Strategic License Agreements

9 Months Ended

Sep. 30, 2021

Research and Development [Abstract]

Strategic License Agreements

Strategic License Agreements

Universities of Antwerp and Leuven in Belgium (the Universities)

As a result of our 2014 acquisition of Brabant Pharma Limited, we have a collaboration and license agreement with the Universities (the Universities Agreement) 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 or certain related conditions stemming from infantile epilepsy such as LGS, 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.

Subsequent to the execution of the March 2019 Shinyaku Agreement beginning in late 2019, we have been in discussions with the Universities to address the portion of the payments the Universities are entitled to, if any, related to proceeds we received or may receive under the Shinyaku Agreement from Nippon Shinyaku.

In October 2021, we reached an agreement to modify the Universities Agreement and make a one-time payment of $7.0 million related to our previous collaboration activities and consideration received to date under the Shinyaku Agreement. We also agreed to pay the Universities 15% of future regulatory milestone collaboration consideration and sales-based milestone consideration we receive, as well as amending the method of calculating royalties due from sale of Fintepla distributed in Japan.

The payment of $7.0 million has been recorded within accrued and other current liabilities in the condensed consolidated balance sheet at September 30, 2021. For the three and nine months ended September 30, 2021, the $7.0 million was recorded within research and development expense as a cost of our Shinyaku Agreement and as Fintepla has not yet been approved for marketing in Japan.

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 advancing novel gene therapies and other genetic epilepsies. In December 2020, we exercised the option on Tevard’s Dravet syndrome program and entered into a collaboration, option and license agreement with Tevard (the Tevard Agreement) and will be responsible for funding preclinical studies and clinical development for this program. 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 upon the occurrence of an equity financing transaction at a conversion price equal to the price paid per share by other investors of the financing transaction.

For the three and nine months ended September 30, 2021, costs incurred to reimburse Tevard’s Dravet syndrome program of $0.8 million and $2.4 million were recorded as research and development expense. For the three and nine months ended September 30, 2020, option maintenance fees of $1.5 million and $4.5 million incurred prior to our opt-in of Tevard’s Dravet syndrome program in December 2020 were immediately expensed to acquired in-process research and development costs.

At the inception of the agreement and through September 30, 2021, Tevard is a variable interest entity 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.

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 September 30, 2021, 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 September 30, 2021, 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.