Revenues

12 Months Ended

Dec. 31, 2020

Disaggregation of Revenue [Abstract]

Revenues

Revenues

Net Product Sales

For the year ended December 31, 2020, we recorded net product sales of $9.6 million, which consisted of commercial sales of Fintepla following the FDA’s approval in June 2020 for marketing in the U.S.

Revenue from product sales is recorded net of applicable provisions for rebates, prompt pay discounts, distribution-related fees, patient program assistance, amongst others. The following table summarizes the provisions, and credits/payments, for sales-related deductions.

(In thousands)	Rebates		Trade Discounts, Distributor Fees and Other		Total
Balance at December 31, 2019	$	—	$	—	$	—
Provisions	1,203		380		1,583
Credits/payments	(42)		(251)		(293)
Balance at December 31, 2020	$	1,161	$	129	$	1,290

Collaboration Revenue

In March 2019, we entered into an agreement (Shinyaku Agreement) with Nippon Shinyaku Co., Ltd. (Shinyaku) for the exclusive distribution of Fintepla in Japan 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 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 by actively participating in the design of non-clinical, clinical and manufacturing requirements needed for regulatory submission, actively planning and participating in product labeling decisions and discussions with the Japanese Ministry of Health, Labor and Welfare (MHLW) and obtained distribution exclusivity through the payment of $20.0 million, of which $17.0 million had been received as of December 31, 2020 with the remainder expected to be received in 2021. We will be actively running the clinical trials, performing manufacturing validation activities, preparing regulatory filings and holding discussions with MHLW, and negotiating pricing. 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 Japan.

We concluded that collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the collaborative arrangements guidance as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing Fintepla in Japan. Shinyaku is not a customer as it does not obtain an output of our development and regulatory approval activities for Fintepla as they were not provided a license to its intellectual property or the ability to manufacture the product, and we do not consider performing development and regulatory approval services to be a part of our ongoing activities.

We considered the revenue from contracts with customers guidance by analogy in determining the unit of account, and the recognition and measurement of such unit of account for collaborative activities under the Shinyaku Agreement and concluded that there are two development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet and LGS. Participation on the JSC was concluded to be both quantitatively and qualitatively immaterial in the context of the Shinyaku Agreement. We are the principal as it relates to the collaborative development and regulatory approval activities primarily because we are responsible for the acceptability of the results of the work of the third-party vendors that are used to assist us in performing such activities. Therefore, such collaboration revenue has been presented on a gross basis in our consolidated statements of operations apart from research and development expenses incurred.

The initial collaboration consideration allocated on a relative standalone selling price basis to each associated development program was determined using the most likely method to consist solely of the fixed consideration payments of $20.0 million. Analogizing to the revenue from contracts with customers variable consideration guidance, all potential regulatory milestone payment consideration will be included in the collaboration consideration if and when it is probable that a significant reversal in the amount of cumulative collaboration consideration recognized will not occur when the uncertainty associated with the variable collaboration consideration is subsequently resolved. We determined at contract inception and as of December 31, 2020, this consideration should be fully constrained, as the achievement of the events tied to these regulatory milestone payments was highly dependent on factors outside of our control.

Collaboration revenue is being recognized over time as the collaborative activities related to each development program are rendered. We determined an input method is a reasonable representative depiction of the performance of the collaborative activities under the Shinyaku Agreement. The method of measuring progress towards completion incorporates actual internal and external costs incurred, relative to total internal and external costs expected to be incurred over an estimated period to satisfy the collaborative activities. The period over which total costs are estimated reflects our estimate of the period over which it will perform the collaborative activities for each development program. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment to collaboration revenue.

As of December 31, 2020, we had received $17.0 million of the $20.0 million in fixed consideration under the arrangement. For the years ended December 31, 2020 and 2019, we recognized collaboration revenue of $4.1 million and $3.6 million, respectively. As of December 31, 2020, the deferred revenue balance of $10.8 million included a $1.5 million collaboration receivable recorded within other current assets related to the $20.0 million fixed consideration under the arrangement. The final payment of $1.5 million will be payable to us in March 2021. Deferred revenue, which is classified as either current or net of current portion in the consolidated balance sheets based on the period over which the collaboration revenue is expected to be recognized. We expect to recognize collaboration revenue related to these collaborative activities through 2023.

We concluded that the supply of Fintepla to Shinyaku will be within the scope of the revenue from contracts with customers guidance if regulatory approval in Japan occurs and when a purchase order is received from Shinyaku. Such activity is considered to be a vendor customer relationship as Shinyaku will be a party that has contracted with an us to obtain goods or services that are an output of our ordinary activities in exchange for consideration and selling approved commercial product to a customer is expected to be part of our ongoing activities. Each purchase order for a shipment of Fintepla will be identified as a separate performance obligation as we did not grant Shinyaku intellectual property rights. The agreed upon price for the supply of Fintepla (cost plus a fixed transfer price mark-up, fixed percentage of aggregate sales of Fintepla by Shinyaku per year, the net price mark-up and sales milestones) to Shinyaku does not represent a material right, and therefore is not a performance obligation, and such pricing on an aggregate basis represents the standalone selling price a distributor would typically pay for such a product in that region or market. There are also no minimum purchase commitments. The transaction price to be allocated to the performance obligation will include the fixed consideration associated with the cost-plus price of Fintepla and variable consideration associated with a fixed percentage of aggregate sales of Fintepla by Shinyaku per year, the net price mark-up and sales milestones subject to the constraint. To date,

Shinyaku has not provided us with any purchase orders and thus no revenue has been recognized for the supply of Fintepla.