10. Collaboration, Licensing and Milestone Agreements

Servier

In September 2014, we entered into an Exclusive License and Collaboration Agreement, or the Original Agreement, with Les Laboratoires Servier and Institut de Recherches Internationales Servier, or collectively, Servier. In April 2017, we entered into an Amended and Restated Exclusive License and Collaboration Agreement, or the Restated Agreement, with Servier, pursuant to which the Original Agreement was amended and restated in its entirety. In February 2019, we entered into an agreement to terminate the Restated Agreement. For further details, see Note 20. Subsequent Events.

Under the Restated Agreement, we granted Servier an exclusive and sublicensable (subject to certain conditions) royalty-bearing license with respect to the development and commercialization of PIXUVRI for use in pharmaceutical products, or Licensed Products, outside of the U.S. (and its territories and possessions).

In May 2017, we received a non-refundable, non-creditable upfront cash payment of €12.0 million under the terms of the Restated Agreement. This amount included a €2.0 million payment for a milestone relating to EMA approval of an additional third-party manufacturer of PIXUVRI, which was not included in the Original Agreement and was deemed achieved at the time of the Restated Agreement. Subject to the achievement of certain conditions, the Restated Agreement provided for additional milestone payments of up to €76.0 million: up to €36.0 million in potential regulatory milestone payments (which includes a €1.0 million payment for a regulatory milestone achieved in September 2017 as discussed below), and up to €40.0 million in potential sales-based milestone payments.

The Restated Agreement also provided that we were eligible to receive tiered royalty payments on net sales of products containing PIXUVRI, ranging from a low double-digit percentage up to a percentage in the low twenties, subject to certain reductions of up to mid-double-digit percentages under certain circumstances, subject to expiration upon certain events, including upon expiration of exclusivity rights to products containing PIXUVRI in the respective country.

Under the Restated Agreement, with the exception of the conclusion of the PIX306 trial and certain other services,

Servier was responsible for development, commercialization and manufacturing activities within its territory. We entered into a commercialization transition plan whereby we transferred to Servier medical affairs and commercialization activities relating to the Licensed Products in Israel, Turkey, Germany, Austria, the United Kingdom, Denmark, Finland, Norway and Sweden, or collectively, the Transition Territory. Upon completion of the commercialization transition plan, we terminated or assigned certain distributor and wholesaler contracts to Servier in the Transition Territory. Each party was responsible for the manufacture and supply of drug products and substances in their respective territories. We recorded reimbursements received from Servier for their portion of operating expenses we pay on their behalf as revenue and the full amount of costs as operating expenses in the statements of operations.

Prior to its termination, the Restated Agreement was scheduled to expire on a country-by-country basis upon the expiration of the royalty terms in the countries in the Servier territory, at which time all licenses granted to Servier would become perpetual and royalty-free.

We have determined that the Restated Agreement with Servier is within the scope of ASC 606 since we and Servier do not equally share risks and rewards of the arrangement under the Restated Agreement and as such a vendor-customer relationship exists. We identified the following performance obligations at the inception of the Restated Agreement:

• a license with respect to the development and commercialization of PIXUVRI

• development services

• joint committee obligations

• regulatory responsibilities

• commercialization responsibilities

• manufacturing and supply responsibilities

The license is a distinct promise because it is sublicensable and separable from the remaining performance obligations and can be used for its intended purpose on its own. The remaining service performance obligations are also distinct because these services are not proprietary in nature, and other vendors could provide the same services in order to derive value from the license.

We determined that performance obligations relating to the joint committee obligations and the regulatory, commercial, and manufacturing and supply responsibilities were insignificant in the context of the Restated Agreement, and as such these obligations were combined with the development services and included as “Development and other services” in the table below.

At the inception of the Restated Agreement, the arrangement consideration of $12.8 million (€12.0 million converted into U.S. dollars using the currency exchange rate as of the date of the Restated Agreement) was included in the initial transaction price, which was then allocated based on the percentage of the relative selling price of each performance obligation as follows (in thousands):



License	$	11,487
Development and other services	1,348
Total upfront payment	$	12,835

We estimated the selling price of the license using the income approach that values the license by discounting direct cash flow expected to be generated over the remaining life of the license, net of cash flow adjustments related to working capital. The estimates and assumptions include, but are not limited to, estimated market opportunity, expected market share, and contractual royalty rates. We estimated the selling price of the development and other services, which includes personnel costs as well as third-party costs for applicable services and supplies, by discounting estimated expenditures for services to the date of the Restated Agreement. We concluded that a change in the key assumptions used to determine the best estimate of the selling price for the license would not have a significant effect on the allocation of the arrangement consideration.

Regulatory and sales milestones, as well as royalty payments, are not included in the initial transaction price. Regulatory milestones under the Restated Agreement are subject to a constraint and as such, based on the most-likely amount approach, we recognize revenue when we deem probable that there will not be a significant reversal of revenue in the future periods. Royalty payments we receive from Servier are sales-based royalties in connection with the license of intellectual property. As such, royalty revenues are recognized as underlying sales occur. And sales milestone revenues are recognized when underlying sales milestones are achieved as the royalty exception under ASC 606 also applies to sales milestones.

