Collaborative and Other Relationships
In connection with our business strategy, we have entered into various collaboration agreements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
Depending on the collaborative arrangement, we may record funding receivables or payable balances with our partners, based on the nature of the cost-sharing mechanism and activity within the collaboration. Our significant collaboration arrangements are discussed below.
Genentech (Roche Group)
We collaborate with Genentech on the development and commercialization of RITUXAN. In addition, in the U.S. we share operating profits and losses relating to GAZYVA with Genentech. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S.
Our collaboration agreement will continue in effect until we mutually agree to terminate the collaboration, except that if we undergo a change in control, as defined in the collaboration agreement, Genentech has the right to present an offer to buy the rights to RITUXAN and we must either accept Genentech’s offer or purchase Genentech’s rights on the same terms as its offer. Genentech will also be deemed concurrently to have purchased our rights to any other anti-CD20 products in development in exchange for a royalty and our rights to GAZYVA in exchange for the compensation described in the table below. Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.
RITUXAN
Genentech is responsible for the worldwide manufacturing of RITUXAN. Development and commercialization rights and responsibilities under this collaboration are divided as follows:
U.S.
We share with Genentech co-exclusive rights to develop, commercialize and market RITUXAN in the U.S.
Canada
We and Genentech have assigned our rights under our collaboration agreement with respect to Canada to Roche.
Outside the U.S. and Canada
We have granted Genentech exclusive rights to develop, commercialize and market RITUXAN outside the U.S. and Canada. Under the terms of separate sublicense agreements between Genentech and Roche, development and commercialization of RITUXAN outside the U.S. and Canada is the responsibility of Roche and its sublicensees. We do not have any direct contractual arrangements with Roche or it sublicensees.
Under the terms of the collaboration agreement, Roche pays us royalties between 10% and 12% on sales of RITUXAN outside the U.S. and Canada, with the royalty period lasting 11 years from the first commercial sale of RITUXAN on a country-by-country basis. The royalty periods for a substantial portion of the remaining royalty-bearing sales of RITUXAN in the rest of world markets expired in 2012 and 2013. We expect future revenue on sales of RITUXAN in the rest of world will be limited to our share of pre-tax co-promotion profits in Canada.
GAZYVA
Prior to approval, we recognized 35% of the development and commercialization expenses as research and development expense and selling, general and administrative expense, respectively, in our consolidated statements of income. After GAZYVA was approved in the fourth quarter of 2013, we began to recognize our share of the development and commercialization expenses as a reduction of our share of pre-tax profits in revenues from unconsolidated joint business.
Commercialization of GAZYVA will impact our percentage of the co-promotion profits for RITUXAN, as summarized in the table below.
Ocrelizumab
Genentech is solely responsible for further development and commercialization of ocrelizumab and funding future costs. Genentech cannot develop ocrelizumab in CLL, NHL or RA without our consent. We will receive tiered royalties between 13.5% and 24% on U.S. sales of ocrelizumab if approved for commercial sale by the FDA. Commercialization of ocrelizumab does not impact the percentage of the co-promotion profits we receive for RITUXAN.
Profit-sharing Formula
RITUXAN
Our current pretax co-promotion profit-sharing formula provides for a 30% share on the first $50.0 million of co-promotion operating profits earned each calendar year. Under the amended agreement, our share of annual co-promotion profits in excess of $50.0 million varies, as summarized in the table below, upon the following events:
|
| | |
Until GAZYVA First Non-CLL FDA Approval
| 40.0 | % |
After GAZYVA First Non-CLL FDA Approval until First GAZYVA Threshold Date
| 39.0 | % |
After First GAZYVA Threshold Date until Second GAZYVA Threshold Date
| 37.5 | % |
After Second GAZYVA Threshold Date
| 35.0 | % |
First Non-CLL GAZYVA FDA Approval means the FDA’s first approval of GAZYVA in an indication other than CLL.
First GAZYVA Threshold Date means the earlier of (1) the date of the First Non-CLL GAZYVA FDA Approval if U.S. gross sales of GAZYVA for the preceding consecutive 12 month period were at least $150.0 million or (2) the first day of the calendar quarter after the date of the First Non-CLL GAZYVA FDA Approval that U.S. gross sales of GAZYVA within any consecutive 12 month period have reached $150.0 million.
