Strategic License Agreements

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Strategic License Agreements

Strategic License Agreements

Fintepla

Brabant

In October 2014, we acquired Brabant in a business acquisition and obtained worldwide development and commercialization rights to Fintepla, one of our lead product candidates. Under the terms of the acquisition, we agreed to make future milestone payments to the former owners of Brabant for up to $95.0 million in the event we achieve certain milestones with respect to Fintepla, consisting of $50.0 million in regulatory milestones and $45.0 million in sales-based milestones that have been accounted for as contingent consideration under purchase accounting for an acquisition of a business. To date all regulatory milestones have been earned of which $35.0 million have been paid with the remaining $15.0 million included in other current liabilities on the consolidated balance sheet as the contingency has been resolved.

Universities of Antwerp and Leuven in Belgium (the Universities)

In addition, we have a collaboration and license agreement with the that runs through September 2045. Under the terms of the agreement, the Universities granted us an exclusive worldwide license to use the data obtained from a study related to low-dose fenfluramine for the treatment of Dravet syndrome, as well as certain other intellectual property. We are required to pay a mid-single-digit percentage royalty on net sales of products containing low-dose fenfluramine for the treatment of Dravet syndrome or, in the case of a sublicense of products containing low-dose fenfluramine for the treatment of Dravet syndrome, a percentage in the mid-twenties of the sub-licensing revenues. The agreement may be terminated by the Universities if we (a) do not use commercially reasonable efforts to (i) develop and commercialize products containing low-dose fenfluramine for the treatment of Dravet syndrome or related conditions stemming from infantile epilepsy, or (ii) seek approval of products containing low-dose fenfluramine for the treatment of Dravet syndrome in the United States; or (b) if we become insolvent or makes an assignment for the benefit of creditors or should any petition in bankruptcy, or similar relief, be filed by or against us. We can terminate the agreement upon specified prior written notice to the Universities.

MT1621

License Agreement with Columbia University

As a result of our acquisition of Modis in September 2019, we became party to the Exclusive License Agreement, by and between Modis and the Trustees of Columbia University in the City of New York, dated as of September 26, 2016, related to MT1621. We are required to use commercially reasonable efforts to develop and commercialize licensed products worldwide, including to meet certain development and commercialization milestones within specified periods of time. Upon the achievement of certain regulatory and commercial milestones, we are required to pay Columbia University up to $2.9 million and $25.0 million, respectively, as well as tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The royalty obligations and License Agreement will expire on a country-by-country and product-by-product basis upon the later of (i) 15 years after the first bona fide commercial sale of a licensed product, (ii) the expiration of the last to expire valid patent claim covering a licensed product in a country or (iii) expiration of any regulatory exclusivity covering such licensed product. The License Agreement may be terminated by either by Columbia or by us in the event of an uncured material breach by the other party, or by Columbia in the event we are subject to specified bankruptcy, insolvency or similar circumstances. We can terminate the License Agreement either in its entirety or on a product-by-product and country-by-country basis, upon specified prior written notice to Columbia, provided we are not exploiting licensed products in such countries.

Other License Agreement Assumed

We also became party to a license agreement between two other research institutions related to MT1621 where we may be required to pay up to $3.0 million for research, development and regulatory milestone events and up to $10.0 million for certain sales milestone events. We are also required to pay tiered royalties ranging from low to mid-single digits on net sales of licensed product.

Tevard Collaboration, Option and License Agreement

In October 2019, we entered into an option agreement with Tevard Biosciences (Tevard), a privately-held company focused on tRNA-based gene therapies. Under the agreement, Tevard granted us an option to license exclusive rights related to a preclinical development program to identify and develop novel tRNA-based gene therapies for Dravet syndrome. During 2020, we extended the option period to exercise our license rights prior to entering into a collaboration, option and license agreement with Tevard. Payments made under the option agreement were nonrefundable, but may be credited against the upfront payment due if we exercise our option on the preclinical development program. Payments made under the option agreement of $2.0 million in 2019 and $5.5 million in 2020 were included in acquired IPR&D expense and related costs in our consolidated statement of operations.

