| NET REVENUES FROM COLLABORATIONS | NET REVENUES FROM COLLABORATIONS Net revenues from collaborations consist of the following: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Roche $ 311,328 $ — $ 311,328 $ — Regeneron Pharmaceuticals 80,254 21,979 97,407 34,405 Novartis AG 18,381 5,803 41,941 27,472 Other 17,509 1,515 19,102 2,390 Total $ 427,472 $ 29,297 $ 469,778 $ 64,267 The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements: (In thousands) As of September 30, 2023 As of December 31, 2022 Receivables included in “Accounts receivable, net” $ 116,447 $ 32,342 Contract liabilities included in “Deferred revenue” $ 272,770 $ 235,528 We recognized revenue of $50.5 million and $42.0 million in the three and nine months ended September 30, 2023, respectively, and revenue of $11.7 million and $17.0 million in the three and nine months ended September 30, 2022, respectively, that was included in the contract liability balance at the beginning of the period. To determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period. The following table provides research and development expenses incurred by type, for which we recognize net revenue, that are directly attributable to our collaboration agreements, by collaboration partner: Three Months Ended September 30, 2023 2022 (In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Regeneron Pharmaceuticals $ 8,672 $ 1,954 $ 8,313 $ 9,812 $ 1,154 $ 8,982 Other 1,047 1,139 1,179 — 357 — Total $ 9,719 $ 3,093 $ 9,492 $ 9,812 $ 1,511 $ 8,982 Nine Months Ended September 30, 2023 2022 (In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Regeneron Pharmaceuticals $ 27,144 $ 4,104 $ 27,006 $ 12,926 $ 2,141 $ 27,935 Other 1,444 1,323 1,944 156 679 337 Total $ 28,588 $ 5,427 $ 28,950 $ 13,082 $ 2,820 $ 28,272 The research and development expenses incurred for the agreements included in the table above consist of costs incurred for (i) clinical expenses, including manufacturing of clinical product, (ii) external services including consulting services and lab supplies and services, and (iii) other expenses, including professional services, facilities and overhead allocations, and a reasonable estimate of compensation and related costs as billed to our counterparties, for which we recognize net revenues from collaborations. For the three and nine months ended September 30, 2023 and 2022, we did not incur material selling, general and administrative expenses related to our collaboration agreements. In addition, we recognized a reduction to our research and development expenses of $4.5 million and $14.7 million for the three and nine months ended September 30, 2023, respectively, and $2.3 million and $9.7 million for the three and nine months ended September 30, 2022, respectively, from cost reimbursement due under certain of our collaboration agreements with Regeneron Pharmaceuticals, Inc., or Regeneron, accounted for under Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808. Product Alliances Roche On July 21, 2023, or the Effective Date, we entered into a Collaboration and License Agreement, or the Roche Agreement, with F. Hoffmann-La Roche Ltd. and Genentech, Inc., or, collectively, Roche, pursuant to which we and Roche established a worldwide, strategic collaboration for the joint development of pharmaceutical products containing zilebesiran. Zilebesiran is our investigational siRNA therapeutic targeting liver-expressed angiotensinogen, which is in Phase 2 clinical trials for the treatment of hypertension. Under the Roche Agreement, we granted to Roche (i) co-exclusive rights to develop zilebesiran worldwide and commercialize zilebesiran in the U.S., referred to as the Co-Commercialization Territory, (ii) exclusive rights to commercialize zilebesiran outside of the U.S., referred to as the Roche Territory, and (iii) non-exclusive rights to manufacture zilebesiran for the development and commercialization of zilebesiran in the Roche Territory. In connection with the Roche Agreement, Roche made an upfront, non-refundable payment of $310.0 million. In addition, we will be eligible to receive up to $1.24 billion in contingent payments based on the achievement of specified development and regulatory milestones and up to $1.28 billion in sales-based milestones. We will lead the global clinical development for zilebesiran. We will be responsible for forty percent (40%) and Roche will be responsible for the remaining sixty percent (60%) of development costs incurred in the conduct of development activities that support regulatory approval of zilebesiran globally. We and Roche will share equally (50/50) all costs incurred in connection with development activities that are conducted to support regulatory approval of zilebesiran solely in the Co-Commercialization Territory if incremental development activities are needed. Roche will be solely responsible for all costs incurred in the conduct of development activities primarily to support regulatory approval in the Roche Territory if incremental development activities are needed. Upon regulatory approval Roche has the exclusive right to commercialize zilebesiran in the Roche Territory and will pay us tiered, low double-digit royalties based on net sales