Second GAZYVA Threshold Date means the first day of the calendar quarter after U.S. gross sales of GAZYVA within any consecutive 12 month period have reached $500.0 million. The Second GAZYVA Threshold Date can be achieved regardless of whether GAZYVA has been approved in a non-CLL indication.
In addition, should the FDA approve an anti-CD20 product other than ocrelizumab or GAZYVA that is acquired or developed by Genentech and subject to the collaboration agreement, our share of the co-promotion operating profits would be between 30% and 38% based on certain events.
GAZYVA
Our current pretax profit-sharing formula provides for a 35% share on the first $50.0 million of operating profits earned each calendar year. Under the amended agreement, our share of annual profits in excess of $50.0 million varies, as summarized in the table below, upon the following events:
|
| | |
Until First GAZYVA Threshold Date | 39.0 | % |
After First GAZYVA Threshold Date until Second GAZYVA Threshold Date
| 37.5 | % |
After Second GAZYVA Threshold Date | 35.0 | % |
Our share of operating losses on GAZYVA is 35%.
Unconsolidated Joint Business Revenues
Revenues from unconsolidated joint business consists of (1) our share of pre-tax profits in the U.S. for RITUXAN and GAZYVA; (2) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and (3) revenue on sales in the rest of world for RITUXAN, which consist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales outside the U.S. and Canada by Roche, and its sublicensees. Pre-tax co-promotion profits on RITUXAN are calculated and paid to us by Genentech in the U.S. and by Roche in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian sales to third-party customers net of discounts and allowances less the cost to manufacture, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, Roche and us. We record our share of the pretax co-promotion profits on RITUXAN in Canada and royalty revenues on sales outside the U.S. on a cash basis as we do not have access to the information or ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of the pre-tax profits on RITUXAN and GAZYVA in the U.S. includes estimates made by Genentech and those estimates are subject to change. Actual results may ultimately differ from our estimates.
In June 2011, the collaboration recognized a charge of approximately $125.0 million, representing an estimate of compensatory damages and interest that might be awarded to Hoechst GmbH (Hoechst), in relation to an intermediate decision by the arbitrator in Genentech’s ongoing arbitration with Hoechst. Although we were not a party to the arbitration, we charged the amounts paid by Genentech and not ultimately recovered from Hoechst as a cost charged to our collaboration with Genentech. Accordingly, we reduced our share of RITUXAN revenues from unconsolidated joint business by approximately $50.0 million in the second quarter of 2011, a portion of which was recorded as a reduction in revenue on sales in the rest of the world for RITUXAN. In February 2013, the arbitrator awarded Hoechst royalties of EUR108 million together with interest (estimated by Hoechst to be approximately EUR54 million as of the date of the award). Accordingly, we reduced our share of RITUXAN revenues from unconsolidated joint business by approximately $49.7 million during 2013, of which revenue on sales in the rest of world for RITUXAN was reduced by $41.2 million and pre-tax profits in the U.S. were reduced by $8.5 million, to reflect our share of the royalties awarded to Hoechst and the interest Hoechst claims. For additional information related to this matter, please read Note 21, Litigation to these consolidated financial statements.
Revenues from unconsolidated joint business are summarized as follows:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
(In millions) | 2013 | | 2012 | | 2011 |
Biogen Idec’s share of pre-tax profits in the U.S. for RITUXAN and GAZYVA (1) | $ | 1,085.2 |
| | $ | 1,031.7 |
| | $ | 872.7 |
|
Reimbursement of selling and development expenses in the U.S. for RITUXAN | 2.1 |
| | 1.6 |
| | 6.1 |
|
Revenue on sales in the rest of world for RITUXAN | 38.7 |
| | 104.6 |
| | 117.8 |
|
Total unconsolidated joint business revenues | $ | 1,126.0 |
| | $ | 1,137.9 |
| | $ | 996.6 |
|
(1) GAZYVA was approved by the FDA in November 2013.
In 2013, 2012, and 2011, the 40% profit-sharing threshold was met during the first quarter.
Prior to approval, we record our share of the expenses incurred by the collaboration for the development of anti-CD20 products in research and development expense in our consolidated statements of income. We incurred $25.7 million, $35.4 million, and $26.9 million in development expense for the years ended December 31, 2013, 2012, and 2011, respectively. After an anti-CD20 product is approved, we record our share of the development expenses related to that product as a reduction of our share of pre-tax profits in revenues from unconsolidated joint business.
