Collaboration and License Agreements

9 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

(A) Richter Development and Commercialization Agreement

On March 30, 2020, the Company entered into 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 “Richter 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 CMOs 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 CMOs. 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 Richter 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. No other regulatory milestones, sales-related milestones, or royalties on net sales following regulatory approval were included 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 Richter 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 delivered 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 Richter 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 December 31, 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 license and milestone revenue during the nine months ended December 31, 2020. There were no amounts recognized in the three months ended December 31, 2020 or the comparable prior year periods. As the Company currently expects to deliver the remaining substantive relugolix combination therapy data packages to Richter in the first quarter of the fiscal year ending March 31, 2022, 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 December 31, 2020.

(B) Pfizer Collaboration and License Agreement

On December 26, 2020, the Company’s subsidiary, MSG, and Pfizer, entered into a collaboration and license agreement (the “Pfizer Collaboration and License Agreement”), pursuant to which the Company and Pfizer will collaborate to jointly develop and commercialize relugolix in oncology and women’s health in the U.S. and Canada (the “Co-Promotion Territory”). In addition, Pfizer also received an option to acquire exclusive commercialization and development rights to relugolix in oncology outside the Co-Promotion Territory, excluding certain Asian countries (the “Pfizer Territory”).

In the Co-Promotion Territory, the Company and Pfizer will equally share profits and certain expenses, including certain pre-launch inventory costs incurred by the Company prior to the effective date of the Pfizer Collaboration and License Agreement (the “Allowable Expenses”). The Company will remain responsible for regulatory interactions and drug supply and will continue to lead clinical development for relugolix combination tablet in the women’s health indications, while development for ORGOVYX will be shared equally among the parties.

In the Co-Promotion Territory, the Company will be the principal on all sales transactions with third parties and will recognize 100% of product sales to third parties as revenue from contracts with customers. The Company concluded that based on the principal vs. agent guidance in ASC 606, it has primary responsibility for fulfilling customer orders, controls inventory before it is sold to third party customers, assumes the risk of inventory loss, and maintains discretion in establishing product price.

Pursuant to the terms of the Pfizer Collaboration and License Agreement, the Company received an upfront payment of $650.0 million in December 2020, and is eligible to receive up to $3.7 billion of additional milestone payments, including two regulatory milestones of $100.0 million upon each FDA approval for relugolix combination tablet in uterine fibroids and endometriosis ($200.0 million in the aggregate), and tiered sales milestones of up to $3.5 billion upon reaching certain thresholds of annual net sales for oncology and the combined women’s health indications in the Co-Promotion Territory. In addition, if Pfizer exercises its option to acquire exclusive commercialization and development rights to relugolix in oncology in the Pfizer Territory, the Company will receive an option exercise fee of $50.0 million and will also be eligible to receive double-digit royalties on net sales of relugolix in the Pfizer Territory. Pfizer will bear 100% of costs incurred in the Pfizer Territory.

Pursuant to the terms of the Pfizer Collaboration and License Agreement, the Company will bear Pfizer’s share of Allowable Expenses, up to a maximum of $100.0 million for calendar year 2021 and up to a maximum of $50.0 million for calendar year 2022. Any unused portion will carry over into the subsequent calendar years until the Company has assumed in aggregate $150.0 million of Pfizer’s share of the Allowable Expenses.

The term of the Pfizer Collaboration and License Agreement continues until no products are sold and all development activities have terminated in the Co-Promotion Territory and, in the case that Pfizer exercises its option for relugolix in the Pfizer Territory, on the last to expire royalty term with respect to a country in the Pfizer Territory. The Pfizer Collaboration and License Agreement may be terminated early by either party for the uncured material breach of the other party or for bankruptcy or other insolvency proceeding of the other party. In addition, Pfizer has certain other termination rights and may terminate the Pfizer Collaboration and License Agreement early upon providing written notice to the Company pursuant to the terms of the Pfizer Collaboration and License Agreement.

The Company assessed the Pfizer Collaboration and License Agreement and determined that it meets both criteria to be considered a collaborative agreement within the scope of ASC 808, Collaborative Arrangements: active participation by both parties and exposures to significant risks and rewards dependent on the commercial success of the activities. Although the Company is lead party and will perform many activities, both development and commercialization responsibilities are assigned between parties and both parties participate on joint steering and other committees overseeing the collaboration activities. Both parties are exposed to significant risks and rewards based on the economic outcomes of the collaboration through cost sharing and profit (loss) sharing provisions. Net payments to/from Pfizer for Pfizer’s share of the net profits and Allowable Expenses will be disaggregated and presented in the Company’s consolidated statements of operations according to the nature of the expense (e.g., collaboration expense (included as a component of cost of sales), R&D expenses, or SG&A expenses).

