3.

Revenue

General

The Company has not generated revenue from product sales. The Company has generated revenue pursuant to (i) license and collaboration agreements, which include upfront payments for licenses or options to obtain licenses, payments for research and development services and milestone payments, and (ii) government grants.

 

		Years ended December 31,
		2016				2015
License fees		$	2,735,794			$	—
Research and development services			1,439,513				5,593
Milestone payments			1,655,367				2,538,698
Government grants			—				369,200
Other Revenues			—				18,440
Total Revenue		$	5,830,674			$	2,931,931

 

Revenue from two collaboration partners exceeded 10% of total revenue, amounting to $1.7 million and $4.1 million, respectively, in the year ended December 31, 2016. Revenue from two collaboration partners and from one government grant exceeded 10% of total revenue, amounting to $2.0 million, $0.5 million and $0.4 million, respectively, in the year ended December 31, 2015.

Collaborations and Other Agreements

Daiichi Sankyo Co., Ltd.

In May 2011, Pieris granted an exclusive, worldwide license for the research, development and commercialization of drug candidates identified by the Company for targets selected by Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”) pursuant to an agreement with Daiichi Sankyo. Under this agreement, Pieris will use its proprietary Anticalin scaffold technology to identify drug candidates against certain selected targets, with further development and commercialization performed by Daiichi Sankyo.

Daiichi Sankyo has agreed to pay various upfront payments for certain research programs, payments for services provided by Pieris in conjunction with the research programs, and certain milestone payments as development milestones are achieved. During the years ended December 31, 2016 and 2015, Pieris recorded revenue of $1.7 million and $2.0 million, respectively. The revenues recorded during the year ended December 31, 2016 were associated with achieving a milestone within a research program and to a lesser extent Pieris providing various services in connection with a research program. The revenues recorded during the year ended December 31, 2015 were associated with achieving certain milestones within a research program

The milestone payments in 2016 and 2015 are based on successful in vitro and in vivo studies and for the initiation on a toxicity study in non-human primates. The milestones could not be achieved solely upon the passage of time. For revenue recognition purposes, management determined these milestones to be substantive in accordance with applicable accounting guidance related to milestone revenue. Substantive uncertainty existed at the inception of the arrangements as to whether the milestones would be achieved because of the numerous variables, such as the high rate of failure inherent in research and development activities and the uncertainty involved with obtaining regulatory approval. Therefore, each of the milestone payments were recognized net of Japanese withholding tax of 10%, as revenues during the respective years ended December 31, 2016 and 2015 in which they were received.

Pieris is able to receive potential milestone payments of $85.9 million, plus royalties on the commercial sales of any commercial products. The total milestones are categorized as follows: research milestones—$2.5 million; development milestones—$35.2 million; commercial milestones—$47.3 million; additional diagnostic milestones of $0.7 million.

Sanofi-Aventis and Sanofi-Pasteur

In September 2010, the Company entered into an agreement with Sanofi-Aventis and Sanofi Pasteur (“Sanofi”), under which the Company agreed to apply its proprietary Anticalin technology to identify drug candidates against certain targets selected by Sanofi, with further development and commercialization performed by Sanofi. The agreement included the initial identification of two targets by Sanofi, with options to select up to four additional targets. For any targets selected by Sanofi, the Company granted an exclusive, worldwide license for the research, development and commercialization of drug candidates identified by the Company. In addition to the two initial targets selected by Sanofi, Sanofi exercised one of the four options and received a license. The remaining three options expired unexercised.

Sanofi has agreed to pay various upfront payments for certain research programs, payments for services provided by Pieris in conjunction with the research programs and certain milestone payments as development milestones are achieved. During the years ended December 31, 2016 and 2015, Pieris recorded revenue of zero and $0.5 million, respectively. The revenues recorded during the year ended December 31, 2015 were associated with achieving a development milestone within a research program during the period.

 

No milestone payments were achieved during the year ended December 31, 2016. The milestone payment in 2015 resulted from Sanofi’s decision to continue advancing the tetraspecific Anticalin-based program for infectious disease. The milestone could not be achieved solely upon the passage of time. For revenue recognition purposes, management determined these milestones to be substantive in accordance with applicable accounting guidance related to milestone revenue. Substantive uncertainty existed at the inception of the arrangements as to whether the milestone would be achieved because of the numerous variables, such as the high rate of failure inherent in research and development activities and the uncertainty involved with obtaining regulatory approval. Therefore, the milestone payment was recognized in its entirety as revenue during the respective year ended December 31, 2015 in which it was received.

The Company is able to receive milestone payments up to $48.6 million, plus royalties on the sales of any commercial products. The total future potential milestones are categorized as follows: research milestones—$1.8 million; development milestones—$27.9 million; commercial milestones—$18.9 million.

F.Hoffmann-La Roche Ltd and Hoffmann- La Roche Inc.