Elan
On April 2, 2013, we acquired full ownership of, and strategic, commercial and decision-making rights to, TYSABRI from Elan. Upon the closing of the transaction, our collaboration agreement with Elan was terminated. For additional information related to this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
We previously collaborated with Elan on the development, manufacture and commercialization of TYSABRI. Under the terms of our collaboration agreement, we manufactured TYSABRI and collaborated with Elan on the product’s marketing, commercial distribution and ongoing development activities. The agreement was designed to effect an equal sharing of profits and losses generated by the activities of our collaboration. Under the agreement, however, once sales of TYSABRI exceeded specific thresholds, Elan was required to make milestone payments to us in order to continue sharing equally in the collaboration’s results.
In the U.S., we previously sold TYSABRI to Elan who sold the product to third party distributors. Our sales price to Elan in the U.S. was set prior to the beginning of each quarterly period to effect an approximate equal sharing of the gross profit between Elan and us. We recognized revenue for sales in the U.S. of TYSABRI upon Elan’s shipment of the product to the third party distributors, at which time all revenue recognition criteria had been met. We incurred manufacturing and distribution costs, research and development expenses, commercial expenses, and general and administrative expenses related to TYSABRI. We recorded these expenses to their respective line items within our consolidated statements of income when they were incurred. Research and development and sales and marketing expenses were shared equally with Elan and the reimbursement of these expenses was recorded as reductions of the respective expense categories. During the years ended December 31, 2013, 2012, and 2011, we recorded $11.7 million, $43.7 million and $47.5 million, respectively, as reductions of research and development expense for reimbursements from Elan. In addition, for the years ended December 31, 2013, 2012, and 2011, we recorded $20.6 million, $99.9 million and $77.3 million, respectively, as reductions of selling, general and administrative expense for reimbursements from Elan.
In the rest of world, we previously were responsible for distributing TYSABRI to customers and were primarily responsible for all operating activities. Generally, we recognized revenue for sales of TYSABRI in the rest of world at the time of product delivery to our customers. Payments were made to Elan for their share of the rest of world net operating profits to effect an equal sharing of collaboration operating profit. These payments also included the reimbursement for our portion of third-party royalties that Elan paid on behalf of the collaboration relating to rest of world sales. These amounts were reflected in the collaboration profit sharing line in our consolidated statements of income. For the years ended December 31, 2013, 2012 and 2011, $85.4 million, $317.9 million and $317.8 million, respectively, was reflected in the collaboration profit sharing line for our collaboration with Elan.
Acorda
In 2009, we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to develop and commercialize products containing fampridine in markets outside the U.S. We also have responsibility for regulatory activities and the future clinical development of related products in those markets.
In July 2011, the EC granted a conditional marketing authorization for fampridine in the E.U., under the trade name FAMPYRA, which triggered a $25.0 million milestone payment. This payment was made to Acorda in 2011 and was capitalized as an intangible asset. A conditional marketing authorization is renewable annually and is granted to a medicinal product with a positive benefit-risk assessment that fulfills an unmet medical need when the benefit to public health of immediate availability outweighs the risk inherent in the fact that additional data are still required. This marketing authorization was renewed as of July 2013. To meet the conditions of this marketing authorization, we will provide additional data from on-going clinical studies regarding FAMPYRA's benefits and safety in the long term. FAMPYRA has been approved in over 50 countries across Europe, Asia and the Americas.
Under the terms of the collaboration and license agreement, we pay Acorda tiered royalties based on the level of ex-U.S. net sales. We may pay up to $375.0 million of additional milestone payments to Acorda, based on the successful achievement of certain regulatory and commercial milestones. The next expected milestone would be $15.0 million, due if ex-U.S. net sales reach $100.0 million over a period of four consecutive quarters. We will capitalize these additional milestones as intangible assets upon achievement of the milestone which will then be amortized utilizing an economic consumption model and recognized as amortization of acquired intangible assets. Royalty payments are recognized as a cost of goods sold.
In connection with the collaboration and license agreement, we have also entered into a supply agreement with Acorda for the commercial supply of FAMPYRA. This agreement is a sublicense arrangement of an existing agreement between Acorda and Alkermes, who acquired Elan Drug Technologies, the original party to the license with Acorda.
