Note 6 - Collaborative Arrangements and Revenue Recognition

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Collaborative Arrangement Disclosure [Text Block]

6. Collaborative Arrangements and Revenue Recognition

Healios Collaboration

We have a licensing agreement with Healios to primarily develop and commercialize our cell therapy technologies for certain disease indications in Japan, pursuant to which we received nonrefundable license fee payments and are entitled to royalties on net sales. We also have the right to receive development and commercial milestone payments from Healios, subject to certain potential credits that have been negotiated from time-to-time and are associated with modifications to the arrangement. Healios is responsible for the development and commercialization of the licensed products in the licensed territory, and we provide certain services to Healios for which we are paid.

In August 2021, the Company and Healios entered into a Comprehensive Framework Agreement for Commercial Manufacturing and Ongoing Support, or the Framework Agreement, which provided for clarification under and modified the existing agreements between the parties. It also provided Healios with deferral of certain milestone payments. Under the Framework Agreement, the Company was entitled to payments for reimbursable services of $0.7 million. The amount, which was included in accounts receivable from Healios has been fully offset by an allowance for doubtful accounts at September 30, 2023 due to the length of time the receivable has been outstanding without collection.

In addition, under the Framework Agreement, the Company was entitled to a $3.0 million milestone payment from Healios and was obligated to pay Healios $1.1 million by December 31, 2022. In September 2022, we received $1.9 million from Healios, which represents the milestone payment net of amounts owed to Healios. Additionally, to assist Healios with the advancement of its ischemic stroke and acute respiratory distress syndrome (“ARDS”) programs in Japan, in September 2022, we granted to Healios, subject to the terms of the licensing agreement, a non-exclusive license to make and have made MultiStem for the treatment of ischemic stroke and ARDS worldwide solely for import for use in Japan. In connection with the execution of the Framework Agreement, the Cooperation Agreement was amended to extend certain customary standstill provisions until the conclusion of our 2023 annual meeting of stockholders.

In August 2021, we also issued two warrants (together, the “2021 Warrants”) to Healios in connection with the Framework Agreement to purchase up to a total of 400,000 shares of our common stock. The 2021 Warrants are being accounted for as consideration paid or payable to a customer according to Topic 606, Revenue from Contracts with Customers, and Topic 718, Compensation Stock Compensation, under which the recognition of such equity instruments is required at the time that the underlying performance conditions become probable or are satisfied. As of September 30, 2023, the 2021 Warrants have not been recorded as the underlying performance conditions have not been satisfied and are not yet considered probable. Refer to Note 8, “Stockholders’ Equity and Warrants”, for further information.

In August 2023, the Company entered into a Memorandum of Understanding (“MOU”) with Healios, which memorializes the terms between the Company and Healios regarding consultation services the Company agreed to provide Healios as it explores its effort to join and participate in the Company’s ongoing MASTERS-2 Study. In exchange, Healios agreed to compensate the Company for consulting services. Healios made a $150,000 deposit which is recorded in Deferred revenue - Healios. 

Healios has alleged that we are in material breach of our Framework Agreement for, among other things, not meeting our supply obligations and cooperation and assistance obligations. We strongly disagree with Healios’ allegations and will continue to work with Healios to try to resolve this dispute. However, there can be no assurance that we will be able to resolve this dispute without legal proceedings.

Healios Revenue Recognition

At the inception of the Healios arrangement and again each time that the arrangement has been modified, all material performance obligations were identified, which include (i) licenses to our technology, (ii) product supply services, and (iii) manufacturing services provided on Healios’ behalf.

Under the Framework Agreement, it was determined there was one performance obligation for services necessary for regulatory approvals, manufacturing readiness, and commercial launch in Japan. We determined the transaction price included estimated payments for reimbursable services to be performed by us for Healios and the $3.0 million milestone payment. We allocated the total transaction price to this one performance obligation. We began recognizing revenue in the third quarter of 2021 as the services were being performed. At September 30, 2023, the services related to this performance obligation are largely complete and consist of minimal close-out activities which are immaterial. During the three months ended September 30, 2023, we recognized no revenue associated with this performance obligation, compared to $0.1 million for three months ended September 30, 2022. We recognized no revenue for three months ended September 30, 2023 and  September 30, 2022 from performance obligations satisfied in previous periods.

Accounts receivable from Healios

Accounts receivable from Healios are related to our contracts and are recorded when the right to consideration is unconditional at the amount that management expects to collect. Accounts receivable from Healios do not bear interest if paid when contractually due, and payments are generally due within thirty to forty-five days of invoicing. As of September 30, 2023, we have increased our allowance for doubtful accounts to cover the full amount of balance that we showed as outstanding, due to the length of time the invoices have been outstanding. 

Deferred Revenue - Healios

The amounts included in deferred revenue - Healios are considered a contract liability connected to the funds received as part of the MOU. During the nine months ended September 30, 2023, no revenue was recognized from contract liabilities, compared to $2.8 million of revenue recognized during the nine months ended September 30, 2022.

Advance from Healios

In 2017, we amended the clinical trial supply agreement for the manufacturing of clinical product for TREASURE to clarify a cost-sharing arrangement. The proceeds from Healios that relate specifically to the cost-sharing arrangement may either (i) result in a reduction in the proceeds we receive from Healios upon the achievement of two potential milestones and an increase to a commercial milestone under the license agreement for stroke or (ii) be repaid to Healios at our election, as defined. The cost-sharing proceeds received are recognized in advance from Healios on the unaudited condensed consolidated balance sheets until the earlier of the milestones being achieved or such amounts being repaid to Healios at our election, at which time the culmination of the earnings process or the repayment will be complete.

Disaggregation of Revenues

We recognize product supply revenue at a point in time upon delivery, as defined in the applicable product supply contracts, while service revenue is recognized when earned over time. The following table presents our contract revenues disaggregated by timing of revenue recognition (in thousands):

	Three months ended				Three months ended
	September 30, 2023				September 30, 2022
	Point in				Point in
	Time		Over Time		Time		Over Time
Contract Revenue from Healios
Product supply revenue	$	—	$	—	$	—	$	—
Service revenue		—		—		—		65
Total disaggregated revenues	$	—	$	—	$	—	$	65

	Nine months ended				Nine months ended
	September 30, 2023				September 30, 2022
	Point in				Point in
	Time		Over Time		Time		Over Time
Contract Revenue from Healios
Product supply revenue	$	49	$	—	$	—	$	—
Service revenue		—		—		—		5,294
Total disaggregated revenues	$	49	$	—	$	—	$	5,294