In December 2020, we exercised the option on the Dravet syndrome program and entered into a collaboration, option and license agreement with Tevard (the Tevard Agreement). The financial terms of the Tevard Agreement included an upfront payment of $5.2 million. In connection with the transaction, we also purchased a convertible promissory note issued by Tevard in the amount of $5.0 million. The note matures in December 2022 and carries interest at 3.5% per year. The note will automatically convert into equity securities issued by Tevard in their next equity financing transaction at a conversion price equal to the price paid per share by other investors of the financing transaction.

In addition to the upfront payments, we have agreed to fund Tevard’s early discovery activities under the licensed Dravet syndrome program in accordance with the development plan as determined by the parties to the agreement. Once Tevard completes the early discovery activities for a program, we will be responsible for any potential future development and commercialization activities. Tevard is also eligible to receive additional development, regulatory and commercial-related milestone payments of up to $100.0 million for the Dravet program, as well as tiered royalties on future net sales in the single digits that result from the collaboration. We are also entitled to rights of negotiation and rights of first refusal to potentially obtain licenses to compounds subsequently discovered and developed by Tevard. The agreement, if not terminated sooner, would expire upon the expiration of all applicable royalty terms under the agreement with respect to a licensed program or product; however, we have the unilateral right to terminate the agreement with 180 days advanced notice

At the inception of the agreement and through December 31, 2020, we determined Tevard is a VIE in which we held variable interests through our licensed Dravet syndrome program and convertible promissory note. We determined that we are not the primary beneficiary of Tevard as we do not have voting control or other forms of power to direct activities that most significantly impact Tevard’s economic performance.

In accounting for the Tevard Agreement, we excluded from consideration all prior payments made under the option agreement, which was previously expensed to acquired IPR&D. Upon entering the Tevard Agreement, we made an upfront payment of $10.2 million in exchange for a license to the Dravet syndrome program and the convertible promissory note. The upfront payment was allocated between the acquired IPR&D asset and the convertible promissory note based on their relative fair values of $5.2 million and $5.0 million, respectively. The estimated fair value of the acquired IPR&D asset was determined based on information from discussions with Tevard’s management team regarding the potential of the Dravet syndrome program as well as our management team’s expectations regarding the timing, future cost and commercial potential for the program. The estimated fair value of the convertible promissory note was determined based on a discounted cash flow analysis, adjusted for credit and market risk, and consideration of the fair value of the embedded conversion feature with a conversion price not more favorable than other investors participating in an equity financing transaction.

The $5.2 million of consideration allocated to the IPR&D asset was determined to have no alternative future use and was immediately charged to acquired IPR&D expense in our consolidated statements of operations and classified as cash used in investing activities on the consolidated statements of cash flows. The $5.0 million of consideration allocated to the convertible promissory note was included in other noncurrent assets on our consolidated balance sheet and carried at amortized costs and classified as cash used in investing activities on the

consolidated statements of cash flows. Payments made to fund Tevard’s costs incurred under the Dravet syndrome program after the execution of the Tevard Agreement is reflected as research and development expense in our statements of operations. For the year ended December 31, 2020, amounts recorded as research and development expense associated with funding the Dravet syndrome program were $0.7 million.

At each reporting period, we evaluate the note receivable for current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. As of December 31, 2020, no provision for current expected credit losses was deemed necessary based on the expected timing of an equity financing that would result in the automatic conversion of the note to equity securities of Tevard and their existing cash on hand was sufficient to meet their operating requirements prior to the consummation of a financing transaction.

As of December 31, 2020, we do not have any current legal or contractual obligations to provide financing to Tevard and our maximum exposure to future loss is limited to the $5.0 million note receivable. While we have committed to fund the Dravet syndrome development program for Tevard’s early discovery activities, our obligation to fund these efforts is contingent upon continued involvement in the program and/or the lack of any adverse events which could cause the discontinuance of the program. Our exposure to future losses is limited as we have the unilateral right to terminate the agreement with 180 days advanced notice.