7. Deferred Research and Development Arrangements
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 amortization reduces research and development expenses for the periods presented.
The Company is using 20 years as its basis for recognition and accordingly research and development expenses were reduced by $75,000 for each of the years ended December 31, 2016, 2015 and 2014. The remaining $450,000 and $525,000 to be amortized at December 31, 2016 and 2015, 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 2018. Under the terms of the agreement, Rexgene does not pay royalties on the Company’s net sales outside of Asia.
Teva Pharmaceutical Industries, Ltd.
The Company previously had an arrangement with Teva Pharmaceutical Industries Limited (“Teva”) where Teva provided funds for the pre-clinical development of RX-3117. The proceeds received from Teva were recorded as restricted cash and as a deferred research and development arrangement on the balance sheet. Costs paid for the development of RX-3117 reduced the deferred research and development arrangement and therefore were not an expense in the Company’s statement of operations. During the year ended December 31, 2014, $158,630 was reduced from deferred research and development arrangements. As of December 31, 2014, there were no proceeds remaining, and therefore, no deferred research and development liability relating to Teva.