In December 2015, the Company entered into a Research Collaboration and License Agreement (the “Roche Agreement”) with F.Hoffmann- La Roche Ltd. and Hoffmann- La Roche Inc., (“Roche”), for the research, development, and commercialization of Anticalin-based drug candidates against a predefined, undisclosed target in cancer immune therapy. The parties will jointly pursue a preclinical research program with respect to the identification and generation of Anticalin proteins that bind to a specific target for an expected period of 20 months, which may be extended by Roche for up to an additional 12 months. Roche has the ability to continue exclusivity rights for up to an additional 5 years. Both Roche and the Company will participate in a joint research committee in connection with this agreement. Following the research program, Roche will be responsible for subsequent pre-clinical and clinical development of any product developed through the research plan and will have worldwide commercialization rights to any such product.

Roche has paid $6.5 million of an upfront payment for the research collaboration. Additionally, Roche will pay Pieris for research services provided by Pieris in conjunction with the research program. Roche will also pay Pieris for certain milestones relating to development, regulatory, and sales milestones, as they are achieved. As of December 31, 2016 and December 31, 2015, deferred revenue, related to Roche collaboration, is $3.7 million and $0, respectively.

Pieris recorded $4.1 million in revenue for the year ended December 31, 2016, related to the recognition of the upfront Roche payment and the research services provided during those periods. Revenue recognized is associated with the portion of the research services performed during the periods as well as the value of research services provided by Pieris in connection with the ongoing research program. No revenues were recorded for the year ended December 31, 2015.

The Company identified the research and commercial licenses, performance of R&D services, and participation in the joint research committee as deliverables under the Roche Agreement. For revenue recognition purposes, management has determined that there are two units of accounting at the inception of the agreement representing (i) the research and commercial licenses and the performance of R&D services which do not have standalone value, and (ii) the participation in the joint research committee.

In addition to the upfront payment, under the Roche Agreement, the Company is eligible to receive research funding, development and regulatory and sales based milestone payments up to approximately $399.4 million, plus royalties on future sales of any commercial products. The total potential milestones are categorized as follows: development and regulatory milestones—$277.6 million and sales milestones—$117.7 million. Management has determined that the development milestones are not substantive because they do not relate solely to past performance of the Company and the Company’s involvement in the achievement is limited to progress reports and other updates. Non-substantive milestones will be recognized when achieved to the extent the Company has no remaining performance obligations under the arrangement.

 

Other Collaborations

The Company has entered into several other research and collaboration agreements for which the Company could achieve future milestone payments up to $14.0 million. For revenue recognition purposes, management determined these milestones to be substantive in accordance with applicable accounting guidance related to milestone revenue. Substantive uncertainty existed at the inception of the arrangements as to whether the milestones would be achieved because of the numerous variables, such as the high rate of failure inherent in research and development activities and the uncertainty involved with obtaining regulatory approval. No milestones or other revenues related to these agreements were recognized during the years ended December 31, 2016 and 2015, respectively.

Government Grants

BioCluster m4

In 2011 Pieris applied for a government grant from the German Federal Ministry for Education and Research for the project “Spitzencluster m4, Cooperation personalized medicine: ‘Preclinical development of PRS-110 an Anticalin targeted against c-Met as a monovalent antagonist in the field of oncology (PM18).’” The funding rate amounts to 40% of the actual costs incurred, with an aggregate cap of $1.4 million for the approval period from February 1, 2012 to September 30, 2014. The amounts received are non-refundable, and the grant funds may only be claimed for costs incurred within the approval period.

The payments are received quarterly in arrears based on expenses already incurred. The Company recorded zero and $8,654 for the years ended December 31, 2016 and 2015, respectively, which was recorded as grant revenue.

Seventh Research Framework Program (“FP7”)—Collaborative Project “EUROCALIN—European consortium for antiCALINs as next generation high-affinity protein therapeutics” (“EUROCALIN”)

EUROCALIN is a program that started in August 2011 with the objective of developing and producing new high-affinity protein scaffolds for therapeutic use. The focus is on the development of non-immunoglobulin protein scaffolds as alternatives to antibodies and oligo-nucleotides. The grant involves a consortium of ten companies and universities in Europe and was initiated for a collaboration focused on attaining and completing initial clinical development of a novel Anticalin therapeutic. The consortium is seeking to develop, manufacture and clinically test an Anticalin specific for hepcidin. The program is a small molecule enhancers (“SME”) targeted project, which is funded by the European Union (“EU”) in the amount of $7.3 million and also includes a respective funding rate of approximately 64% of the eligible costs occurred in connection with the research project. All payments received from the EU in connection with the grant are non-refundable. Under this grant agreement, Pieris is the coordinator. The EU has scheduled three tranches of payments. The first tranche (pre-financing) was received as of December 7, 2011 and the second tranche as of August 4, 2013. The third tranche was completed in November 2015. Pieris, as the coordinator, received all payments from the grant. During 2016, at the conclusion of the EUROCALIN program, the Company made all distributions of cash to the members of the consortium that are entitled to payments based on submission of invoices of eligible costs. Under this program, the Company recognized zero and $0.4 million as revenue from grant during the years ended December 31, 2016 and 2015, respectively.

The following balance sheet items relate to the FP7 agreement:

 

		Years Ended December 31,
		2016				2015
Other current assets (receivables from FP7 grant)		$	—			$	980,936
Cash (restricted cash)		$	—			$	17,302
Accounts payable		$	—			$	424,441