Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the
delivered items on a stand-alone basis. We use the following hierarchy of values to estimate the selling price of
each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price;
and (iii) best estimate of selling price, or BESP. The BESP reflects our best estimate of what the selling price
would be if we regularly sold the deliverable on a stand-alone basis. We recognize the revenue allocated to each
unit of accounting as we deliver the related goods or services. If we determine that we should treat certain
deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of
performance.
In December 2012, we entered into a global collaboration agreement withAstraZeneca to discover and
develop antisense drugs against five cancer targets. As part of the collaboration, we received a $25 million
upfront payment in December 2012 and a $6 million payment in June 2013 whenAstraZeneca elected to
continue the research collaboration. We are also eligible to receive milestone payments, license fees for the
research program targets and royalties on any product sales of drugs resulting from this collaboration. In
exchange, we grantedAstraZeneca an exclusive license to develop and commercialize ISIS-STAT3-2.5
Rx
and
ISIS-AR-2.5
Rx
. We also grantedAstraZeneca options to license up to three cancer drugs under the separate
research program. We were responsible for completing IND-enabling studies for ISIS-AR-2.5
Rx
, which we
completed in early 2014. We are also responsible for completing an ongoing clinical study of ISIS-STAT3-2.5
Rx,
which we plan to complete in the first quarter of 2015. AstraZeneca is responsible for all other global
development, regulatory and commercialization activities for ISIS-STAT3-2.5
Rx
and ISIS-AR-2.5
Rx
. In addition,
if AstraZeneca exercises its option for any drugs resulting from the research program, AstraZeneca will assume
global development, regulatory and commercialization responsibilities for such drug. Since this agreement has
multiple elements, we evaluated the deliverables in this arrangement when we entered into the agreement and
determined that certain deliverables, either individually or in combination, have stand-alone value. Below is a list
of the four separate units of accounting under our agreement:
•
The exclusive license we granted toAstraZeneca to develop and commercialize ISIS-STAT3-2.5
Rx
for
the treatment of cancer;
•
The development services we are performing for ISIS-STAT3-2.5
Rx
;
•
The exclusive license we granted toAstraZeneca to develop and commercialize ISIS-AR-2.5
Rx
and the
research services we performed for ISIS-AR-2.5
Rx
; and
•
The option to license up to three drugs under a research program and the research services we are
performing for this program.
We determined that the ISIS-STAT3-2.5
Rx
license had stand-alone value because it is an exclusive license
that gives AstraZeneca the right to develop ISIS-STAT3-2.5
Rx
or to sublicense its rights. In addition,
ISIS-STAT3-2.5
Rx
is currently in development and it is possible that AstraZeneca or another third party could
conduct clinical trials without assistance from us. As a result, we considered the ISIS-STAT3-2.5
Rx
license and
the development services for ISIS-STAT3-2.5
Rx
to be separate units of accounting. We recognized the portion of
the consideration allocated to the ISIS-STAT3-2.5
Rx
license immediately because we delivered the license and
earned the revenue. We are recognizing as revenue the amount allocated to the development services for
ISIS-STAT3-2.5
Rx
over the period of time we perform services, which we expect will end during the first quarter
of 2015. The ISIS-AR-2.5
Rx
license is also an exclusive license. At the inception of the agreement,
ISIS-AR-2.5
Rx
was in an early stage of research. Therefore, we concluded that our knowledge and expertise with
antisense technology was essential for AstraZeneca or another third party to successfully develop ISIS-AR-2.5
Rx
.
As a result, we determined that the ISIS-AR-2.5
Rx
license did not have stand-alone value and we combined the
ISIS-AR-2.5
Rx
license and related research services into one unit of accounting. We recognized revenue for the
combined unit of accounting over the period of time we performed services, which ended in the first quarter of
2014. We determined that the options under the research program did not have stand-alone value because
AstraZeneca cannot develop or commercialize drugs resulting from the research program until AstraZeneca
exercises the respective option or options. As a result, we considered the research options and the related
research services as a combined unit of accounting. We are recognizing revenue for the combined unit of
accounting over the period of our performance.
We determined that the initial allocable arrangement consideration was the $25 million upfront payment
because it was the only payment that was fixed and determinable when we entered into the agreement. In June
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