During the year ended December 31, 2017, we recognized $11.5 million of consideration allocated to the license as revenue upon delivery of the license. The $1.3 million consideration allocated to development and other services was recorded as deferred revenue, along with the $0.6 million deferred revenue balance from the Original Agreement, for a total deferred revenue balance of $1.9 million as of the date of Restated Agreement. During the year ended December 31, 2017, $0.5 million of the deferred revenue balance was recognized as revenue; the remaining $1.4 million was recognized as revenue for the year ended December 31, 2018 as the development service obligation under the Restated Agreement was deemed complete.

In September 2017, we attained a regulatory milestone under the Restated Agreement and recognized a €1.0 million milestone revenue (or $1.2 million using the currency exchange rate as of the date the milestone was achieved). In November 2018, we recognized a €3.0 million milestone revenue (or $3.4 million using the currency exchange rate as of the date the milestone was achieved) relating to the attainment of a regulatory milestone.

Teva

Pursuant to an acquisition agreement entered into with Cephalon, Inc., or Cephalon, in June 2005, we have the right to receive up to $100.0 million in payments upon achievement of specified sales and development milestones related to TRISENOX. Cephalon was subsequently acquired by Teva Pharmaceutical Industries Ltd., or Teva. As of December 31, 2018, we have earned $60.0 million of such potential milestone payments as a result of having achieved certain milestones. For the year ended December 31, 2018, we received $10.0 million from Teva upon the achievement of a milestone for FDA approval of TRISENOX for first line treatment of acute promyelocytic leukemia. In addition, for the years ended December 31, 2018 and 2017, we earned $10.0 million in each respective period upon the achievement of worldwide net sales milestones of TRISENOX. The achievement of the remaining milestones is uncertain at this time.

Baxalta

In November 2013, we entered into the Pacritinib License Agreement with Baxter for the development and commercialization of pacritinib for use in oncology and potentially additional therapeutic areas. Baxter assigned its rights and obligations under the Pacritinib License Agreement to Baxalta. Under the Pacritinib License Agreement, we granted to Baxter an exclusive, worldwide (subject to our certain co-promotion rights in the U.S.), royalty-bearing, non-transferable, and (under certain circumstances outside of the U.S.) sub-licensable license to our know-how and patents relating to pacritinib.

In October 2016, we entered into the Asset Return and Termination Agreement, or the Baxalta Termination Agreement, with Baxalta. Pursuant to the Baxalta Termination Agreement, the Pacritinib License Agreement was terminated in its entirety (other than with respect to certain customary provisions that survive termination, including those pertaining to confidentiality and indemnification), the Pacritinib License Agreement has no further force or effect, and all rights and obligations of the Company and Baxalta under the Pacritinib License Agreement were terminated.

In October 2016, we resumed primary responsibility for the development and commercialization of pacritinib as a result of the Baxalta Termination Agreement and are no longer eligible to receive cost sharing or milestone payments for pacritinib’s development from Baxalta. In addition, under the Baxalta Termination Agreement, we are required to make a milestone payment to Baxalta in the amount of approximately $10.3 million upon the first regulatory approval or any pricing and reimbursement approvals of a product containing pacritinib.

Novartis

In January 2014, we entered into a Termination Agreement, or the Novartis Termination Agreement, with Novartis to reacquire the rights to PIXUVRI and Opaxio, or collectively, the Compounds, previously granted to Novartis under our License and Co-Development Agreement with Novartis, as amended, or the Original Novartis Agreement. Pursuant to the Novartis Termination Agreement, the Original Novartis Agreement was terminated in its entirety, other than with respect to certain customary provisions, including those pertaining to confidentiality and indemnification, which survive termination.

Under the Novartis Termination Agreement, we agreed not to transfer, license, sublicense or otherwise grant rights with respect to intellectual property of the Compounds unless the transferee/licensee/sublicensee agrees to be bound by the terms of the Novartis Termination Agreement. We also agreed to provide potential payments to Novartis, including a percentage ranging from the low double-digits to the mid-teens, of any consideration received by us or our affiliates in connection with any transfer, license, sublicense or other grant of rights with respect to intellectual property of the Compounds, provided that such payments would not exceed certain prescribed ceilings in the low-single digit millions. Novartis is entitled to receive potential payments of up to $16.6 million upon the achievement of certain sales milestones of the Compounds. Novartis is also eligible to receive tiered low single-digit percentage royalty payments for the first several hundred million in annual net sales, and ten percent royalty payments thereafter based on annual net sales of each Compound, subject to reduction in the event generic drugs are introduced and sold by a third party, causing the sale of the Compounds to fall by a percentage in the high double-digits. Notwithstanding the foregoing, royalty payments for the Compounds are subject to certain minimum floor percentages in the low single-digits.

