the agreement through April 2020, thereby increasing the minimum funding obligations by an additional $0.3 million. The research will be conducted in accordance with a written plan and budget approved by the parties. In November 2014, the Company entered into a Letter of Intent with SCRI pursuant to which the Company committed to provide clinical trial funding to SCRI totaling not less than $4.1 million over a period of five years. The Company recognized $0.2 million of research and development expenses in connection with its sponsored research agreement with SCRI for the three months ended March 31, 2015. The Company did not record expense in connection with its sponsored research agreement with SCRI for the three months ended March 31, 2014.