Strategic License Agreements

9 Months Ended

Sep. 30, 2023

License And Collaboration Agreement [Abstract]

On March 21, 2021, the Company entered into an exclusive license and supply agreement with Immedica (the "Immedica Agreement"). By entering into this agreement, the Company agreed to provide Immedica the following goods and services:

i.Deliver an exclusive, sublicensable, license and know-how (the “License”) to develop and commercialize pegzilarginase (the “Product”) in the territory comprising the members states of the European Economic Area ("EEA"), United Kingdom ("UK"), Switzerland, Andorra, Monaco, San Marino, Vatican City, Turkey, Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman (the “Territory”);

ii.Complete the global pivotal PEACE (Pegzilarginase Effect on Arginase 1 Deficiency Clinical Endpoints) Phase 3 trial (“PEACE Trial”) and related Biologics License Application (“BLA”) package to file with the FDA, which will be leveraged by Immedica in obtaining the necessary regulatory approvals in the Territory; and

iii.Perform a Pediatric Investigation Plan trial (“PIP Trial”) in order for Immedica to be able to receive certain regulatory approvals within the Territory.

In addition, the Company and Immedica formed a Joint Steering Committee (“JSC”) to provide oversight to the activities performed under the agreement; however, the substance of the Company’s participation in the JSC did not represent an additional promised service, but rather, a right of the Company to protect its own interests in the arrangement.

Further, the Company agreed to supply to Immedica, and Immedica agreed to purchase from the Company, substantially all commercial requirements of the Product. The terms of the agreement did not provide for either (i) an option to Immedica to purchase the Product from the Company at a discount from the standalone selling price or (ii) minimum purchase quantities. Immedica was expected to bear (i) all costs and expenses for any development or commercialization of the Product in the Territory subject to the License exclusive of the Company’s promised goods and services summarized above and (ii) all costs and fees associated with applying for regulatory approval of the Product in the Territory.

The Company received a non-refundable payment of $21.5 million and Immedica agreed to provide payment of 50% of the Company’s costs incurred in performing the PIP Trial up to a maximum of $1.8 million. In addition, the Company had the ability to receive regulatory and commercial milestone payments. The Company was also entitled to receive royalties in the mid-20% range on net sales of the Product in the Territory. In July 2021, the Company modified the agreement with Immedica to provide certain additional services in relation to the PEACE Trial and BLA package performance obligation in exchange for the reimbursement of up to $3.0 million of the actual costs incurred in relation to such incremental services.

The Company concluded that Immedica met the definition to be accounted for as a customer because the Company was delivering intellectual property and other services within the Company’s normal course of business, in which the parties are not jointly sharing the risks and rewards. Therefore, the Company concluded that the promises summarized above represent transactions with a customer within the scope of ASC 606. The Company determined that the following promises represent distinct promised services, and therefore, performance obligations: (i) the License, (ii) the PEACE Trial and BLA package, and (iii) the PIP Trial.

Specifically, in making these determinations, the Company considered the following factors:

–As of inception of the agreement, the Company had completed the Phase 1/2 clinical trial related to the Product and was conducting the PEACE Trial. Accordingly, the Company was not promising, nor expecting, to perform additional research and development activities pursuant to the agreement that would either significantly modify, customize or be considered highly interdependent or interrelated with pegzilarginase.

–The License represented functional intellectual property given the functionality of the License was not expected to change substantially as a result of the company’s ongoing activities.

–The services necessary to complete the PEACE Trial, BLA package and PIP Trial could have been performed by other parties.

Given that Immedica was not obligated to purchase any minimum amount or quantities of Product, the supply of Product for commercial use to Immedica was determined to be an option for Immedica, rather than a performance obligation of the Company at contract inception and will be accounted for if and when exercised. The Company also determined that Immedica’s option to purchase the Product did not create a material right as the expected pricing is not at a discount.