of zilebesiran on a country-by-country and product-by-product basis during the applicable royalty term. We and Roche will co-commercialize zilebesiran in the Co-Commercialization Territory and share equally (50/50) profits and losses (including commercialization costs). Roche has the right to terminate the Roche Agreement for any or no reason at all upon prior written notice, however, if the termination notice occurs after the achievement of the first development milestone and before the achievement of the third development milestone, Roche is required to pay us a termination fee of $50.0 million. In addition, either party may terminate the Roche Agreement for a material breach by, or insolvency of, the other party, subject to a cure period. Unless earlier terminated pursuant to its terms, the Roche Agreement commences on the Effective Date and will remain in effect until expiration on a country-by-country and product-by-product basis (a) in the Roche Territory, upon expiration of the applicable royalty term for such product in the applicable country and (b) in the Co-Commercialization Territory, upon expiration of the term of the co-commercialization efforts for the applicable product. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any milestone, royalty or profit share payments from Roche under the Roche Agreement. We evaluated the Roche Agreement and concluded that the Roche Agreement had elements that were within the scope of ASC 606, Revenue from Contracts with Customers and ASC 808, Collaborative Arrangements . As of the Effective Date, we identified the following promises in the Roche Agreement that were evaluated under the scope of ASC 606: delivery of (i) a co-exclusive license to develop zilebesiran worldwide and commercialize zilebesiran within the Co-Commercialization Territory, a non-exclusive license to manufacture zilebesiran in the Roche Territory solely for purposes of developing and commercializing zilebesiran in the Roche Territory, and an exclusive license to commercialize zilebesiran in the Roche Territory, collectively referred to as Roche License Obligation, (ii) development services, including the manufacture of clinical supply, that support regulatory approval of zilebesiran, referred to as the Roche Development Services Obligation, and (iii) technology transfer of the existing manufacturing process for zilebesiran, referred to as the Roche Technology Transfer Obligation. The three performance obligations under the Roche Agreement are collectively referred to as the Roche Performance Obligations. We also evaluated whether certain options outlined within the Roche Agreement represented material rights that would give rise to a performance obligation and concluded that none of the options convey a material right to Roche and therefore are not considered separate performance obligations within the Roche Agreement. We assessed the above promises and determined that the Roche License Obligation, Roche Development Services Obligation and Roche Technology Transfer Obligation are reflective of a vendor-customer relationship and therefore represent performance obligations within the scope of ASC 606. The Roche License Obligation is considered functional intellectual property and distinct from other promises under the contract as Roche can benefit from the licenses on its own or together with other readily available resources. As the licenses are delivered at the same time, they are considered one performance obligation at contract inception. The Roche Development Services Obligation is considered distinct as Roche can benefit from the development services together with the licenses transferred by us at the inception of the agreement. The development services are not expected to significantly modify or customize the initial intellectual property as zilebesiran is in the second phase of clinical development. The Roche Technology Transfer Obligation is distinct as Roche can benefit from the manufacturing license transferred by us at the inception of the agreement given the advancements of our RNAi platform and our utilization of third-party contract manufacturing organizations to manufacture zilebesiran. Therefore, each represents a separate performance obligation within the contract with a customer under the scope of ASC 606 at contract inception. We consider the collaborative activities associated with the co-commercialization of zilebesiran in the U.S. to be a separate unit of account within the scope of ASC 808 as we and Roche are both active participants in the commercialization activities and are exposed to significant risks and rewards that are dependent on the commercial success of the activities in the arrangement. We determined the transaction price under ASC 606 at the inception of the Roche Agreement to be $857.0 million, consisting of the $310.0 million up front payment and $547.0 million additional variable consideration attributed to cost reimbursement from development and manufacturing services related to the Roche Performance Obligations. Since the related revenue would be allocated to the Roche Development Services Obligation and the Roche Technology Transfer Obligation recognized only as the costs are