Collaboration and License Agreements

9 Months Ended

Dec. 31, 2021

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 terms of the Richter Development and Commercialization 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 $25.0 million has been received), $107.5 million in sales-related milestones, and tiered royalties on net sales following regulatory approval.

Under the terms of the Richter Development and Commercialization Agreement, the Company will continue to lead global development of relugolix combination tablet. The Company also agreed to assist Richter in transferring manufacturing technology from the Company’s CMOs to Richter to enable Richter to manufacture relugolix combination tablet. The Company 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, Revenue from Contracts with Customers. 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 tablet, 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 tablet. 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 evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition. Based upon the Company’s assessment of its progress toward delivering relugolix combination tablet 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 and recognized $33.3 million of the transaction price as Richter license and milestone revenue during the nine months ended December 31, 2020. The Company recognized the remaining $16.7 million of the transaction price as Richter license and milestone revenue during the nine months ended December 31, 2021, as the Company completed delivery of the remaining substantive relugolix combination tablet data packages to Richter. There was no such revenue recognized in the three months ended December 31, 2021 and 2020.

On July 16, 2021, the European Commission approved RYEQO as the first and only long-term, once-daily oral treatment in Europe for moderate to severe symptoms of uterine fibroids in adult women of reproductive age. This approval triggered a $15.0 million regulatory milestone payment from Richter, which the Company recorded as Richter license and milestone revenue during the nine months ended December 31, 2021.

The term of the Richter Development and Commercialization Agreement shall expire on a country-by-country basis upon expiry of the Royalty Term for the Product in a country in the Richter Territory. The Richter Development and Commercialization Agreement may be terminated in its entirety or on a country-by-country basis by mutual consent of the parties, or by either party for the uncured material breach of other party, for bankruptcy of the other party, and for certain other reasons in accordance with the terms of the Richter Development and Commercialization Agreement.

(B) Pfizer Collaboration and License Agreement

On December 26, 2020, one of the Company’s subsidiaries, 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”). Pfizer notified the Company on October 22, 2021 of its decision to decline this option.

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 MYFEMBREE in the women’s health indications, while development for ORGOVYX will be shared equally among the parties.

In the U.S., the Company is the principal on all sales transactions with third parties and recognizes 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 milestone payments, including two regulatory milestones of $100.0 million upon each FDA approval for MYFEMBREE 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 July 2021, the Company received a $100.0 million regulatory milestone payment from Pfizer that was triggered upon the FDA approval of MYFEMBREE for the management of heavy menstrual bleeding associated with uterine fibroids on May 26, 2021.

Pursuant to the terms of the Pfizer Collaboration and License Agreement, the Company has and will continue to 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. 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, 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 on the consolidated balance sheet as a deposit liability (cost share advance from Pfizer) as of the transaction date, split between a current and a non-current portion, based on the expected timing of Allowable Expenses subject to cost share. The financing component has been and will continue to 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 was recorded as deferred revenue and has been and will continue to be recognized as Pfizer 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 was not deemed probable at contract inception. Amounts associated with the regulatory milestones were not initially recognized. Upon achievement of the

related regulatory milestones, cumulative catch-up revenue will be recorded as Pfizer collaboration revenue 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 regulatory 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 regulatory milestones, sales-based milestone payments will not initially be recognized due to the uncertainty associated with the future commercial outcomes of ORGOVYX and MYFEMBREE. 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.

Amounts due to Pfizer as of December 31, 2021 totaling approximately $37.7 million consisted of $12.1 million payable to Pfizer for Pfizer’s 50% share of net profits on sales of ORGOVYX and MYFEMBREE in the U.S. and approximately $25.6 million reimbursement of Allowable Expenses incurred by Pfizer. Amounts due to Pfizer as of March 31, 2021 totaling approximately $1.9 million consisted of $1.8 million payable to Pfizer for Pfizer’s 50% share of net profits on sales of ORGOVYX in the U.S. and approximately $0.1 million reimbursement of Allowable Expenses incurred by Pfizer.

The Company determined that the option exercise fee associated with Pfizer’s option to acquire exclusive commercialization and development rights to relugolix in oncology outside the Co-Promotion Territory, excluding certain Asian countries, did not give rise to a material right since the option fee, coupled with the net royalty payments, reflected its standalone selling price. As such, no separate accounting was required with respect to the option at contract inception. Pfizer notified the Company on October 22, 2021, of its decision to decline this option.

The following table presents changes in the Company’s contract liabilities during the nine months ended December 31, 2021 (in thousands):


	Balance at March 31, 2021		Additions		Imputed Interest		Deductions		Balance at December 31, 2021
Contract liabilities:
Deferred revenue (1)	$	497,933	$	100,000	$	—	$	(96,520)	$	501,413
Cost share advance from Pfizer (2)	$	121,862	$	—	$	1,818	$	(68,654)	$	55,026

(1) Includes $100.6 million and $400.8 million presented as current and non-current, respectively, on the unaudited condensed consolidated balance sheet as of December 31, 2021. Includes $100.6 million and $397.4 million presented as current and non-current, respectively, on the unaudited condensed consolidated balance sheet as of March 31, 2021.

(2) Includes $55.0 million presented as current on the unaudited condensed consolidated balance sheet as of December 31, 2021. Includes $92.4 million and $29.4 million presented as current and non-current, respectively, on the unaudited condensed consolidated balance sheet as of March 31, 2021.

During the nine months ended December 31, 2021, deferred revenue increased by $3.5 million. The net increase was the result of a $100.0 million regulatory milestone from Pfizer that was triggered upon the FDA approval of MYFEMBREE for the management of heavy menstrual bleeding associated with uterine fibroids on May 26, 2021. The increase in deferred revenue was partially offset by the recognition of $79.8 million of Pfizer collaboration revenue and $16.7 million of Richter license and milestone revenue.

During the nine months ended December 31, 2021, cost share advance from Pfizer decreased by $66.9 million. The decrease was the net result of the application of shared Allowable Expenses incurred by the Company and 50% of reimbursement of Allowable Expenses incurred by Pfizer of $68.7 million (consisting of $23.5 million and $45.2 million in reductions to R&D expenses and SG&A expenses, respectively), partially offset by accretion of the implied financing component of $1.8 million.