7. Deferred Research and Development Arrangement
Rexgene Biotech Co., Ltd.
In 2003, the Company entered into a collaborative research agreement with Rexgene Biotech Co., Ltd. (“Rexgene”), a shareholder. Rexgene is engaged in the development of pharmaceutical products in Asia and has agreed to assist the Company with the research, development and clinical trials necessary for registration of the Company’s drug candidate Archexin in Asia. This agreement provides Rexgene with exclusive rights to license, sublicense, make, have made, use, sell and import Archexin in Asia. In accordance with the agreement, Rexgene paid the Company a one-time fee of $1,500,000 in 2003. The agreement terminates at the later of 20 years or the term of the patent.
The Company is using 20 years as its basis for recognition. The amortization reduces research and development expenses for the periods presented. Research and development expenses were reduced by $18,750 and $37,500 for the three and six months ended June 30, 2015 and 2014, respectively. The remaining $562,500 and $600,000 to be amortized at June 30, 2015 and December 31, 2014, respectively, are reflected as a deferred research and development arrangement on the balance sheet. The payment from Rexgene is being used in the cooperative funding of the costs of development of Archexin. Royalties of 3% of net sales of licensed products will become payable by Rexgene to the Company on a quarterly basis once commercial sales of Archexin begin in Asia. The product is still under development and commercial sales in Asia are not expected to begin until at least 2016. Under the terms of the agreement, Rexgene does not receive royalties on the Company’s net sales outside of Asia.