incurred, we determined it is not probable that a significant reversal of cumulative revenue would occur. We utilized the expected value method to determine the amount of reimbursement for these activities. We determined that any variable consideration related to development and regulatory milestones is deemed to be fully constrained and therefore excluded from the transaction price due to the high degree of uncertainty and risk associated with these potential payments as we determine that we cannot assert that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We also determined that royalties and sales milestones relate solely to the licenses of intellectual property and are therefore excluded from the transaction price under the sales-or-usage based royalty exception of ASC 606. We developed the estimated standalone selling price for each of the Roche Performance Obligations with the objective of determining the price at which we would sell such an item if it were to be sold regularly on a standalone basis. We developed the estimated standalone selling price for the Roche License Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each underlying license or activity. In developing such estimates, we applied judgment in determining the forecasted revenues, taking into consideration the applicable market conditions and relevant entity-specific factors, the probability of success, the time needed to develop zilebesiran and the discount rate. We developed the estimated standalone selling price for the services and clinical supply included in the Roche Development Services Obligation and the Roche Technology Transfer Obligation primarily based on the level of effort necessary to perform the service and the costs for full-time equivalent employees and expected resources to be committed plus a reasonable margin. We allocated the variable consideration related to the estimated reimbursements for the Roche Development Services Obligation and the Roche Technology Transfer Obligation to each performance obligation as the terms of the variable payment relate specifically to our efforts to satisfy the performance obligation and allocating the variable amount of consideration entirely to the respective performance obligation is consistent with the allocation objective of ASC 606 when considering all of the performance obligations and payment terms in the contract. We allocated the fixed up-front consideration of $310.0 million entirely to the Roche License Obligation as the value of the fixed consideration together with the expected value of the development and regulatory milestones, sales-based milestones and royalties, all of which are either currently constrained or subject to the sales-and usage-based royalty exception, approximates the standalone selling price of the Roche License Obligation. Therefore, allocating the fixed up-front consideration entirely to the Roche License Obligation is consistent with the allocation objective of ASC 606 when considering all of the performance obligations and payment terms in the contract. The Roche License Obligation was satisfied at a point in time upon transfer of the license to Roche. Control of the licenses was transferred on the Effective Date and Roche could begin to use and benefit from the licenses. For the Roche Development Services Obligation, we measure proportional performance over time using an input method based on cost incurred relative to the total estimated cost of the obligation, on a quarterly basis, by determining the proportion of effort incurred as a percentage of total effort we expect to expend. This ratio is applied to the transaction price allocated to the obligation. Management has applied significant judgment in the process of developing our estimates. We re-evaluate the transaction price as of the end of each reporting period. The following tables provide a summary of the transaction price allocated to each performance obligation, in addition to revenue activity during the period, in thousands: Transaction Price Allocated Revenue Recognized During Performance Obligations As of September 30, 2023 Three Months Ended Roche License Obligation $ 310,000 $ 310,000 Roche Development Services Obligation 545,000 200 Roche Technology Transfer Obligation 2,000 — $ 857,000 $ 310,200 As of September 30, 2023, the aggregate amount of the transaction price allocated to the Roche Performance Obligations that was unsatisfied was $546.8 million, which is expected to be recognized through the term of the Roche Agreement as the services are performed. Regeneron Pharmaceuticals, Inc. In April 2019, we entered into a global, strategic collaboration with Regeneron to discover, develop and commercialize RNAi therapeutics for a broad range of diseases by addressing therapeutic targets expressed in the eye and central nervous system, or CNS, in addition to a select number of targets expressed in the liver, which we refer to as the Regeneron Collaboration. The Regeneron Collaboration is governed by a Master Agreement, referred to as the Regeneron Master Agreement, which became effective on May 21, 2019. In connection with the Regeneron Master Agreement, we and Regeneron entered into (i) a binding co-co collaboration