Research and Development Collaboration and License Agreements

12 Months Ended

Dec. 31, 2014

Research and Development Collaboration and License Agreements

Research and Development Collaboration and License Agreements

5. Research and Development Collaboration and License Agreements

All of the contract revenues recognized in the years ended December 31, 2014, 2013, and 2012 was related to the development and commercialization agreement with Sanofi.

Sanofi

In January 2010, the Company and Sanofi had entered into an agreement for the development and commercialization of KB001, the precursor to KB001-A, an investigational new biologic for the treatment and prevention of Pseudomonas aeruginosa (Pa) infections (the Sanofi agreement). Under the terms of the Sanofi agreement, the Company received an initial upfront non-refundable payment of $35 million and received an additional non-refundable payment of $5 million that represented a second installment of the upfront fees due to the Company under the agreement upon completion of a sublicense negotiation with a third party in August 2011. Sanofi was solely responsible for conducting, at its cost, the research, development, manufacture, and commercialization of the licensed products for the diagnosis, treatment and/or prevention of all human diseases and conditions caused by Pa, except that the Company retained responsibility, at the Company’s cost, for developing and promoting the products for the diagnosis, treatment and/or prevention of Pa in patients with cystic fibrosis (CF) or bronchiectasis. Under the terms of the Sanofi agreement, the Company received specified research and development funding for services performed in connection with KB001-A research and development efforts and could have also received contingent payments based on the occurrence of development, regulatory or commercial events, and royalties on any product sales. Reimbursements received by the Company for these services were recorded as contract revenue when earned as the related services were provided.

The upfront payment of $40 million was recognized over the estimated period of the Company’s substantive performance obligations under the agreement. During the three‑month period ended March 31, 2012, the Company and Sanofi agreed to amend the 2010 agreement as Sanofi requested that the Company perform additional services. Therefore, the Company revised its estimate to reflect that the substantive performance obligations under the agreement were expected to be completed by June 30, 2012. The substantive performance obligations under the agreement were completed by June 30, 2012.

Under the terms of the Sanofi agreement, the Company receives specified research and development funding for services performed in connection with KB001‑A research and development efforts. Reimbursements received by the Company for these services are recorded as contract revenue when earned as the related services are provided.

Revenue recognized under the Sanofi agreement was as follows:

	Year Ended December 31,
(In thousands)	2014		2013		2012
Contract revenue:
Amortization of upfront fees	$	—	$	—	$	5,630
Reimbursement for development-related activities		—		44		468
Total contract revenue	$	—	$	44	$	6,098

During the year ended December 31, 2014, 2013 and 2012, the Company recorded research and development expenses related to materials purchased from Sanofi of nil,  $1.1 million and nil, respectively.

In July 2014, the Company and Sanofi executed an agreement (the Termination Agreement) under which the Sanofi agreement was terminated.  As a result of the Termination Agreement, KaloBios regains full global rights to license, develop, manufacture and commercialize KB001-A in all indications, as well as a non-exclusive license to the KB001-A manufacturing process developed by Sanofi.  In consideration for entering into the Termination Agreement, Sanofi will be entitled to royalties on net sales of KB001-A if approved, subject to a $40 million cap on the aggregate royalties to be paid.  In addition, Sanofi will be entitled to receive up to 10% of certain sub-license payments or other milestone payments received in the event KaloBios successfully re-partners KB001-A, subject to a separate $40 million cap on the aggregate amount of sub-license payments to be shared with Sanofi.