|9 Months Ended
Sep. 30, 2022
|Revenue from Contract with Customer [Abstract]
4. Licensing Revenues
On July 14, 2022, the Company entered into a license agreement (“Agreement”) with Lee’s Pharmaceutical (HK) Limited (“Lees”). Under the terms of the agreement, Lee’s Pharmaceutical will be responsible for development, registration filing and approval for Renazorb in China, Hong Kong, and certain other Asian markets. In addition, Lees will have sole responsibility for the importation of the drug product from the Company and for the costs of commercialization of Renazorb in the licensed territories. Both parties agreed to enter into a separate manufacturing and supply agreement whereby Unicycive will supply Lees with Renazorb product. The Company has received an upfront payment of approximately $1.0 million, expects to receive up to $1.0 million in milestone payments upon product launch in China and will be eligible for tiered royalties of between 7% and 10% upon achievement of prespecified regulatory and commercial achievements.
The Company has evaluated the Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 -Revenue for Contracts from Customers. The Company first assessed whether the contractual arrangement is within the scope of ASC 808 which defines a collaborative arrangement as a contractual arrangement that involves a joint operating activity. Under ASC 606, the counterparty is considered a customer only if it is acquiring goods or services that are an output of the entity’s “ordinary activities”. The Agreement is consistent with the Company’s current ongoing operations, which is an operating model adopted by many early-stage biotech companies. The license portion of the contract as well as the future potential transactions under a manufacturing and supply agreement both represent a vendor-customer relationship.
The Company does not believe that its promise to provide goods under a future manufacturing and supply agreement represents a material right to Lees, and therefore the promise does not represent current performance obligation. The Company has concluded the agreement contains one performance obligation – the IP license.
ASC 606 indicates that constrained variable consideration should be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration consisting of milestone payments and sales-based royalties may be received based on the completion of certain clinical, regulatory, and commercial activities. The Company has concluded that the future milestone payments should be excluded from the transaction price due to the uncertainty of achievement as of September 30, 2022. The Company will reassess this conclusion at each reporting date until the uncertainties are resolved.
For the sales-based royalty payments, guidance requires an entity to recognize revenue for a sales-based royalty promised in exchange for a license of intellectual property only when the later of 1) the subsequent sale or usage occurs, or 2) the performance obligation to which some or all the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied. The Company has concluded that the future sales-based royalties should be excluded from the transaction price as of September 30, 2022. The Company will reassess this conclusion at each reporting date.
The Company has concluded that at contract inception the total transaction price is the $1.0 million upfront fee.
The Company has concluded that the license of the Renazorb IP is functional IP as it contains all the necessary information for Lees to develop for commercialization in the Territory. Unicycive’s ongoing activities do not significantly affect the standalone functionality of the IP. In addition, the functionality of the IP is not expected to substantially change during the license period based on Unicycive’s activities. The revenue should therefore be recognized at a point in time. This intellectual property was transferred to Lees in July 2022, and the Company has recognized $1.0 million in the accompanying statements of operations as licensing revenue for the three and nine months ended September 30, 2022.