Collaborative, Licensing and Other Arrangements
|9 Months Ended|
Sep. 30, 2017
|Collaborative Licensing And Other Arrangements [Abstract]|
|Collaborative, Licensing and Other Arrangements||
4. Collaborative, Licensing and Other Arrangements
On September 30, 2015, the Company and Novartis International Pharmaceutical Ltd. (“Novartis”) entered into a license agreement (the “License Agreement”) under which the Company granted Novartis an exclusive, world-wide, royalty-bearing license to the Company’s anti-transforming growth factor beta (TGFβ) antibody program (the “anti-TGFβ Program”). Under the terms of the License Agreement, Novartis has worldwide rights to the anti-TGFβ Program and is responsible for the development and commercialization of antibodies and products containing antibodies arising from the anti-TGFβ Program. Within 90 days of the execution of the License Agreement, the Company completed the transfer of certain proprietary know-how, materials and inventory relating to the anti-TGFβ Program to Novartis.
Under the License Agreement, the Company received a $37.0 million upfront fee. The Company is also eligible to receive up to a total of $480.0 million in development, regulatory and commercial milestones. Any such payments will be treated as contingent consideration and recognized as revenue when they are achieved, as the Company has no performance obligations under the License Agreement beyond the initial 90-day period. During the nine months ended September 30, 2017, Novartis achieved a clinical development milestone pursuant to the License Agreement and, as a result, the Company earned a $10.0 million milestone payment which was recognized as license and collaborative fees in the condensed consolidated statement of comprehensive income (loss).
On August 24, 2017 (the “Effective Date”), the Company and Novartis AG entered into a license agreement (the “XOMA-052 License Agreement”) under which the Company granted to Novartis AG an exclusive, worldwide, royalty-bearing license to gevokizumab, a novel anti-Interleukin-1 (“IL-1”) beta allosteric monoclonal antibody (the “Antibody”) and related know-how and patents (altogether, the “XOMA IP”). Under the terms of the XOMA-052 License Agreement, Novartis AG will be solely responsible for the development and commercialization of the Antibody and products containing the Antibody. Within 90 days of the Effective Date, the Company will transfer certain proprietary know-how, process, materials and inventory relating to the XOMA IP to Novartis AG.
On August 24, 2017, pursuant to a separate agreement (the “IL-1 Beta Target Agreement”), the Company granted to Novartis AG non-exclusive licenses to its intellectual property covering the use of IL-1 beta targeting antibodies in the treatment and prevention of cardiovascular disease and other diseases and conditions, and an option to obtain an exclusive license (the “Exclusivity Option”) to such intellectual property for the treatment and prevention of cardiovascular disease. The Company also granted Novartis AG the right of first negotiation with respect to certain transactions relating to the licensed intellectual property.
Under the XOMA-052 License Agreement, the Company received total consideration of $30.0 million for the license and rights granted to Novartis AG. Of the total consideration, $15.7 million was paid in cash and $14.3 million (equal to €12.0 million) was paid by NIBR, on behalf of the Company, to settle the Company’s Servier Loan. In addition, NIBR extended the maturity date on the Company’s debt to Novartis (see Note 8). The Company also received $5.0 million cash related to the sale of 539,131 shares of the Company’s common stock, at a price per share of $9.2742. The fair market value of the common stock issued to Novartis was $4.8 million, based on the closing stock price of $8.93 per share on August 24, 2017, resulting in a $0.2 million premium paid to the Company (see Note 12). Based on the achievement of pre-specified criteria, the Company also is eligible to receive up to $438.0 million in development, regulatory and commercial milestones. The Company is also eligible to receive royalties on sales of licensed products, which are tiered based on sales levels and range from the high single digits to mid-teens. Under the IL-1 Beta Target Agreement, the Company received an upfront cash payment of $10.0 million. In addition, the Company is eligible to receive low single-digit royalties on canakinumab sales in cardiovascular indications. Should Novartis AG exercise the Exclusivity Option, the royalties on canakinumab sales will increase to the mid-single digits.
The XOMA-052 License Agreement and IL-1 Beta Target Agreement are being accounted for as one arrangement because they were entered into at the same time in contemplation of each other. The Company concluded that there are multiple deliverables under the arrangements which consist of (i) the licenses to IL-1 beta targeting antibodies, (ii) the license to gevokizumab antibody and (iii) the transfer of know-how, process, materials and inventory related the gevokizumab antibody. The Company concluded that the license to the gevokizumab antibody and the related transfer of know-how process, materials and inventory each do not have stand-alone value. Accordingly, the Company combined these two deliverables into a single unit of accounting. The Company determined that the Exclusivity Option is a substantive option and not priced at a significant and incremental discount. Therefore, the Company concluded that the Exclusivity Option is not a deliverable. The agreements were evaluated pursuant to the provisions of the multiple-element arrangement guidance in determining how to recognize the revenue associated with each unit of account. The total arrangement consideration received from Novartis AG is $40.2 million and consists of the $25.7 million upfront cash payment, the $14.3 million Servier Loan payoff and the $0.2 million premium on the sale of the common stock. The total arrangement consideration is allocated to each unit of account based on their relative selling prices. Revenue is recognized as the revenue recognition criteria are met for each identified unit of account. During the three months ended September 30, 2017, the Company recognized revenue of $31.9 million related to the licenses to IL-1 beta targeting antibodies and $3.5 million related to the amortization of deferred revenue allocated to the license to the gevokizumab antibody and transfer of related XOMA IP. As of September 30, 2017, the Company had a current deferred revenue balance of $4.8 million related to the XOMA-052 License Agreement.
