Royalty Monetization Arrangement

9 Months Ended

Sep. 30, 2023

Royalty Monetization ArrangementIn March 2023, the Company entered into a Purchase and Sale Agreement (Royalty Purchase Agreement) with DRI Healthcare Acquisitions LP (DRI), a wholly owned subsidiary of DRI Healthcare Trust, for the sale to DRI of the Company’s single-digit royalty interest on global net sales of TZIELD (teplizumab-mzwv) under the Company’s Asset Purchase Agreement dated May 7, 2018, as amended (the Provention APA), with Provention. The Company retained its other economic interests related to TZIELD under the Provention APA, including future potential development, regulatory, and commercial milestones.

Under the terms of the Royalty Purchase Agreement, the Company received $100.0 million from DRI for its single-digit royalty interest on global net sales of TZIELD under the Provention APA (the Royalty Interest). Additionally, the Company has the right to receive a 50% share of the royalty on global net sales above a certain annual threshold (the Retained Interest). In addition, the Company was eligible to receive up to $50.0 million upon the occurrence of pre-specified events tied to the advancement of TZIELD for the treatment of newly diagnosed type 1 diabetes. This milestone was achieved in July 2023 as described below. The Company is also eligible to receive an additional $50.0 million milestone if TZIELD achieves a certain level of net sales (Sales Milestone Payment).

The $100.0 million proceeds received from DRI for the Royalty Interest were recorded as a liability related to future royalties, net of transaction costs of $0.3 million, which was to be amortized over the term of the arrangement using the effective interest rate method. At inception, the Company accounted for the Royalty Purchase Agreement as a financing arrangement because the Company had significant continuing involvement in the delivery of future royalty payments to DRI and other existing obligations under the Provention APA.

In April 2023, the Company entered into an agreement (the Tripartite Agreement) with DRI and a subsidiary of Sanofi S.A. (Sanofi), whereby the Company consented to the sale of DRI’s Royalty Interest and related milestone payment obligations to Sanofi. The Tripartite Agreement eliminated the Company’s obligation to deliver payments to DRI related to the Royalty Interest and removed all of the Company’s other obligations under the Royalty Purchase Agreement. The Royalty Interest will be paid directly to Sanofi by Provention. As a result, the Company’s royalty rights are only for the Retained Interest. This change in rights and obligations resulted in a change in the terms of the liability related to future royalties which was evaluated by the Company in accordance with ASC 470-50, Debt — Modifications and Extinguishments. The Company concluded that the execution of the Tripartite Agreement resulted in a modification to the liability related to future royalties. The Company determined that the terms of the new liability related to the single-digit future royalties and the original liability related to future royalties were substantially different as the Company no longer receives payments for the Royalty Interest and therefore has a significantly reduced liability to make payments in accordance with the Royalty Purchase Agreement. The new liability related to future royalties was determined to be de minimis. As a result, the Company recorded $100.9 million within other income on the statement of operations and comprehensive income (loss) during the three months ended June 30, 2023. There was no modification to the Company's Retained Interest in the Tripartite Agreement.

In July 2023, Sanofi reported achievement of the primary endpoint milestone event related to the $50.0 million milestone noted above. Given that the Company has no continuing obligation to pay the Royalty Interest to Sanofi, the Company recorded this milestone within other income on the statement of operations and comprehensive income (loss) during the three months ended September 30, 2023. Also in September 2023, the Company and Sanofi executed Amendment No. 2 to the Provention APA to incorporate the Sales Milestone Payment obligation from the Royalty Purchase Agreement into the Provention APA. In addition, the Company and Sanofi terminated the Royalty Purchase Agreement, which did not result in a material impact to the financial statements given the fair value of the liability related to future royalties was de minimis.

Changes to the liability related to future royalties were as follows for the nine months ended September 30, 2023 (in thousands):


Liability related to future royalties - beginning balance	$	—
Proceeds from sale of future royalties	150,000
Deferred transaction costs	(344)
Royalty revenue payable to DRI	(156)
Interest expense recognized	1,430
Gain on royalty monetization arrangement	(150,930)
Liability related to future royalties - ending balance	$	—