As discussed above, the Company received a $650.0 million upfront payment from Pfizer in December 2020, of which $150.0 million is Pfizer’s advanced reimbursement for Pfizer’s share of Allowable Expenses (up to $100.0 million for calendar year 2021 and up to $50.0 million for calendar year 2022). The Company concluded that the prepayment by Pfizer of its share of Allowable Expenses represents a significant financing component since the Company received the cash flows at the outset of the arrangement, rather than over a two-year period. Accordingly, the Company reduced the amount of the advanced reimbursement by approximately $3.6 million, representing the implied financing costs based on the Company’s incremental borrowing rate that was derived based on the Sumitomo Dainippon Pharma Loan Agreement, and recorded the discounted value of $146.4 million on the unaudited condensed consolidated balance sheet as a deposit liability (cost share advance from collaboration partner), split between a current and a non-current portion, based on the expected timing of Allowable Expenses subject to cost share. The financing component will be accreted to interest expense utilizing a method that approximates the effective yield method over the period in which the cost share advance is expected to be used. The remainder of the upfront payment of $503.6 million is recorded as deferred revenue and is being recognized as collaboration revenue on a straight-line basis over the estimated term of the agreement of six years, which was estimated by the Company based upon the terms of the Pfizer Collaboration and License Agreement, including the termination provisions contained therein. The Company determined straight-line amortization to be appropriate because the upfront payment represents payment for Pfizer’s right to participate in the collaboration activities, including both commercialization and development activities, which are expected to be realized evenly over this period.

The achievement of regulatory milestones is outside of the Company’s control and therefore is not deemed probable at contract inception. Amounts associated with the regulatory milestones will not initially be recognized. Upon achievement of the related regulatory milestone, cumulative catch-up revenue will be recorded in the period in which the respective regulatory milestone is achieved, and the remainder will be recognized over the remaining contract term. The Company determined that, conceptually, the milestone payments represent payment for development activities that will continue to benefit the collaboration as the products move toward commercialization. Accordingly, the recognition of revenue associated with the regulatory milestones follows the same amortization model as the upfront payment described above.

Similar to the development milestones, sales-based milestone payments will not initially be recognized due to the uncertainty associated with the future commercial outcomes of relugolix and relugolix combination tablet. Upon achievement, the sales-based milestones will be recognized as revenue immediately in the period when the annual sales thresholds are met as the payments represent consideration for past activities that are completed and culminated in the annual sales thresholds being met.

The Company determined that the $50.0 million option for an exclusive license in the Pfizer Territory does not give rise to a material right since the option fee, coupled with the net royalty payments, reflects its standalone selling price. As such, the option is not considered a unit of account under the present arrangement and will be assessed for accounting purposes if and when exercised.

See Note 10(C) for a description of the Company’s contract liabilities and changes in these contract liabilities for the nine months ended December 31, 2020.

The Company records contract liabilities when cash payments are received or due in advance of the Company’s performance pursuant to license and collaboration agreements. The Company’s contract liabilities consist of deferred revenue and a cost share advance from its collaboration partner, Pfizer. The following table presents changes in the Company’s contract liabilities during the nine months ended December 31, 2020 (in thousands):


	Balance at				Imputed				Balance at
	March 31, 2020		Additions		Interest		Deductions		December 31, 2020
Contract liabilities:
Deferred revenue, current	$	40,000	$	93,897	$	—	$	(33,333)	$	100,564
Cost share advance from collaboration partner, current	$	—	$	100,000	$	—	$	(7,585)	$	92,415
Deferred revenue, non-current	$	—	$	419,723	$	—	$	(1,379)	$	418,344
Cost share advance from collaboration partner, non-current	$	—	$	46,384	$	40	$	—	$	46,424

The Company had no contract assets as of December 31, 2020 or March 31, 2020.

During the nine months ended December 31, 2020, current and non-current deferred revenue increased by $478.9 million. The increase was the net result of a $503.6 million upfront payment received from Pfizer (see Note 10(B)) and a $10.0 million regulatory milestone payment received from Richter (see Note 10(A)), partially offset by the recognition of $33.3 million of license and milestone revenue related to the Richter Development and Commercialization Agreement and the recognition of $1.4 million of collaboration revenue related to the Pfizer Collaboration and License Agreement.

During the nine months ended December 31, 2020, current and non-current cost share advance from collaboration partner increased by $138.8 million. The increase was the net result of the cost share advance of $150.0 million (discounted to a present value of $146.4 million) received from Pfizer (see Note 10(B)), partially offset by the application $7.6 million of shared Allowable Expenses. Accretion of the implied financing costs related to the cost share advance was less than $0.1 million.