NOTE

Liabilities Related to the Sale of Future Royalties

April 2016,

Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HCRP. Under the RIAA, HCRP made a

$20.0

million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the

first

$3.0

million plus

15%

of the next

$1.0

million in royalties earned in each year commencing on

April 1,

with any excess revenue being retained by the Company.

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction was accounted for as a liability that is being amortized using the interest method over the life of the arrangement. The Company has

obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. In order to record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to the sale of future royalties, with any excess

not

subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to the sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does

not

retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

The following table shows the activity within the liability account during the year ended

December 31, 2019 (

in thousands):

Total liability related to the sale of future royalties, start of year	$	17,741
Non-cash royalty revenue paid to HCRP		(3,482	)
Non-cash interest expense recognized		2,073
Total liability related to the sale of future royalties, end of year		16,332
Current portion		(2,916	)
Long-term portion	$	13,416