Development and Commercialization Agreement

3 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Development and Commercialization Agreement

On March 30, 2020, the Company entered an exclusive license agreement for Richter to commercialize relugolix combination tablet for uterine fibroids and endometriosis in Europe, the Commonwealth of Independent States including Russia, Latin America, Australia, and New Zealand (the “Development and Commercialization Agreement”). Under the agreement, the Company received an upfront payment of $40.0 million on March 31, 2020, is eligible to receive up to $40.0 million in regulatory milestone payments (of which $10.0 million was received in April 2020), $107.5 million in sales-related milestones, and tiered royalties on net sales following regulatory approval. Under the terms of the agreement, the Company will continue to lead global development of relugolix combination tablet. The Company has also agreed to assist Richter in transferring manufacturing technology from the Company’s contract manufacturing organizations to Richter to enable Richter to manufacture relugolix combination tablet. If requested by Richter, the Company has agreed to supply Richter with quantities of relugolix combination tablet for its territories pursuant to the Company’s agreements with its contract manufacturing organizations. Richter will be responsible for local clinical development, manufacturing, and all commercialization activities for its territories. The Company has also granted Richter an option to collaborate with the Company on relugolix combination tablet for future indications in women’s health other than fertility.

The Company determined that the transaction price under the Development and Commercialization Agreement totaled $50.0 million, consisting of the upfront payment of $40.0 million received on March 31, 2020 and a $10.0 million regulatory milestone payment received in April 2020. As of June 30, 2020, the Company did not include any other regulatory milestones, sales-related milestones, or royalties on net sales following regulatory approval in the transaction price given the substantial uncertainty related to their achievement.

The Company concluded that Richter represented a customer and applied relevant guidance from ASC 606 to evaluate the accounting under the Development and Commercialization Agreement. In accordance with this guidance, the Company identified one material combined performance obligation to grant a license to Richter to certain of its intellectual property and to deliver certain clinical and regulatory data packages for relugolix combination therapy, the drug used for both potential indications of uterine fibroids and endometriosis. The Company determined that its grant of a license to Richter to certain of its intellectual property was not distinct from the delivery of certain clinical and regulatory data packages pertaining to relugolix combination therapy. In evaluating the appropriate measure for the Company's performance under the combined performance obligation, the Company determined that revenues should be recognized as data packages are issued to Richter based on the relative value of the data packages delivered to date compared to the totality of the data packages it is obligated to deliver under the Development and Commercialization Agreement. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Based upon the Company's assessment of its progress toward delivering relugolix combination therapy clinical and regulatory data packages to Richter, the Company concluded that as of June 30, 2020, it had satisfied approximately two-thirds of the combined performance obligation. As a result, the Company recognized $33.3 million of the transaction price as revenue during the three months ended June 30, 2020. As the Company currently expects to deliver the remaining substantive relugolix combination therapy data packages to Richter in the fourth quarter of the fiscal year ending March 31, 2021, the Company has recorded the remaining $16.7 million of the transaction price as deferred revenue, a current liability, on the unaudited condensed consolidated balance sheet as of June 30, 2020.

Contract Balances

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these agreements. Amounts payable to the Company are recorded as accounts receivable when the Company's rights to consideration is unconditional. The following table presents changes in the Company’s total contract liabilities during the three months ended June 30, 2020 (in thousands):


	Balance at						Balance at
	March 31, 2020		Additions		Deductions		June 30, 2020

Contract liabilities:
Deferred revenue, current	$	40,000	$	10,000	$	(33,333)	$	16,667

Deferred revenue related to the Richter Development and Commercialization Agreement as of June 30, 2020, which was comprised of the $50.0 million transaction price, including a $40.0 million upfront payment received in March, 2020 and a $10.0 million regulatory milestone received in April, 2020, less the revenue recognized from the effective date of the contract, will be recognized as revenue as the combined performance obligation is satisfied.

The Company had no receivables or contract assets as of March 31, 2020 or June 30, 2020. During the three months ended June 30, 2020, the Company's contract liabilities, which consisted of deferred revenue, decreased by $23.3 million. This decrease included deductions of $33.3 million related to revenue recognized during the three months ended June 30, 2020, partially offset by additions of $10.0 million related to a regulatory milestone received in April, 2020.