On July 1, 2021, the Company entered into a strategic collaboration with Pharming Group N.V. (“Pharming”) to research, develop, manufacture and commercialize OTL-105, an investigational ex vivo autologous HSC gene therapy for the treatment of hereditary angioedema (HAE), a life-threatening rare disorder that causes recurring swelling attacks in the face, throat, extremities and abdomen (the “Collaboration Agreement”).

Under the terms of the Collaboration Agreement, Pharming was granted worldwide rights to OTL-105 and will be responsible for clinical development, regulatory filings and commercialization of the investigational gene therapy, including associated costs. The Company will lead the completion of IND-enabling activities and oversee manufacturing of OTL-105 during preclinical and clinical development, which will be funded by Pharming. In addition, both the Company and Pharming will explore the application of non-toxic conditioning regimen for use with OTL-105 administration.

The Company received an upfront payment of $10.0 million in cash from Pharming. The Company is also eligible to receive up to $189.5 million in development, regulatory and sales milestones as well as mid-single to low double-digit royalty payments on future worldwide sales.

The Company also entered into a Share Purchase Agreement with Pharming on July 1, 2021 (the “SPA”), pursuant to which the Company issued 1,227,738 ordinary shares to Pharming for total consideration of $7.5 million. The consideration is payment for the fair value of ordinary shares with a fair value of $4.1 million plus a $3.4 million premium on the fair value of the Company’s ordinary shares.

The “Collaboration Agreement” and the “SPA” are referred to together as the “Pharming Agreements.”

At the commencement of the arrangement, two units of accounting were identified, which are the issuance of 1,227,738 of the Company’s ordinary shares as part of the SPA, and the license and collaboration agreement, which conveys the license and provides for the Company to provide research, development, manufacturing services for OTL-105. The Pharming Agreements were entered into concurrently as part of a single commercial objective, and the Company considers them a single arrangement for accounting purposes. The total upfront payments of $17.5 million comprises $4.1 million attributed to the equity sold to Pharming and $13.4 million attributed to the Collaboration Agreement. In determining the fair value of the common stock issued to Pharming as part of the SPA, the Company used an option pricing valuation model to take into consideration certain holding period restrictions on the shares. The fair value of the Company’s common shares was considered a level 2 fair value measurement within the fair value hierarchy. The most significant assumptions within the model are the Company’s stock price, the term of the restrictions and the stock price volatility, which is based upon historical volatility of the Company’s stock. Based on the fair value adjustments made by management, the fair value of the shares issued was determined to be $4.1 million with the excess proceeds of $3.4 million being allocated to the Collaboration Agreement.

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customer. The Company has concluded that the conveyance of the license for the HAE program and the provision of research, development, and manufacturing services for the HAE program represent a series of distinct services that are accounted for as a single performance obligation within the Collaboration Agreement. The Company determined that the transaction price includes: the non-refundable up-front payment of $10.0 million, the $3.4 million in premium associated with the SPA, and the variable consideration for estimated reimbursement payments at agreed upon contractual rates to be received from Pharming for the Company’s on-going research, development, and manufacturing services. The potential future variable consideration associated with reimbursement for research, development, and manufacturing services provided by the Company to Pharming at agreed upon contractual rates is the only remaining unsatisfied performance obligation. The milestone payments included in the Collaboration Agreement are fully constrained, as a result of the uncertainty regarding whether any of the associated milestones will be achieved and therefore, the Company determined that it could not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The total estimated cost of the research and development services reflect the nature of the services to be performed and the Company’s best estimate of the length of time required to perform the services. The Company re-evaluates the transaction price as of the end of each reporting period.

The Company also considered the existence of any significant financing component within the Pharming Agreements given their upfront payment structure. Based upon this assessment, the Company concluded that the up-front payments were provided for valid business reasons and not for the purpose of providing financing. Accordingly, the Company has concluded that the upfront payment structure of the Pharming Agreements does not result in the existence of a significant financing component.

The Company recognizes revenue associated with the performance obligation as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the performance obligation. The transfer of control to the customer occurs over the time period that the research, development and manufacturing services are to be provided by the Company, and this cost-to-cost method is, in management’s judgment, the best measure of progress towards satisfying the performance obligation. Reimbursement for research, development, and manufacturing services are recognized as the costs are incurred consistent with the cost-to-cost method. The Company's continuing obligations to provide research, development, and manufacturing services is based on the results of such efforts, and the estimated costs associated with the remaining efforts required to complete the performance obligations may change, which may materially impact revenue recognition. The Company regularly evaluates and, when necessary, updates the costs associated with the remaining effort under the Collaboration Agreement. Accordingly, revenue may fluctuate from period to period due to revisions to estimated costs, resulting in a change in the measure of progress for the performance obligation, or if the transaction price changes due to inclusion of any milestone payments that become unconstrained.

The following table summarizes collaboration revenue recognized in connection with the Company’s performance under the Collaboration Agreement (amounts in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reimbursement revenue	$	515	$	—	$	915	$	—
Upfront and milestone payment revenue		72		—		137		—
Total	$	587	$	—	$	1,052	$	—

The Company had $0.5 million and $0.8 million due from Pharming included in accounts receivable as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, the Company had contract liabilities of $11.4 million, which is classified as either current or long-term deferred revenue in the condensed consolidated balance sheets based on the period over which this is expected to be recognized. The deferred revenue balance represents the portion of the upfront payments received that are partially unsatisfied as of June 30, 2022.