term sheet covering the continued development of cemdisiran, our C5 small interfering RNA, or siRNA, currently in Phase 2 development for C5 complement-mediated diseases, as a monotherapy and (ii) a binding license term sheet to evaluate anti-C5 antibody-siRNA combinations for C5 complement-mediated diseases including evaluating the combination of Regeneron’s pozelimab (REGN3918), currently in Phase 3 development, and cemdisiran. The C5 co-co collaboration and license agreements were executed in August 2019. Under the terms of the Regeneron Collaboration, we are working exclusively with Regeneron to discover RNAi therapeutics for eye and CNS diseases for an initial research period of approximately five years, which we refer to as the Initial Research Term. Regeneron has an option to extend the Initial Research Term (referred to as the Research Term Extension Period, and together with the Initial Research Term, the Research Term) for up to an additional five years, for a research term extension fee of $300.0 million. The Regeneron Collaboration also covers a select number of RNAi therapeutic programs designed to target genes expressed in the liver, including our previously announced collaboration with Regeneron to identify RNAi therapeutics for the chronic liver disease nonalcoholic steatohepatitis. We retain broad global rights to all of our other unpartnered liver-directed clinical and pre-clinical pipeline programs. The Regeneron Collaboration is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Regeneron leads development and commercialization for all programs targeting eye diseases (subject to limited exceptions), entitling us to certain potential milestone and royalty payments pursuant to the terms of a license agreement, the form of which has been agreed upon by the parties. We and Regeneron are alternating leadership on CNS and liver programs covered by the Regeneron Collaboration, with the lead party retaining global development and commercial responsibility. For such CNS and liver programs, both we and Regeneron have the option at lead candidate selection to enter into a co-co collaboration agreement, the form of which has been agreed upon by the parties, whereby both companies will share equally all costs of, and profits from, all development and commercialization activities under the program. If the non-lead party elects to not enter into a co-co collaboration agreement with respect to a given CNS or liver program, we and Regeneron will enter into a license agreement with respect to such program and the lead party will be the “Licensee” for the purposes of the license agreement. If the lead party for a CNS or liver program elects to not enter into the co-co collaboration agreement, then we and Regeneron will enter into a license agreement with respect to such program and leadership of the program will transfer to the other party and the former non-lead party will be the “Licensee” for the purposes of the license agreement. With respect to the programs directed to C5 complement-mediated diseases, we retain control of cemdisiran monotherapy development, and Regeneron is leading combination product development. Pursuant to the C5 co-co collaboration agreement, Regeneron notified us in November 2022 of its decision to exercise its right to opt-out of the further development and commercialization of cemdisiran monotherapy. As a result, Regeneron no longer shares costs and potential future profits on any monotherapy program with us. We continue to perform our obligations under the agreement, including considering other strategic alternatives, and we are solely responsible for all development and commercialization costs. Regeneron will be eligible to receive tiered double-digit royalties on net sales. Under the C5 license agreement, for cemdisiran to be used as part of a combination product, Regeneron is solely responsible for all development and commercialization costs and we will receive low double-digit royalties and commercial milestones of up to $325.0 million on any potential combination product sales. The C5 co-co collaboration agreement, the C5 license agreement, and the Master Agreement have been combined for accounting purposes and treated as a single agreement. In connection with the Regeneron Master Agreement, Regeneron made an upfront payment of $400.0 million. In the third quarter of 2023, we earned a $100.0 million milestone as we met certain criteria during early clinical development for our CNS program, ALN-APP. We recognized a cumulative catch-up adjustment of $65.0 million in net revenues from collaborations for the satisfied portion of our performance obligation that is satisfied over time. We are also eligible to receive up to an additional $100.0 million in milestone payments upon achievement of certain criteria during early clinical development for an eye program. We and Regeneron plan to advance programs directed to up to 30 targets in the first five years under the Regeneron Collaboration during the Initial Research Term. For each program, Regeneron will provide us with $2.5 million in funding at program initiation and an additional $2.5 million at lead candidate identification, with the potential for