3. REVENUE

Our revenue for the periods presented consists of the following (in thousands):

 

		Three Months Ended March 31,
		2015				2014
Government grants		$	—			$	165
Research and development agreements			4,384				1,400
Total		$	4,384			$	1,565

Government Grants—Government grants consist primarily of a research grant from the Ministry for Industry and Trade of the Russian Federation (“MPT Grant”) awarded in October 2012. Advance funding under the contract of 11.8 million Rubles (RUB) ($0.2 million) and 12.0 million RUB ($0.3 million) was received during the three months ended March 31, 2015 and 2014, respectively. Revenue recognized for this contract for the three months ended March 31, 2015 and 2014, was zero and $0.2 million, respectively. Cash received from the MPT Grant that exceeds revenue recognized has been recorded in deferred revenue.

Research and Development and Collaboration Agreements—Revenue recognized for research and development agreements in the three months ended March 31, 2015 and 2014 relates principally to our agreements with large pharmaceutical and biotechnology companies. Under these agreements, we perform research and/or studies to assess the feasibility of developing Accurins incorporating therapeutic payloads from such pharmaceutical and biotechnology companies’ proprietary product portfolios and provide the resulting data from such work to the pharmaceutical and biotechnology companies in exchange for reimbursement for research and development services and upfront fees for which revenue recognition was initially deferred and is being recognized over the performance period.

AstraZeneca AB —In April 2013, we entered into a license agreement with AstraZeneca. Under the agreement, we granted to AstraZeneca a worldwide license to research, develop, manufacture and commercialize Accurins incorporating a specified AstraZeneca product candidate for any therapeutic use in humans or animals. This license is exclusive with respect to our intellectual property rights that arise under this agreement or the feasibility study that preceded it, and non-exclusive with respect to all of our other intellectual property rights. We and AstraZeneca are each responsible for using commercially reasonable efforts to develop licensed products under a development plan that extends a previously completed feasibility study we conducted for AstraZeneca. AstraZeneca is required to pay for all of our development costs. AstraZeneca is also solely responsible for, and must use commercially reasonable efforts in, obtaining all regulatory approvals for licensed products. AstraZeneca may terminate the agreement effective upon six months’ prior written notice to us.

Under the agreement, we received an upfront payment of $4.0 million in 2013. We achieved a $1 million development milestone during the three months ended March 31, 2015, which we expect will be paid by AstraZeneca during the three months ended June 30, 2015. We have the potential to receive additional contingent payments totaling up to $192 million in the aggregate upon achievement by AstraZeneca of specified clinical, regulatory and commercial events. We will also receive tiered royalties in the low-single digit to the low-double digit percentages of aggregate worldwide net sales of licensed product, if any. We will receive royalties on a country-by-country and licensed product-by-licensed product basis generally until the AstraZeneca patents and any regulatory exclusivity relating to such licensed product expire.

We determined that the deliverables under the agreement include the license, the research and development services and participation in the Joint Steering Committee (“JSC”). The JSC deliverable ends at the same time as the research and development services. Our obligations related to the research and development services are to use commercially reasonable efforts to perform the research as set forth in the design/preclinical collaboration plan. We also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and undelivered research and development services and participation in the JSC do not have standalone value due to the specialized nature of the research services to be provided by us. In addition, while AstraZeneca has the ability to grant sublicenses, it cannot sublicense all or substantially all of its rights under the agreement. The uniqueness of the Company’s research services and the limited sublicense right are indicators that standalone value is not present in the arrangement. Therefore the deliverables are not separable and, accordingly, the license and undelivered research and development and JSC services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, we base our revenue recognition model on the final deliverable, since multiple deliverables are accounted for as a single unit of accounting. Under the agreement, the last deliverable to be completed is the research and development services and participation in the JSC which are expected to be completed in 2016. We are utilizing a proportional performance model to recognize revenue related to the upfront payment, the achieved development milestone and our other research and development services (both our internal effort as well as external costs). During the three months ended March 31, 2015 and 2014, we recognized revenue of $3.5 million and $1.3 million, respectively, related to the AstraZeneca license agreement.

