Research Collaboration and License Agreements

12 Months Ended

Dec. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Research Collaboration and License Agreements

Merck

In 2015, the Company entered into a research collaboration, product development and license agreement with Merck, which, together with amendments made prior to June 30, 2021, is referred to as the Original Collaboration Agreement, covering the discovery, development and commercialization of novel therapies across a range of therapeutic areas, including a broad, multi-year drug discovery and early development program that was financially supported by Merck, and scientifically directed by the Company with input from Merck. The original research program term of the collaboration was for five years and was extended by Merck for an additional two years through March 2022. As part of that extension, Merck agreed to continue to fund up to $75.0 million of the Company's R&D efforts each year consistent with the initial five-year research term and, in lieu of a $20.0 million extension fee payable to the Company, Merck agreed to make additional payments totaling up to $20.0 million in support of the Company's R&D activities during 2021 through the first quarter of 2022.

On June 30, 2021, the Company entered into an amended and restated research collaboration, product development and license agreement with Merck, or the Amended Collaboration Agreement, replacing the Original Collaboration Agreement and extending the research program term of the collaboration generally through March 31, 2024, with possible extensions for each of the various programs to allow the Company or Merck to complete ongoing development, but with a narrower scope than in the Original Collaboration Agreement. Under the Amended Collaboration Agreement, the collaboration was focused primarily on the identification, research and development of collaboration compounds directed to targets of interest to Merck in the fields of ophthalmology and cardiovascular or metabolic, or CVM, disease, including heart failure. The collaboration scope also included certain laboratory testing

and other activities on compounds that are directed to one of up to two undisclosed targets outside of the fields of ophthalmology and CVM disease, or the Lab Programs.

Currently, the only ongoing research activities to be funded under the Amended Collaboration Agreement are certain CVM-related activities. The research program term for the CVM-related continuing programs will continue until March 31, 2024, unless the parties mutually agree to extend the research program term to March 31, 2026, in which case Merck would provide up to a total of $20.0 million in research funding during those additional two years. The Company does not expect the research program term to be extended. Remaining activities under the Lab Programs were substantially completed in the first quarter of 2023. The ophthalmology compounds in the collaboration under the Amended Collaboration Agreement initially included NGM621 (and its related compounds) and compounds directed against two other undisclosed ophthalmology targets (and their related compounds). Merck had a one-time option to license NGM621, its related compounds and the ophthalmology bundle upon completion of the Phase 2 CATALINA trial. In December 2022, Merck notified the Company that it would not exercise its option to license NGM621 and its related compounds, nor would Merck exercise the related ophthalmology bundle option; accordingly, these options expired unexercised in January 2023 and the programs are now wholly-owned by the Company. Further, Merck did not elect for the Company to continue to conduct R&D during an extended or tail period on any compounds from the Company's other ophthalmology programs that were subject to the collaboration. Because Merck did not exercise its ophthalmology license options or make an R&D tail period election, the programs are now wholly-owned by the Company and the Company does not have any funding from Merck to pursue such ophthalmology programs.

Pursuant to the Amended Collaboration Agreement, the Company gained the right, in its sole discretion, to independently research, develop and commercialize the collaboration compounds known as NGM707, NGM120, NGM438 and NGM831, their related compounds and all other preclinical and research assets that the Company researched or developed under the Original Collaboration Agreement but that were not included within the R&D scope of the continuing collaboration, which are referred to as the released NGM compounds. Merck retained the right to receive royalties at low single-digit rates on the sales of any released NGM compounds that receive regulatory approval and, if the Company decides during a certain time period to engage in a formal partnering process for a released NGM compound or negotiations regarding a license or asset sale of a released NGM compound, the Company is obligated to notify Merck, provide Merck with certain information and engage in good faith, non-exclusive negotiations with respect to such released NGM compound with Merck at Merck’s request.

Under the Amended Collaboration Agreement, Merck continued to have a Merck license option, as it did under the Original Agreement, to each continuing collaboration compound that is identified, researched and developed under the Amended Collaboration Agreement and reaches the specified option exercise point for such continuing collaboration compound as described below, and to its related compounds (each such continuing collaboration compound and its related compounds are referred to generally as a continuing program). In addition, under the terms of the Amended Collaboration Agreement, new CVM-related programs may be added to the continuing collaboration if recommended by the Company and selected by Merck, and Merck would have a Merck license option to such CVM-related continuing program. We do not expect any new CVM-related programs to be added to the collaboration.

The Merck license option exercise point for a continuing collaboration compound from the CVM-related continuing programs or the Lab Programs will be the designation by Merck of such continuing collaboration compound as a research program development candidate that Merck intends to progress into preclinical development.