A summary of activity related to this collaboration is as follows:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
(In millions) | 2013 | | 2012 | | 2011 |
Upfront and milestones payments made to Acorda (1) | $ | — |
| | $ | — |
| | $ | 25.0 |
|
Total cost of sales related to royalties and commercial supply of FAMPYRA reflected within our statements of income | $ | 24.3 |
| | $ | 20.2 |
| | $ | 6.5 |
|
(1) Milestone payment was capitalized as an intangible asset.
Swedish Orphan Biovitrum AB
In January 2007, we acquired 100% of the stock of Syntonix. Syntonix had previously entered into a collaboration agreement with Swedish Orphan Biovitrum AB (Sobi) to jointly develop and commercialize Factor VIII and Factor IX hemophilia products, including ELOCTATE and ALPROLIX. In February 2010, we restructured the collaboration agreement and assumed full development responsibilities and costs, as well as manufacturing rights. In addition, the cross-royalty rates were reduced and commercial rights for certain territories were changed. As a result, we now have commercial rights for North America (the Biogen Idec North America Territory) and for rest of the world markets outside of Europe, Russia, Turkey and certain countries in the Middle East (the Biogen Idec Direct Territory). Subject to the exercise of an option right that Sobi controls, Sobi will have commercial rights in Europe, Russia, Turkey and certain countries in the Middle East (the Sobi Territory).
Under the terms of the option right, Sobi may, following our submission of a marketing authorization application to the EMA for each product developed under the collaboration, opt to take over final regulatory approval, pre-launch and commercialization activities in the Sobi Territory by making a payment into escrow of $10.0 million per product. Upon EMA regulatory approval of each such product, Sobi will be liable to reimburse us 50% of the sum of all shared manufacturing and development expenses incurred by us from October 1, 2009 through the date on which Sobi is registered as the marketing authorization holder for the applicable product, as well as 100% of certain development expenses incurred exclusively for the benefit of the Sobi Territory (the Opt-In Consideration). Through December 31, 2013, we have incurred between $120 million and $130 million in expenditures for each product that may be reimbursable by SOBI should it exercise its right to commercialize one or both products. To effect Sobi’s reimbursement to us for the Opt-In Consideration exceeding the escrow payment for each product, the cross-royalty structure for direct sales in each company’s respective territories will be adjusted until the Opt-In Consideration is paid in full (the Reimbursement Period). The mechanism for reimbursement is outlined in the table below.
Under the restructured agreement, amounts are payable as follows:
|
| | | | | | | |
| | | | | Rates should Sobi exercise its option right(3) |
Royalty and Net Revenue Share Rates: | Method | | Rate prior to 1st commercial sale in the Sobi Territory: | | Base Rate following 1st commercial sale in the Sobi Territory: | | Rate during the Reimbursement Period: |
Sobi rate to Biogen Idec on net sales in the Sobi Territory | Royalty | | N/A | | 10 to 12% | | Base Rate plus 5% |
Biogen Idec rate to Sobi on net sales in the Biogen Idec North America Territory | Royalty | | 2% | | 10 to 12% | | Base Rate less 5% |
Biogen Idec rate to Sobi on net sales in the Biogen Idec Direct Territory | Royalty | | 2% | | 15 to 17% | | Base Rate less 5% |
Biogen Idec rate to Sobi on net revenue(1) from the Biogen Idec Distributor Territory(2) | Net Revenue Share | | 10% | | 50% | | Base Rate less 15% |
| |
(1) | Net revenue represents Biogen Idec’s pre-tax receipts from third-party distributors, less expenses incurred by Biogen Idec in the conduct of commercialization activities supporting the distributor activities. |
| |
(2) | The Biogen Idec Distributor Territory represents Biogen Idec territories where sales are derived utilizing a third-party distributor. |
| |
(3) | A credit will be issued to Sobi against its reimbursement of the Opt-in Consideration in an amount equal to the difference in the rate paid by Biogen Idec to Sobi on sales in the Biogen Idec territories for certain periods prior to the first commercial sale in the Sobi Territory versus the rate that otherwise would have been payable on such sales. |
If the reimbursement of the Opt-in Consideration has not been achieved within six years of the first commercial sale of such product, we maintain the right to require Sobi to pay any remaining balances due to us within 90 days of the six year anniversary date of the first commercial sale.
Should Sobi not exercise its option right with respect to one or both products or should Sobi terminate the agreement with respect to one or both products we will obtain full worldwide development and commercialization rights for such affected products and we will be obligated to pay royalties to Sobi subject to separate terms, as defined under the restructured collaboration agreement. In addition, if EMA approval for any product is not granted within 18 months of the applicable EMA filing date, Sobi shall have the right to require that the escrow payment be refunded and revoke its option right for such product.
