Collaborative Arrangements

3 Months Ended

Mar. 31, 2019

Disaggregation of Revenue [Abstract]

Collaborative Arrangement

Collaborative Arrangement

In March 2019, we entered into an agreement (Shinyaku Agreement) with Nippon Shinyaku Co., Ltd. (Shinyaku) for the exclusive distribution of Fintepla for the treatment of Dravet syndrome and LGS. As part of the Shinyaku Agreement, we are responsible for completing the global clinical development and all regulatory approval activities for Fintepla to support the submission of new drug applications in Japan for Dravet syndrome and LGS. Shinyaku will be responsible for the commercialization activities including the promotion, marketing, sale and distribution of Fintepla in Japan. Upon regulatory approval of Fintepla in Japan, Shinyaku will also act as our exclusive distributor for commercial shipment and distribution of Fintepla in Japan. If we pursue a global development of Fintepla for indications other than Dravet syndrome or LGS, Shinyaku has the option to participate in the development for such indications in Japan, subject to cost sharing requirements pursuant to the agreement. Activities under the Shinyaku Agreement will be governed by a joint steering committee (JSC) consisting of three representatives from each party to the agreement. All decisions of the JSC are to be made by a unanimous vote with tie-breaking rights provided to each party for certain matters related to development, regulatory approval and commercialization.

Shinyaku has agreed to support development and regulatory approval of Fintepla in Japan and obtain distribution exclusivity through the payment of $20.0 million, of which $15.5 million was due shortly after the execution of the agreement with the remainder payable over the next two years. We and Shinyaku have agreed to proportionally share the Japan specific development costs that may arise outside of the initial development plan and any post-approval clinical study costs in Japan. In addition, we can earn up to $66.0 million from Shinyaku for the achievement of certain regulatory milestones related to the treatment of Dravet syndrome and the treatment of LGS.

After regulatory approval of Fintepla in Japan has been obtained, we have agreed to supply Shinyaku with Fintepla upon receipt of purchase orders at our actual manufacturing cost plus a fixed transfer price mark-up, a fixed percentage of Shinyaku's net sales of Fintepla in Japan for such fiscal year, and a net price mark-up based on a percent of the applicable aggregate sales of Fintepla by Shinyaku for such fiscal year. The net price mark-up percentage increases with Shinyaku’s sales of Fintepla annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year.

In addition, we can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement.

The Shinyaku Agreement expires in September of 2045, unless earlier terminated by either party for a change in control, a material breach, bankruptcy, dissolution, or winding up of such other party. The Shinyaku Agreement may be also terminated by either party: (1) with one year prior written notice to the other party on or after the date of the first commercial sale of a competing generic version of the Fintepla in Japan, (2) if, prior to the launch of the Fintepla in Japan, a party has a good faith concern, based on credible evidence, that such launch is not likely to be possible with commercially reasonable efforts, or (3) if a party believes Fintepla poses a substantial safety concern. We may also terminate the agreement following the second anniversary of the first commercial sale of the Fintepla in Japan if Shinyaku has failed to achieve or maintain certain diligence obligations under the Shinyaku Agreement. Shinyaku may also terminate the agreement if, prior to the launch of the Fintepla in Japan, Shinyaku has a good faith concern that Fintepla will not be commercially viable in the Japan.

As of March 31, 2019, no performance for any of the units of account under this agreement had occurred. Of the $20.0 million, we have recorded our unconditional right to receive $15.5 million in advance of performance in accounts receivable with a corresponding amount in deferred revenue in the condensed consolidated balance sheet and the remaining $4.5 million will be billed in accordance with the terms of the agreement. We have classified $5.0 million of the deferred revenue as current. The remaining consideration related to this agreement was fully constrained at March 31, 2019.