approximately $30.0 million in annual discovery funding to us as the Regeneron Collaboration reaches steady state. Regeneron has the right to terminate the Regeneron Master Agreement for convenience upon ninety days’ notice. The termination of the Regeneron Master Agreement does not affect the term of any license agreement or co-co collaboration agreement then in effect. In addition, either party may terminate the Regeneron Master Agreement for a material breach by, or insolvency of, the other party. Unless earlier terminated pursuant to its terms, the Regeneron Master Agreement will remain in effect with respect to each program until (a) such program becomes a terminated program or (b) the parties enter into a license agreement or co-co collaboration agreement with respect to such program. The Regeneron Master Agreement includes various representations, warranties, covenants, dispute escalation and resolution mechanisms, indemnities and other provisions customary for transactions of this nature. For any license agreement subsequently entered into, the licensee will generally be responsible for its own costs and expenses incurred in connection with the development and commercialization of the collaboration products. The licensee will pay to the licensor certain development and/or commercialization milestone payments totaling up to $150.0 million for each collaboration product. In addition, following the first commercial sale of the applicable collaboration product under a license agreement, the licensee is required to make certain tiered royalty payments, ranging from low double-digits up to 20%, to the licensor based on the aggregate annual net sales of the collaboration product, subject to customary reductions. For any co-co collaboration agreement subsequently entered into, we and Regeneron will share equally all costs of, and profits from, development and commercialization activities. Reimbursement of our share of costs will be recognized as a reduction to research and development expense in the condensed consolidated statements of operations and comprehensive income (loss). In the event that a party exercises its opt-out right, the lead party will be responsible for all costs and expenses incurred in connection with the development and commercialization of the collaboration products under the applicable co-co collaboration agreement, subject to continued sharing of costs through defined points. If a party exercises its opt-out right, following the first commercial sale of the applicable collaboration product under a co-co collaboration agreement, the lead party is required to make certain tiered royalty payments, ranging from low double-digits up to 20%, to the other party based on the aggregate annual net sales of the collaboration product and the timing of the exercise of the opt-out right, subject to customary reductions and a reduction for opt-out transition costs. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any additional milestone or royalty payments from Regeneron under the Regeneron Master Agreement, the C5 license agreement, or any future license agreement, or under any co-co collaboration agreement in the event we exercise our opt-out right. Our obligations under the Regeneron Collaboration include: (i) a research license and research services, collectively referred to as the Research Services Obligation; (ii) a worldwide license to cemdisiran for combination therapies, and manufacturing and supply, and development service obligations, collectively referred to as the C5 License Obligation; and (iii) development, manufacturing and commercialization activities for cemdisiran monotherapies, referred to as the C5 Co-Co Obligation. The research license is not distinct from the research services primarily as a result of Regeneron being unable to benefit on its own or with other resources reasonably available, as the license is providing access to specialized expertise, particularly as it relates to RNAi technology that is not available in the marketplace. Similarly, the worldwide license to cemdisiran for combination therapies is not distinct from the manufacturing and supply, and development service obligations, as Regeneron cannot benefit on its own from the value of the license without receipt of supply. Separately, prior to Regeneron’s decision in November 2022 to exercise its right to opt-out of the further development and commercialization of cemdisiran monotherapy, the cemdisiran monotherapy co-co collaboration agreement was under the scope of ASC 808 as we and Regeneron were both active participants in the development and manufacturing activities and were exposed to significant risks and rewards that were dependent on commercial success of the activities of the arrangement. Regeneron’s decision to exercise its right to opt out of the arrangement caused a change in the role of Regeneron and its exposure to significant risks and rewards under the arrangement. As a result, we determined that the arrangement no longer represents a collaborative arrangement. The arrangement now represents a vendor-customer relationship under ASC 606 as we perform our obligation to provide development and manufacturing activities under the