 

Pfizer Inc.—In March 2013, we entered into a research, option and license agreement with Pfizer Inc. pursuant to which we granted to Pfizer two options to obtain an exclusive worldwide license to use, develop, manufacture and commercialize Accurins incorporating specified Pfizer drug candidates, for the treatment, prevention and/or diagnosis of any disease or medical condition in humans, except that the licensed rights exclude some vaccine products and products for the treatment of brain cancer.

Under the agreement, we received an upfront payment of $4.0 million and achieved a $1 million development milestone during the three months ended December 31, 2014. We have the potential to receive additional contingent payments totaling up to $88.5 million in the aggregate under each option upon exercise of the option and achievement by Pfizer of specified development and regulatory events plus additional contingent payments totaling up to $110 million in the aggregate under each option upon achievement by Pfizer of specified commercial events. We will also receive royalties in the low-single digit to the high-single digit percentages of aggregate worldwide net sales of each licensed product, if any. We will receive royalties on a country-by-country and licensed product-by-licensed product basis generally until the expiration of the Pfizer patents covering such licensed product.

In April 2015, we entered into an amendment, effective March 31, 2015, to our agreement with Pfizer. The amendment extends the term for research and preclinical development activities with respect to one of the two compounds (the “Second Compound”) covered by the agreement to March 25, 2016 to allow the parties to conduct additional research with respect to the Second Compound. The amendment also extends the period during which Pfizer is entitled to exercise its option to acquire an exclusive license for the development and commercialization of the Second Compound to March 25, 2016. The amendment also extends the term for research and preclinical development activities with respect to the other compound (the “First Compound”) covered by the agreement to September 25, 2015 to allow the parties to conduct additional research with respect to the First Compound.

Pfizer is entitled to exercise its option to acquire an exclusive license for the development and commercialization of the first compound by September 2015, the same timeframe as in the original agreement. Pfizer may exercise either one or both of its options to acquire the exclusive license for a specified drug candidate, subject to certain adjustments, by paying us a specified option exercise fee. If Pfizer exercises any option, it will be solely responsible for all further development and commercialization activities with respect to the licensed products covered by the option, and Pfizer is also solely responsible for obtaining all regulatory approvals for the applicable licensed products and conducting all communications with regulatory authorities. Pfizer may terminate this agreement without cause for any or no reason effective upon 60 days’ prior written notice to us.

Our deliverables under the agreement include the research and development services and participation on a Joint Research Committee (“JRC”). The JRC deliverable ends at the same time as the research and development services. Our obligations related to the research and development services are to use commercially reasonable efforts to perform the research as set forth in the design/preclinical collaboration plan. We determined that the JRC does not have standalone value apart from the research and development services, and we considered these deliverables a single unit of accounting. We concluded that the Pfizer options are not deliverables of the agreement because they are substantive options and are not priced at a significant and incremental discount. The performance period is the expected period over which the services of the combined unit are performed, which we expect will span into 2016. We are utilizing a proportional performance model to recognize the upfront payment, the achieved development milestone and our other research and development services (both our internal effort as well as external costs).

During the three months ended March 31, 2015 and 2014, we recognized revenue of $0.7 million and $0.1 million, respectively, related to the Pfizer research, option and license agreement.

F. Hoffmann-La Roche Ltd.—In June 2014, we entered into a research agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc., or Roche, to discover novel nanomedicines using Accurins for the treatment of diseases in therapeutic areas outside of oncology. The research agreement focuses on combining BIND’s Accurin technology with Roche’s proprietary therapeutic payloads and targeting ligands. Under the agreement, Roche paid us an immaterial, non-refundable upfront fee and, additionally, will compensate us for our research and development services up to a specified amount. The upfront fee, which was received by us in July 2014, will be creditable against any such fee negotiated in a future Roche agreement, if any. Therefore, we will not recognize revenue related to the upfront fee during the term of the research agreement. During the three months ended March 31, 2015, we recognized revenue of $0.2 million for reimbursable research and development activities related to the Roche research agreement.