7. Licenses Acquired

In accordance with ASC 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternate use. As such, for the years ended December 31, 2022 and 2021, the total purchase price of licenses acquired, totaling approximately $0.7 million and $15.6 million, respectively, was classified as research and development-licenses acquired in the Consolidated Statements of Operations.

For the years ended December 31, 2022 and 2021, the Company’s research and development-licenses acquired are comprised of the following:

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Journey

On June 29, 2021, Journey entered into a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain the global rights, except for DRL retained rights in the BRIC and CIS countries, for the development and commercialization of  a late-stage development modified early release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr. Reddy’s Laboratories, Ltd.(“DRL”). Pursuant to the terms and conditions of the DFD-29 agreement, Journey paid $10.0 million. Additional contingent regulatory and commercial milestone payments totaling up to $158.0 million may also be payable. Royalties ranging from approximately 10% to approximately 15% are payable on net sales of the DFD-29 product.

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The product candidates acquired by the Company require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility. As such, the $10.0 million for the year ended December 31, 2021 for the purchase price of licenses acquired were classified as research and development-licenses acquired in the consolidated statement of operations.

The DFD-29 Agreement contained contingent consideration payable by Journey upon either an IPO of Journey’s common stock or an acquisition of Journey. Journey recognized $3.8 million of expense classified as research and development-licenses acquired upon execution of the DFD-29 Agreement associated with the contingent consideration. In connection with the closing of Journey’s IPO on November 16, 2021, Journey issued 545,131 shares of its common stock to DRL in a transaction exempt from registration under the Securities Act calculated using a 15-day volume weighted average price (“VWAP”) of $9.1721 per share in full settlement of the contingent payment to DRL. The restrictions on the unregistered shares of common stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws. See “Journey Contingent Payment Derivative” in Note 6 for further details.

Additionally, the Company is required to fund and oversee the Phase 3 clinical trials. Either party may terminate the agreement prior to NDA approval in the event of bankruptcy or a material breach that remains uncured beyond the applicable cure period. Additionally, DRL may terminate the agreement if the Company: i.) ceases development of the product for 6 consecutive months (except if such cessation is caused by DRL, applicable laws, or action/inaction of any third party beyond Company’s control); ii.) files a patent challenge on any claim for a product patent or DRL background patent; or iii.) fails to initiate development of the product in the European Union (“EU”) (such termination solely relates to the rights granted in EU) within 24 months after product regulatory approval or cause first commercial sale in at least one country in the EU within 72 months after product regulatory approval. From inception to date the Company has incurred approximately $13.0 million associated with the development of DFD-29.

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Urica

In May 2021, Urica entered into an exclusive license agreement with Fuji Yakuhin Co. Ltd. (“Fuji”) to develop Dotinurad in North America, Europe, and the UK. Dontinurad is approved for the treatment of gout and hyperuricemia in Japan. The license agreement includes contingent regulatory and commercial milestone payments totaling up to $88 million with subsequent sales royalties ranging from approximately 7% to approximately 10% payable on net sales of Dotinurad. Urica paid a $3.0 million milestone payment in December 2021 upon IND submission of Dotinurad.

In December 2022 Urica Therapeutics expanded its exclusive license agreement with Fuji for the development of Dotinurad to include the Middle East and North Africa (“MENA”) and Turkey territories. The amendment to the exclusive license agreement included a one-time amendment payment of $0.3 million, which was paid in December 2022.

Partner Companies

The Company’s partner companies and subsidiaries have entered into various license agreements with other medical centers. These license agreements include upfront payments which are expensed and various developmental milestone payments due upon achievement of various milestones which in the aggregate are approximately $521.2 million, of which $348.2 million relates to Mustang agreements. The license agreements also have sales-based milestone payments that total approximately $378.4 million.  The agreements also include royalty payments on any future sales.