(formerly AuraSense Therapeutics, LLC)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except unit, share, per unit, and per share data)
Company is eligible to receive up to $770,000 upon successful completion of certain research, regulatory and commercial sales milestones. There can be no assurance these milestones will be achieved as they are subject to highly significant risks and uncertainties, many of which are outside of the Company’s control. In the event a therapeutic candidate subject to the collaboration results in commercial sales, the Company is eligible to receive single to low double digit royalties on future net sales of such commercialized therapeutic candidates. Additionally, Purdue had an obligation to invest in a qualified equity financing of the Company if such financing was completed before June 2, 2017. The Company did not complete such qualified equity financing before June 2, 2017.
In accordance with ASC 605-25, the Company identified the following deliverables at the inception of the Purdue Collaboration agreement: (1) exclusive rights to the TNF-α target, (2) the obligation to participate in a joint research committee, (3) the provision of research and development activities based on a prescribed full-time employee rate per year, (4) a non-voting board of director observer role, (5) Purdue’s right to participate in a future qualified equity financing of the Company if such financing occurs prior to June 2, 2017 or the pricing of the initial public offering of shares of the Company’s common stock, (6) the option for an exclusive development and commercialization license to AST-005 or a TNF-α development candidate other than AST-005, (7) the option to select and develop three additional collaboration targets, and (8) the option for an exclusive development and commercialization license to any developed therapeutic candidate targeting the three additional collaboration targets. The Company determined that deliverable (2)—obligation to participate in a joint research committee, deliverable (4)—a non-voting board of director observer role, deliverable (5)—Purdue’s right to participate in a future qualified equity financing of the Company if such financing occurs prior to June 2, 2017 or the pricing of the initial public offering of shares of the Company’s common stock, and deliverable (6)—the option to obtain an exclusive development and commercialization license for AST-005 or a new TNF-α development candidate other than AST-005 do not have stand-alone value to Purdue, and accordingly, deliverables (2), (4), (5) and (6) were combined with deliverable (1)—the exclusive rights to the TNF-α target and deliverable (3)—the provision of research and development activities, as a single unit of accounting. The Company concluded that, at the inception of the agreement, deliverable (7)—the option to select and develop three additional collaboration targets and deliverable (8)—the option to obtain an exclusive development and commercialization license to any developed therapeutic candidate targeting the three additional collaboration targets are substantive options and do not contain a significant or incremental discount; as a result, no portion of the upfront $10,000 is allocated to these deliverables.
The upfront payment of $10,000 was allocated to the single unit of accounting consisting of deliverables (1), (2), (3), (4), (5), and (6) above and was recorded as deferred revenue and is being recognized on a ratable basis over the estimated performance period of the relevant research and development activities of 14.5 months. During the year ended December 31, 2016, the Company recognized collaboration revenue of $690. As of December 31, 2016, deferred revenue relating to the Purdue Collaboration was $9,310, of which $8,276 is classified as current portion of deferred revenue in the accompanying balance sheet.
The Purdue Collaboration agreement includes contingent payments related to specified research, development and regulatory milestones and sales-based milestones. Each contingent and milestone payment is evaluated to determine whether it is substantive and at risk to both parties. The Company recognizes any payment that is contingent upon the achievement of a substantive milestone entirely in the period in which the milestone is achieved. Any payments that are contingent upon achievement of a non-substantive milestone are recognized as revenue prospectively, when such payments become due and collectible, over the remaining expected performance period under the arrangement, which is generally the remaining period over which the research and development services are expected to be provided. To date, the Company has not recognized any contingent payments in connection with the Purdue Collaboration as revenue.
The Company’s grant contracts have typically been cost or cost-plus-fee contracts. Revenues on these contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable earned fee. The Company considers fixed fees under cost and cost-plus-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract. The Company has determined that it is the principal for each of its grants with governmental agencies since it maintains primary responsibility for research