University of Vermont

In March 1995, the University of Vermont, or UVM, entered into an agreement, or the UVM Agreement, which, as amended in March 2000, grants us an exclusive, sublicensable license for the rights to PIXUVRI. Pursuant to the UVM Agreement, we acquired the rights to make, have made, sell and use PIXUVRI. We are obligated to make royalty payments to UVM that range from low-single digits to mid-single digits as a percentage of net sales. The higher royalty rate is payable for net sales in countries where specified UVM licensed patents exist, or where we have obtained orphan drug protection, until such UVM patents or such protection no longer exists. For a period of ten years after first commercialization of PIXUVRI, the lower royalty rate is payable for net sales in such countries after expiration of the designated UVM patents or loss of orphan drug protection, and in all other countries without such specified UVM patents or orphan drug protection. Unless otherwise terminated, the term of the UVM Agreement continues for the life of the licensed patents in those countries in which a licensed patent exists, and continues for ten years after the first sale of PIXUVRI in those countries where no such patents exist. We may terminate the UVM Agreement, on a country-by-country basis or on a patent-by-patent basis, at any time upon advance written notice. UVM may terminate the UVM Agreement upon advance written notice in the event royalty payments are not made. In addition, either party may terminate the UVM Agreement (1) in the event of an uncured material breach of the UVM Agreement by the other party or (2) in the event of bankruptcy of the other party.

S*BIO Pte Ltd.

We acquired the compounds SB1518 (which is referred to as “pacritinib”) and SB1578, which inhibit JAK2 and FLT3, from S*BIO Pte Ltd., or S*BIO, in May 2012. Under our agreement with S*BIO, we are required to make milestone payments to S*BIO up to an aggregate amount of $132.5 million if certain U.S., E.U. and Japanese regulatory approvals are obtained or if certain worldwide net sales thresholds are met in connection with any pharmaceutical product containing or comprising any compound that we acquired from S*BIO for use for specific diseases, infections or other conditions. At our election, we may pay up to 50% of any milestone payments to S*BIO through the issuance of shares of our common stock or shares of our preferred stock convertible into our common stock. S*BIO will also be entitled to receive royalty payments from us at incremental rates in the low single-digits based on certain worldwide net sales thresholds on a product-by-product and country-by-country basis.

Vernalis

We entered into an amended and restated exclusive license agreement with Vernalis (R&D) Limited, or Vernalis, in October 2014, or the Vernalis License Agreement, for the exclusive worldwide right to use certain patents and other intellectual property rights to develop, market and commercialize tosedostat and certain other compounds. Under the Vernalis License Agreement, we have agreed to make tiered royalty payments of no more than a high single-digit percentage of net sales of products containing licensed compounds, with such obligation to continue on a country-by-country basis for the longer of ten years following commercial launch or the expiry of relevant patent claims.

The Vernalis License Agreement will terminate when the royalty obligations expire, although the parties have early termination rights under certain circumstances, including the following: (1) we have the right to terminate, with three months’ notice, upon the belief that the continued development of tosedostat or any of the other licensed compounds is not commercially viable, (2) Vernalis has the right to terminate in the event of our uncured failure to pay sums due, and (3) either party has the right to terminate in the event of the other party’s uncured material breach or insolvency. We have ceased development of tosedostat and do not anticipate incurring additional material expenses related to this terminated program.

Gynecologic Oncology Group

We entered into an agreement with the Gynecologic Oncology Group, or GOG, now part of NRG Oncology, in March 2004, as amended, related to the GOG-212 trial of Opaxio in patients with ovarian cancer. Pursuant to the terms of such agreement, we made a milestone payment of $0.5 million relating to the transfer of final datasets during the second quarter of 2017, which was included in research and development expenses. The agreement was terminated in May 2017. No further development of Opaxio is planned.

PG-TXL

In November 1998, we entered into an agreement with PG-TXL, as amended in February 2006, or the PG-TXL Agreement, which granted us an exclusive worldwide license for the rights to Opaxio and to all potential uses of PG-TXL’s polymer technology. Pursuant to the PG-TXL Agreement, we acquired the rights to research, develop, manufacture, market and sell anti-cancer drugs developed using this polymer technology. Pursuant to the PG-TXL Agreement, we were obligated to make payments to PG-TXL of up to $14.4 million upon the achievement of certain development and regulatory milestones. The timing of the remaining milestone payments under the PG-TXL Agreement was based on trial commencements and completions for compounds protected by PG-TXL license rights, and regulatory and marketing approval of those compounds by the FDA and the EMA. Additionally, we were required to make royalty payments to PG-TXL ranging from low to mid-single digits as a percentage of net sales. In February 2017, we terminated our agreement with PG-TXL and the exclusive worldwide license for rights to Opaxio and certain polymer technology thereunder.

Other Agreements

We have several agreements with contract research organizations, third-party manufacturers, and distributors which have durations of greater than one year for the development and distribution of certain of our compounds.