|9 Months Ended|
Sep. 30, 2018
|Revenue from Contract with Customer [Abstract]|
The Company has not generated revenue from product sales. The Company has generated revenue from (i) option, license, and collaboration agreements, which include upfront payments for licenses or options to obtain licenses, payments for research and development services and milestone payments, and (ii) government grants.
During the three and nine months ended September 30, 2018 and 2017, respectively, the Company recognized revenues as follows (in thousands):
During the three and nine months ended September 30, 2018 and 2017, respectively, the Company recognized revenue from the following strategic partnerships and other license agreements (in thousands):
Under the Company´s existing strategic partnerships, Pieris could receive the following potential milestone payments (in millions):
Strategic Partnership with Seattle Genetics, Inc.
On February 8, 2018, the Company entered into a License and Collaboration Agreement and a Non-Exclusive Anticalin Platform Technology License Agreement (collectively the “Seattle Genetics Agreements”) with Seattle Genetics, Inc. ("Seattle Genetics"), pursuant to which the parties will develop multiple targeted bispecific immuno-oncology treatments for solid tumors and blood cancers.
Under the terms of the Seattle Genetics Agreements, the companies will pursue multiple antibody-Anticalin fusion proteins during the research phase. The Seattle Genetics Agreements provides Seattle Genetics a base option to select up to three programs for further development. Prior to the initiation of a pivotal trial, Pieris may opt into global co-development and U.S. commercialization of the second program and share in global costs and profits on an equal basis. Seattle Genetics will solely develop, fund and commercialize the other two programs. In addition, Seattle Genetics will have an option to select up to three additional programs for further development.
The Non-Exclusive Anticalin Platform Technology License Agreement (“Seattle Genetics Platform License") grants Seattle Genetics a non-exclusive license to certain intellectual property related to the Anticalin platform technology.
Upon signing the Seattle Genetics Agreements, Seattle Genetics paid Pieris a $30.0 million upfront fee and an additional $4.9 million was estimated to be paid for research and development services as reimbursement to Pieris through the end of the research term. In addition, Pieris may receive tiered royalties on net sales up to the low double-digits and up to $1.2 billion in total success-based research, development, commercial, and sales milestones payments across the product candidates, depending on the successful development and commercialization of those candidates. If Seattle Genetics exercises its option to select additional candidates from the initial research phase for further development, payment to Pieris of additional fees, milestone payments, and royalties would result.
The term of each of the Seattle Genetics Agreements ends upon the expiration of all of Seattle Genetics’ payment obligations. The License and Collaboration Agreement may be terminated by Seattle Genetics on a product-by-product basis for convenience beginning 12 months after its effective date upon 90 days' notice or, for any program where a pivotal study has been initiated, upon 180 days' notice. If any program is terminated by Seattle Genetics after a pre-defined pre-clinical stage, Pieris will have full rights to continue such program. If any program is terminated by Seattle Genetics prior to such pre-defined pre-clinical stage, Pieris will have the right to continue to develop such program, but will be obligated to offer a co-development option to Seattle Genetics for such program. The License and Collaboration Agreement may also be terminated by Seattle Genetics or Pieris for an uncured material breach by the other party upon 90 days' notice, subject to extension for an additional 90 days if the material breach relates to diligence obligations and subject, in all cases, to dispute resolution procedures. The License and Collaboration Agreement may also be terminated due to the other party’s insolvency and may in certain instances, including for reasons of safety, be terminated on a product-by-product basis. Each party may also terminate the Seattle Genetics Agreements if the other party challenges the validity of any patents licensed under the Seattle Genetics Agreements, subject to certain exceptions. The Seattle Genetics Platform License will terminate upon termination of the License and Collaboration Agreement, whether in its entirety or on a product-by-product basis.
The Company accounted for the Seattle Genetics Agreements as a multiple element arrangement under ASC 605-25. The arrangement with Seattle Genetics contains the following initial deliverables: (i) three candidate research licenses that each consist of a non-exclusive platform technology license, a co-exclusive candidate research license, and research and development services, (ii) research, development and manufacturing services associated with each candidate research license, (iii) participation on various governance committees, and (iv) two antibody target swap options.