The Company determined that the upfront fixed payment amount of $21.5 million should be included in the transaction price. Additionally, the Company determined at inception of the arrangement that 50% of the probable estimated costs to be incurred in relation to the PIP Trial exceeded $1.8 million and included the full reimbursement amount of $1.8 million in the transaction price. Upon subsequent re-evaluation due to changing facts and circumstances, the Company determined the probable estimated costs were less than the maximum allowable reimbursement and a portion of the variable consideration was constrained, which did not materially impact the revenue recognized as of September 30, 2023. Additionally, upon the modification of the agreement in July 2021, the Company determined that the probable estimated costs to perform the additional services related to the PEACE Trial and BLA package exceeded the maximum allowable reimbursement of $3.0 million. Therefore, the Company included an estimated total of $3.6 million that was due in relation to the PIP Trial, PEACE Trial, and BLA package in the transaction price and concluded that it is probable that a significant reversal will not occur in the future. In total, the modified transaction price was determined to be $25.1 million.

The Company allocated $9.6 million and $3.5 million of the modified transaction price to the PEACE Trial and BLA package and PIP Trial performance obligations, respectively, based on the stand-alone selling prices ("SSP"), which were based on the estimated costs that a third-party would charge in performing such services on a stand-alone basis. The SSP for the License was established at inception of the arrangement using a residual value approach due to the uniqueness of and lack of observable data related to the License, and without a specific analog from which to make reliable estimates, resulting in an allocation of $12.0 million.

The potential regulatory milestone payments that the Company was eligible to receive were excluded from the transaction price, as the milestone amounts were fully constrained based on the probability of achievement, since the milestones related to successful achievement of certain regulatory approvals, which might not have been achieved. The Company determined that the royalties and commercial milestone payments related predominantly to the license of intellectual property and therefore should be excluded from the transaction price under the sales- or usage-based royalty exception under ASC 606. The Company intends to reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, the Company intends to adjust its estimate of the transaction price as necessary. The Company recognized the royalties and commercial milestone payments as revenue when the associated sales occurred, and relevant sales-based thresholds were met. The Company also assessed the arrangement with Immedica and concluded that a significant financing component does not exist.

The Company recognized revenue allocated to the License performance obligation at a point in time and upon transfer of the License. The Company completed the transfer of the know-how necessary for Immedica to benefit from the License in September 2021 and recognized $12.0 million of revenue at that time. The development fee allocated to the PEACE Trial, BLA package and PIP Trial performance obligations is recognized over time using an input method of costs incurred related to the performance obligations.

The Company recognized revenue of $0.9 million under the Immedica Agreement for the nine months ended September 30, 2023. There was no such revenue for the three months ended September 30, 2023. The total revenue generated in the nine months ended September 30, 2023 was attributable to the PEACE Phase 3 and PIP trials, drug supply, and royalties from an early access program in France. For the three and nine months ended September 30, 2022, the Company recognized revenue of $0.2 million and $2.2 million, respectively, related to the PEACE Trial and BLA package performance obligation. As of December 31, 2022, the Company recorded deferred revenue of $3.6 million associated with the Immedica Agreement, of which $2.4 million was classified as current. There was no such revenue associated with the Immedica Agreement as of September 30, 2023.

On July 27, 2023, the Company announced that it had entered into an agreement to sell the global rights to pegzilarginase to Immedica and concurrently terminated the Immedica Agreement. Remaining deferred revenue was recognized as part of the gain on disposal of the assets.

Contract Balances from Customer Contract

The timing of revenue recognition, billings and cash collections results in contract assets and contract liabilities on the Company's balance sheets. The Company recognizes license and development receivables based on billed services, which are derecognized upon reimbursement. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

The following table presents changes in the Company’s contract liabilities for the periods presented (in thousands):


Nine Months Ended September 30, 2023	December 31, 2022		Additions		Deductions		September 30, 2023
Contract liabilities:
Deferred revenue	$	2,696	$	575	$	(3,271)	$	—

The Company had no contract assets during the nine months ended September 30, 2023 and 2022.