License Agreements and Collaborations

9 Months Ended

Sep. 30, 2012

License Agreements and Collaborations [Abstract]

License Agreements and Collaborations

8. License Agreements and Collaborations

Collaborations

In August 2011, the Company entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (“Mitsubishi Tanabe”) whereby the Company is utilizing its proprietary expression technology for the development of a certain targeted compound. The agreement included an upfront development payment to the Company of $3.0 million, on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $1.5 million, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development.

In March 2012, the Company entered into an agreement with Mitsubishi Tanabe to develop a second protein therapeutic. The agreement included an upfront license payment to the Company of $9.0 million and on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $0.8 million, as well as the potential for an additional payment of $3.0 million due upon successful completion of the initial development stage of the second program.

Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound (the “Option”). Additionally, upon exercise of the Option, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments. The Company determined that the Option is substantive as the decision to exercise is in the control of Mitsubishi Tanabe and is not essential to the functionality of the other deliverables in either agreement. Therefore, the Option was not considered to be a deliverable at the inception of either collaboration agreement. The Option terminates sixty days from date the Joint Steering Committee (“JSC”) determines whether the initial development was successful.

The Company evaluated the collaboration agreements in order to determine whether the deliverables at the inception of the agreements: (i) the upfront license payments, (ii) research services during the development periods, and (iii) JSC participation should be accounted for as a single unit or multiple units of accounting. The Company concluded that the upfront license payments do not have standalone value to Mitsubishi Tanabe because (i) Mitsubishi Tanabe does not have the ability to transfer or sublicense and (ii) the activities to be conducted during the development period are highly dependent on the Company’s unique knowledge and understanding of its proprietary technology which is critical to optimizing the compounds. The Company determined that the JSC is a deliverable through the development period. In both agreements, the Company concluded that there are two units of accounting which are being delivered over the same performance period.

Revenue recognized under the first and second Mitsubishi Tanabe development programs totaled $0.4 million and $2.9 million for the three months ended September 30, 2012, respectively, and $1.7 million and $3.3 million for the nine months ended September 30, 2012, respectively. Revenue is recognized using the proportional performance method. As of September 30, 2012, the deferred revenue balance includes $1.6 million and $6.0 million related to the first and second development programs, respectively.