arrangement. The transaction price allocated to the C5 Co-Co obligation unit of account will be recognized over time using an input method based on cost incurred relative to the total estimated costs for the identified performance obligation by determining the proportion of effort incurred as a percentage of total effort we expect to expend. The total transaction price is comprised of the $400.0 million upfront payment and additional variable consideration related to research, development, manufacturing and supply activities related to the Research Services Obligation and the C5 License Obligation. We utilized the expected value method to determine the amount of reimbursement for these activities. We determined that any variable consideration related to sales-based royalties and milestones related to the worldwide license to cemdisiran for combination therapies is deemed to be constrained and therefore has been excluded from the transaction price. In addition, we are eligible to receive a future milestone upon the achievement of certain criteria during early clinical development for an eye program. We are also eligible to receive royalties on future commercial sales for certain eye, CNS or liver targets, if any; however, these amounts are excluded from variable consideration under the Regeneron Collaboration as we are only eligible to receive such amounts if, after a drug candidate is identified, the form of license agreement is subsequently executed resulting in a license that is granted to Regeneron. Any such subsequently granted license would represent a separate transaction under ASC 606. We allocated the initial transaction price to each unit of account based on the applicable accounting guidance as follows, in thousands: Performance Obligations Standalone Selling Price Transaction Price Allocated Research Services Obligation $ 130,700 $ 183,100 C5 License Obligation 97,600 92,500 C5 Co-Co Obligation 364,600 246,000 $ 521,600 The transaction price was allocated to the obligations based on the relative estimated standalone selling prices of each obligation, over which management has applied significant judgment. We developed the estimated standalone selling price for the licenses included in the Research Services Obligation and the C5 License Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each license related to each specific program. In developing such estimate, we applied judgment in the determination of the forecasted revenues, taking into consideration the applicable market conditions and relevant entity-specific factors, the expected number of targets or indications expected to be pursued under each license, the probability of success, the time needed to develop a product candidate pursuant to the associated license and the discount rate. We developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the obligations, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated costs. The estimated standalone selling price of the C5 Co-Co Obligation was developed by estimating the present value of expected future cash flows that Regeneron is entitled to receive. In developing such estimate, we applied judgment in determining the indications that will be pursued, the forecasted revenues for such indications, the probability of success and the discount rate. For the Research Services Obligation, the C5 License Obligation, and the C5 Co-Co Obligation accounted for under ASC 606, we measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for each of the identified obligations, on a quarterly basis, by determining the proportion of effort incurred as a percentage of total effort we expect to expend. This ratio is applied to the transaction price allocated to each obligation. Management has applied significant judgment in the process of developing our estimates. Any changes to these estimates will be recognized in the period in which they change as a cumulative catch up. We re-evaluate the transaction price as of the end of each reporting period and as of September 30, 2023, the total transaction price was determined to be $650.1 million, an increase of $91.2 million from December 31, 2022. As of September 30, 2023, the transaction price is comprised of the upfront payment and variable consideration related to development, manufacture, and supply activities. Revenue recognized under this agreement is accounted for as collaboration revenue. The following tables provide a summary of the transaction price allocated to each unit of account based on the applicable accounting guidance, in addition to revenue activity during the period and deferred revenue as of the balance sheet date, in thousands: Transaction Price Allocated Deferred Revenue Performance Obligations As of September 30, As of September 30, As of December 31, Research Services Obligation $ 305,680 $ 72,000 $ 26,200 C5 License Obligation 98,400 3,800 7,000 C5 Co-Co Obligation 246,000 187,400 193,600 $ 650,080 $ 263,200 $ 226,800 Revenue Recognized During Three Months Ended September 30, Nine Months Ended September 30, Performance Obligations 2023 2022 2023 2022 Research Services Obligation $ 73,000 $ 10,300 $ 66,700 $ 19,100 C5 License Obligation 700 1,400 6,000 (2,100) C5 Co-Co Ob |