Management considered whether any of the deliverables could be considered separate units of accounting. The Company determined each license granted, at arrangement inception, did not have standalone value from the research and development services to be provided for the related antibody target programs due to the specific nature of the intellectual property and knowledge required to perform the research and development services. The Company determined that the participation on the various governance committees did have standalone value from the delivered licenses as the services could be performed by an outside party. The Company determined that the two antibody target swap options did have stand-alone value from the delivered licenses as the absence of delivering swap options does not impact the delivery of either the research licenses or the research, development and manufacturing services associated with each candidate research license,
As a result, management concluded there are six units of accounting at inception of the agreement: (i) three combined units of accounting each representing a non-exclusive platform technology license, a co-exclusive candidate research license, and research and development services for first three approved Seattle Genetics antibody target programs, (ii) two units of accounting each representing an antibody target swap right for first and the second approved Seattle Genetics antibody target, and (iii) one unit of accounting representing the participation of the various governance committees.
The Company determined that neither VSOE nor TPE is available for any of the units of accounting identified at arrangement inception. Accordingly, the selling price of each unit of accounting was developed using BESP. The Company developed its best estimate of selling price for licenses by applying a risk adjusted, net present value, estimate of future potential cash flows approach, which included the cost of obtaining research and development services at arm’s length from a third-party provider, as well as internal full time equivalent costs to support these services.
The Company developed the BESP for committee participation by using management’s best estimate of the anticipated participation hours multiplied by a market rate for comparable participants.
Allocable arrangement consideration at inception was comprised of the upfront fees of $30.0 million and $4.9 million of estimated research and development services to be reimbursed as research and development occurs through the research term. Therefore, the total allocable arrangement consideration at inception was $34.9 million and was allocated among the separate units of accounting using the relative selling price method.
The amounts allocated to the combined units of accounting for the three research programs will be recognized on a proportional performance basis through the completion of each respective estimated research term for the individual research programs. However, for the first two programs that contain antibody target swap rights, if the antibody target swap right is exercised, any remaining deferred revenue associated with the two programs at the time of the exercise would be recognized immediately. The amounts allocated to the antibody target swap rights will be recognized either at the time the target right expires, or if exercised, on a proportional performance basis over the estimate research term for that program. The amounts allocated to the participation on each of the committees will be recognized ratably over the anticipated research term for all research programs.
Management determined that all research, development, commercial and sales milestones are deemed non-substantive as they are based solely on the performance of another party. Non-substantive milestones will be treated as contingent revenue and will be recognized when achieved, to the extent the Company has no remaining performance obligations under the arrangement. Milestone payments earned upon the achievement of sales events will be recognized when earned.
The Company will recognize royalty revenue in the period of sale for the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.
As of September 30, 2018, there is $7.8 million and $16.3 million of deferred revenue and non-current deferred revenue, respectively, related to the Seattle Genetics Agreements.
Pieris License and Collaboration Agreement with the Technical University of Munich
Pieris and the Technical University of Munich (“TUM”) initiated discussions within the second quarter to clarify, expand and restructure their 2003 license agreement (the "TUM License"), including the parties’ obligations under that License. The TUM License assigns or exclusively licenses to Pieris certain intellectual property related to Pieris' Anticalin platform technology. The parties' recent discussions relate to revised commercial terms and to re-initiate additional collaborations between faculty at TUM and Pieris. The Company believes it is reasonably possible that these discussions may lead to an increase in Pieris’ financial obligations associated with the TUM License, including amounts due for 2017 and 2018 activities recorded as of September 30, 2018. These discussions may also lead to an increase in Pieris’ collaborative research activities with TUM. An amended and restated license agreement has not yet been completed. The potential financial impact is estimated to be up to $2.7 million for amounts related to 2017 and 2018 sub-licensing activities and will be recorded as additional research and development expense once the amounts become probable and estimable.
The entire disclosure for collaborative arrangements in which the entity is a participant, including a) information about the nature and purpose of such arrangements; b) its rights and obligations thereunder; c) the accounting policy for collaborative arrangements; and d) the income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef