7. License Agreements

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. Expense recognized was $4.3 million (primarily Avenue) and $0.7 million, for the years ended December 31, 2023 and 2022, respectively. The purchase prices of the licenses acquired were classified as research and development-licenses acquired in the consolidated statements of operations.

Avenue

On February 28, 2023, Avenue entered into a license agreement with AnnJi Pharmaceutical Co. Ltd. ("AnnJi"), whereby Avenue obtained an exclusive license (the "AnnJi License Agreement") from AnnJi to the intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the U.S. for the treatment of SBMA, also known as Kennedy's Disease. Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidates, Avenue agreed to pay $3.0 million, of which $2.0 million was paid on April 27, 2023 and $1 million was paid on September 8, 2023.

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The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. Avenue will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi. AnnJi retains the manufacturing rights for AJ201 and Avenue has the option to acquire those rights from AnnJi as described in the AnnJi License Agreement.

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Pursuant to the terms of the AnnJi License Agreement, Avenue was also obligated to issue two tranches of shares of its common stock and make additional payments including: reimbursement of payments up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial (which AnnJi is currently administering with Joint Steering Committee Oversight before assigning the IND to Avenue upon such trial’s conclusion, and which is reflective of market pricing for the services to be received), up to $14.5 million in connection with certain development milestones pertaining to the first indication in the U.S., up to $27.5 million in connection with certain drug development milestones pertaining to additional indications and development outside the U.S., up to $165 million upon the achievement of certain net sales milestones ranging from $75 million to $750 million in annual net sales, and royalty payments based on a percentage of net sales ranging from mid-single digits to the low-double digits, which are subject to potential diminution in certain circumstances.

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In connection with the signing of the AnnJi License Agreement, Avenue issued 831,618 shares of its common stock to AnnJi (“First Tranche Shares”) and recognized expense of $0.9 million; and issued 276,652 shares of common stock (“Second Tranche Shares”), recorded at a fair value of $0.3 million, on September 26, 2023 upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial. Avenue and AnnJi entered into a Subscription Agreement, dated as of February 28, 2023, that provided for the issuance of First Tranche Shares which were issued March 30, 2023.  In the event that the common stock of Avenue ceases to be traded on a national securities exchange, AnnJi has the right to sell the common stock of Avenue back to Avenue at a price of $2.10 per share, subject to the terms of the AnnJi License Agreement.

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Journey

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On August 31, 2023, Journey entered into a license agreement (the “New License Agreement”) with Maruho, whereby Journey agreed to grant an exclusive license to Maruho to develop and commercialize Qbrexza® for the treatment of primary axillary hyperhidrosis, in South Korea, Taiwan, Hong Kong, Macau, Thailand, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Brunei, Cambodia, Myanmar and Laos (the “Territory”). Under the terms of the New License Agreement, in exchange for the exclusive rights to Qbrexza in the Territory and the amendment to the royalty payments associated with the Japanese license, Maruho paid $19.0 million to Journey as a non-refundable upfront payment. Prior to the date of the New License Agreement, Journey and Maruho were party to an existing exclusive amended and restated license agreement (the “First A&R License Agreement”), under which Maruho acquired exclusive license rights to Qbrexza® in Japan. In connection with Journey’s entry into the New License Agreement, Journey and Maruho also entered into the Second Amended and Restated Exclusive License Agreement (the “Second A&R License Agreement”), which supersedes the First A&R License Agreement. The Second A&R License Agreement contains modifications that remove Maruho’s obligation to pay Journey royalties on its net sales of Rapifort® (the Japanese equivalent of Qbrexza®) in Japan for sales occurring after October 1, 2023 and removes Maruho’s obligation to pay $10 million to Journey in the event that Maruho achieves net sales of at least ¥4 billion (yen) of Rapifort® during a single fiscal year. All other remaining potential milestone payment obligations, which aggregate to $45 million, remain in full force and effect. Journey recognized $19.0 million as other revenue in the consolidated statements of operations during the year ended December 31, 2023.

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In June 2021, Journey entered a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain global rights for the development and commercialization of a late-stage development modified release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr. Reddy’s Laboratories, Ltd (“DRL”); provided, that DRL retained certain rights to the program in select markets including Brazil, Russia, India and China. Pursuant to the terms and conditions of the DFD-29 Agreement, Journey paid $10.0 million. Based on the development and commercialization of DFD-29, additional contingent regulatory and commercial milestone payments totaling up to $158.0 million may also become payable by Journey. Journey is required to pay royalties ranging from approximately ten percent to fifteen percent on net sales of the DFD-29 product, subject to certain reductions. Additionally, Journey was required to fund and oversee the Phase 3 clinical trials beginning upon the license of DFD-29 in 2021. The Phase 3 clinical trials substantially concluded in July 2023 upon Journey’s receipt of positive topline results from the trials. From inception to date Journey has incurred approximately $23.8 million in costs associated with the development of DFD-29.

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On March 31, 2021, Journey acquired global rights to Qbrexza®, a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older. Journey is obligated to pay Dermira up to $144 million in the aggregate upon the achievement of certain sales milestones. The royalty structure for the agreement is tiered with royalties for the first two years ranging from approximately 40% to 30%. Thereafter for a period of eight years royalties are approximately 12.0% to 19.0%. Royalty amounts are subject to 50% diminution in the event of loss of exclusivity due to generic competition.

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Urica

In May 2021, Urica entered into an exclusive license agreement with Fuji to develop dotinurad in North America, Europe, and the UK. Dotinurad 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 license amendment payment of $0.3 million.

Partner Companies and Subsidiaries

The Company’s partner companies and subsidiaries have also entered into other various license agreements with research institutions and medical centers. These license agreements include upfront payments which were expensed and various development milestone payments due upon achievement of various milestones which in the aggregate are approximately $439.5 million, of which $285.2 million relates to Mustang agreements. The license agreements also have sales-based milestone payments that total approximately $337.9 million.  The agreements also include royalty payments on any future sales.