2013, we increased the allocable consideration to $31 million when we received the $6 million payment. There
was considerable uncertainty at the date of the agreement as to whether we would earn the milestone payments,
royalty payments, payments for manufacturing clinical trial materials or payments for finished drug product. As
such, we did not include those payments in the allocable consideration.
We allocated the allocable consideration based on the relative BESP of each unit of accounting. We engaged
a third party, independent valuation expert to assist us with determining BESP. We estimated the selling price of
the licenses granted for ISIS-STAT3-2.5
Rx
and ISIS-AR-2.5
Rx
by using the relief from royalty method. Under this
method, we estimated the amount of income, net of taxes, for each drug. We then discounted the projected
income for each license to present value. The significant inputs we used to determine the projected income of the
licenses included:
•
Estimated future product sales;
•
Estimated royalties on future product sales;
•
Contractual milestone payments;
•
Expenses we expect to incur;
•
Income taxes; and
•
An appropriate discount rate.
We estimated the selling price of the research and development services by using our internal estimates of
the cost to perform the specific services, marked up to include a reasonable profit margin, and estimates of
expected cash outflows to third parties for services and supplies over the expected period that we will perform
research and development. The significant inputs we used to determine the selling price of the research and
development services included:
•
The number of internal hours we will spend performing these services;
•
The estimated number and cost of studies we will perform;
•
The estimated number and cost of studies that we will contract with third parties to perform; and
•
The estimated cost of drug product we will use in the studies.
As a result of the allocation, we recognized $9.3 million of the $25 million upfront payment for the
ISIS-STAT3-2.5
Rx
license in December 2012 and we recognized $2.2 million of the $6 million payment for the
ISIS-STAT3-2.5
Rx
license in June 2013. We are recognizing the remaining $19.5 million of the $31 million over
the estimated period of our performance. Assuming a constant selling price for the other elements in the
arrangement, if there was an assumed 10 percent increase or decrease in the estimated selling price of the
ISIS-STAT3-2.5
Rx
license, we determined that the revenue we would have allocated to the ISIS-STAT3-2.5
Rx
license would change by approximately seven percent, or $0.8 million, from the amount we recorded.
Typically, we must estimate our period of performance when the agreements we enter into do not clearly
define such information. Our collaborative agreements typically include a research and/or development project
plan outlining the activities the agreement requires each party to perform during the collaboration. We estimate
the period of time over which we will complete the activities for which we are responsible and use that period of
time as our period of performance for purposes of revenue recognition and amortize revenue over such period.
We have made estimates of our continuing obligations under numerous agreements and in certain instances the
timing of satisfying these obligations may change as the development plans for our drugs progress. Accordingly,
our estimates may change in the future. If our estimates and judgments change over the course of these
agreements, it may affect the timing and amount of revenue that we recognize in future periods.
From time to time, we may enter into separate agreements at or near the same time with the same customer.
We evaluate such agreements to determine whether they should be accounted for individually as distinct
arrangements or whether the separate agreements are, in substance, a single multiple element arrangement. We
evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables
are interrelated or interdependent, whether fees in one arrangement are tied to performance in another
F-10