Under the Amended Collaboration Agreement, if Merck exercises the Merck license option for a continuing collaboration compound from a CVM-related continuing program or the Lab Programs, Merck will pay the Company a $6.0 million option exercise fee at the time of selection to progress such licensed continuing collaboration compound or any of its related compounds into preclinical development and an additional $10.0 million milestone payment if such continuing collaboration compounds or one of its related compounds subsequently completes a human proof-of-concept trial. Merck will be responsible, at its own cost, for any further development and commercialization activities for continuing collaboration compounds within any such licensed continuing program.

In March 2022, the Company and Merck entered into a letter agreement, or the Letter Agreement, regarding NGM621 manufacturing activities that the Company undertook with the intention of avoiding a significant delay between the completion of the CATALINA trial and the start of any Phase 3 clinical trial for NGM621.

Under the Amended Collaboration Agreement, Merck provided $86.0 million in research funding for the four calendar quarters that ended on March 31, 2022, which included the remaining $16.0 million of the up to $20.0 million in additional payments Merck agreed to pay as part of exercising its first option to extend the research

program term of the collaboration under the Original Collaboration Agreement for two years through March 16, 2022. The Company was obligated to use commercially reasonable efforts to expend, and did spend, at least $35.0 million of such $86.0 million in funding for the four calendar quarters that ended on March 31, 2022 on the ophthalmology and CVM-related programs and Lab Programs as required under the Amended Collaboration Agreement. The Company was permitted to use the remainder of the $86.0 million in research funding provided by Merck during such time frame to advance the released NGM compounds. Pursuant to the Letter Agreement, the Company also used part of this research funding to cover the costs of its personnel who provided support for the manufacturing activities that the Company undertook in preparation for a potential Phase 3 clinical trial for NGM621 and Merck reimbursed the Company the maximum reimbursable amount for NGM621 third-party manufacturing costs of $4.75 million. Merck also funded certain costs and reimbursements related to the NGM621 program in 2022 and in 2023.

The Company concluded that the Amended Collaboration Agreement is a separate arrangement containing a three-year performance obligation to provide distinct R&D services in accordance with ASC 606. The total transaction price under the Amended Collaboration Agreement is $119.0 million which includes $86.0 million in research funding for the four calendar quarters that ended on March 31, 2022, $15.1 million in research funding for the ophthalmology and CVM-related continuing programs and the Lab Programs during the remaining two years of the research program term after March 2022, $13.1 million in estimated NGM621 reimbursable expenses and costs during the remaining two years of the research program term after March 2022 and $4.75 million for reimbursable amounts paid in 2022 to a third-party manufacturer in accordance with the terms of the Letter Agreement. The Company will continue to re-evaluate the transaction price as uncertain events are resolved or other changes in circumstances occur. The Company continues performing its R&D services in the area of both the continuing collaboration compounds and the released NGM compounds and has one performance obligation across all continuing programs. The Company will continue to use the cost-based input method to calculate the amount of revenue to recognize as services are being rendered from April 1, 2021 through March 31, 2024. For the first half of 2024, the Company expects Merck will provide minimal funding and this amount is included in the transaction price.

The Company considered whether the Merck license option created material rights in the contract and concluded that the fee attached to the exercise of such options approximated the SSP of the promised goods or services included in the options. Therefore, the Company concluded that such options did not give rise to material rights, were not performance obligations in the Amended Collaboration Agreement and, if and when exercised, would be accounted for as separate arrangements under ASC 606.

Merck owned approximately 16% of the Company's outstanding shares as of December 31, 2023.

Summary of Related Party Revenue

The Company recognized revenue from its collaboration and license agreements as follows (in thousands):


	Year Ended December 31,
	2023		2022		2021
Related party revenue	$	4,417	$	55,333	$	77,882

For the years ended December 31, 2023 and 2022, the Company recognized collaboration and license revenue primarily related to reimbursable R&D activities associated with the performance obligation under the Amended Collaboration Agreement under which Merck is providing significantly less annual R&D funding than it had provided through March 31, 2022. Related party revenue related to the reimbursable R&D activities was recognized using the cost-based input model related to R&D activities.

For the year ended December 31, 2021, the Company recognized collaboration and license revenue primarily related to reimbursable R&D activities associated with the performance obligation for the two-year extension period through March 31, 2021 under the Original Collaboration Agreement and from April 1, 2021 through December 31, 2021 under the Amended Collaboration Agreement, all of which were recognized using the cost-based input model.

Related Party Contract Assets and Liabilities

Amounts recognized as revenue prior to the Company having an unconditional right (or a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's consolidated balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next

twelve months, the contract asset will be classified in current assets. As of December 31, 2023 and 2022, the Company did not have a related party contract asset.

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months, the contract liability will be classified in current liabilities. As of December 31, 2023, the Company did not have a contract liability.