The Company determined that future contingent payments that may be received related to development, regulatory and sales milestones under the XOMA-052 License Agreement are based on the performance of Novartis AG and do not meet the definition of substantive milestones under the accounting guidance. Accordingly, revenue for the achievement of these milestones will be recognized in the period when the milestone is achieved. As of September 30, 2017, the Company has not recognized any milestone payments under the XOMA-052 License Agreement. The Company expects to recognize royalty revenue in the period of sale of the related products, based on the underlying contract terms.
In December 2010, the Company entered into a license and collaboration agreement (“Collaboration Agreement”) with Servier, to jointly develop and commercialize gevokizumab in multiple indications. Under the terms of the Collaboration Agreement, Servier had worldwide rights to cardiovascular disease and diabetes indications and had rights outside the United States and Japan to all other indications, including non-infectious intermediate, posterior or pan-uveitis, Behçet’s disease uveitis, pyoderma gangrenosum, and other inflammatory and oncology indications. Under the Collaboration Agreement, Servier funded all activities to advance the global clinical development and future commercialization of gevokizumab in cardiovascular-related diseases and diabetes. Also, Servier funded the first $50.0 million of gevokizumab global clinical development and chemistry, manufacturing and controls expenses related to the three pivotal clinical trials under the EYEGUARD program. All remaining expenses related to these three pivotal clinical trials were shared equally between Servier and the Company. On September 28, 2015, Servier notified XOMA of its intention to terminate the Collaboration Agreement, as amended in January 2015, and return the gevokizumab rights to XOMA. The termination, which became effective on March 25, 2016, did not result in a change to the maturity date of the Company’s loan with Servier (see Note 8). As the Company was no longer required to provide services to Servier under the Collaboration Agreement, the Company recognized all remaining deferred revenue of $0.6 million from the date of notification to March 25, 2016.
There was no revenue recognized from this Collaboration Agreement for the three months ended September 30, 2017 and 2016. For the nine months ended September 30, 2017 and 2016, the Company recorded revenue of zero and $0.3 million, respectively, from this Collaboration Agreement.
In October 2011, the Company announced that NIAID had awarded the Company a new contract under Contract No. HHSN272201100031C (the “NIAID Contract”) for up to $28.0 million over five years to develop broad-spectrum antitoxins for the treatment of human botulism poisoning. The contract work was being performed on a cost-plus-fixed-fee basis over the life of the contract and the Company was recognizing revenue under the arrangement as the services were performed on a proportional- performance basis.
In March 2016, the Company effected a novation of the NIAID Contract to Ology Bioservices. The novation was effected upon obtaining government approval to transfer the NIAID Contract to Ology Bioservices pursuant to the asset purchase agreement executed in November 2015 (see Note 6). There was no revenue recognized under this contract for the three months ended September 30, 2017 and 2016, respectively. The Company recognized revenue of zero and $1.1 million under this contract for the nine months ended September 30, 2017 and 2016, respectively.
Sale of Future Revenue Streams
On December 21, 2016, the Company entered into two Royalty Interest Acquisition Agreements (together, the “Acquisition Agreements”) with HealthCare Royalty Partners II, L.P. (“HCRP”). Under the first Acquisition Agreement, the Company sold its right to receive milestone payments and royalties on future sales of products subject to a License Agreement, dated August 18, 2005, between XOMA and Wyeth Pharmaceuticals (subsequently acquired by Pfizer, Inc. (“Pfizer”)) for an upfront cash payment of $6.5 million, plus potential additional payments totaling $4.0 million in the event three specified net sales milestones are met in 2017, 2018 and 2019. Under the second Acquisition Agreement, the Company sold all rights to royalties under an Amended and Restated License Agreement dated October 27, 2006 between XOMA and Dyax Corp. for a cash payment of $11.5 million.
The Company classified the proceeds received from HCRP as deferred revenue, to be recognized as contract and other revenue over the life of the license agreements because of the Company's limited continuing involvement in the Acquisition Agreements. Such limited continuing involvement is related to the Company’s undertaking to cooperate with HCRP in the event of litigation or a dispute related to the license agreements. Because the transaction was structured as a non-cancellable sale, the Company does not have significant continuing involvement in the generation of the cash flows due to HCRP and there are no guaranteed rates of return to HCRP, the Company recorded the total proceeds of $18.0 million as deferred revenue. The Company allocated the total proceeds between the two Acquisition Agreements based on the relative fair value of expected payments to be made to HCRP under the license agreements. The deferred revenue is being recognized as contract and other revenue over the life of the underlying license agreements under the "units-of-revenue" method. Under this method, amortization for a reporting period is calculated by computing a ratio of the allocated proceeds received from HCRP to the payments expected to be made by the licensees to HCRP over the term of the Acquisition Agreements, and then applying that ratio to the period’s cash payment. The Company recognized $0.1 million and $0.3 million as contract and other revenue under these arrangements during the three months and nine months ended September 30, 2017, respectively. As of September 30, 2017, the current and non-current portion of the remaining deferred revenue was $0.6 million and $17.1 million, respectively. As of December 31, 2016, the Company classified the $18.0 million as non-current deferred revenue.