AbbVie Biotherapeutics, Inc.
We have a collaboration agreement with AbbVie Biotherapeutics, Inc., a subsidiary of AbbVie, Inc. (AbbVie) aimed at advancing the development and commercialization of Daclizumab HYP in MS. Under the agreement, development and commercialization costs and profits in North America and the E.U. are shared equally. In January 2010, we agreed with our collaborator, AbbVie, to assume the manufacture of Daclizumab HYP.
Based upon our current development plans, we may incur up to an additional $60.0 million of payments upon achievement of development and commercial milestones related to the development of Daclizumab HYP.
A summary of activity related to this collaboration is as follows:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
(In millions) | 2013 | | 2012 | | 2011 |
Total development expense incurred by the collaboration | $ | 133.4 |
| | $ | 128.0 |
| | $ | 105.2 |
|
Biogen Idec’s share of development expense reflected within our consolidated statements of income | $ | 71.0 |
| | $ | 65.6 |
| | $ | 54.2 |
|
Portola Pharmaceuticals, Inc.
On October 26, 2011, we entered into an exclusive, worldwide collaboration and license agreement with Portola Pharmaceuticals, Inc. (Portola) under which both companies will develop and commercialize highly selective, novel oral Syk inhibitors for the treatment of various autoimmune and inflammatory diseases, including asthma, rheumatoid arthritis and systemic lupus erythematosus.
Under the terms of the agreement, we provided Portola with an upfront payment of $36.8 million in cash and purchased $8.2 million in Portola equity, with potential additional payments of up to $406.8 million based on the achievement of certain development and regulatory milestones. During the third quarter of 2012, we decided to stop development of the Syk inhibitor for the treatment of rheumatoid arthritis. We are researching the Syk inhibitor for the treatment of asthma and other indications. In the fourth quarter of 2013, we sold our stock in Portola for a gain of $7.1 million.
A summary of collective activity related to these programs is as follows:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
(In millions) | 2013 | | 2012 | | 2011 |
Total expense incurred by the collaboration | $ | 1.6 |
| | $ | 18.8 |
| | $ | 1.1 |
|
Total expense reflected within our consolidated statements of income, excluding upfront and milestone payments | $ | 1.6 |
| | $ | 14.2 |
| | $ | 0.9 |
|
Isis Pharmaceuticals, Inc.
Long-Term Strategic Research Collaboration
In September 2013, we entered into a six year research collaboration with Isis Pharmaceuticals Inc. (Isis) under which both companies will perform discovery level research and then develop and commercialize antisense or other therapeutics for the treatment of neurological disorders. Under the collaboration, Isis will perform research on a set of neurological targets identified within the agreement. Once the research has reached a specific stage of development, we will make the determination whether antisense is the preferred approach to develop a therapeutic candidate or whether another modality is preferred. If antisense is selected, Isis will continue development and identify a product candidate. If another modality is used, we will assume the responsibility for identifying a product candidate and developing it.
Under the terms of this agreement, we paid Isis an upfront amount of $100.0 million. Of this payment, we recorded prepaid research and discovery services of approximately $25.0 million, representing the value of the Isis full time equivalent employee resources which are required by the collaboration to provide research and discovery services to us over the next six years. The remaining $75.0 million of the upfront payment was recorded as research and development expense in the third quarter of 2013, the period in which we entered into the collaboration, as it represents the purchase of intellectual property that has not reached technological feasibility.
Isis is also eligible to receive milestone payments, license fees and royalty payments for all product candidates developed through this collaboration, with the specific amount dependent upon the modality of the product candidate advanced by us.
For antisense product candidates, Isis will be responsible for global development through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Isis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Isis could receive additional milestone payments upon the achievement of certain regulatory milestones of up to $130.0 million, plus additional amounts related to the cost of clinical trials conducted by Isis under the collaboration, and royalties on future sales if we successfully develop the product candidate after option exercise.
For product candidates using a different modality, we will be responsible for global development through all stages and will owe Isis up to $90.0 million upon the achievement of certain regulatory milestones.
Product Collaborations
In December, June and January 2012, we entered into three separate exclusive, worldwide option and collaboration agreements with Isis Pharmaceuticals, Inc. (Isis) under which both companies will develop and commercialize antisense therapeutics for up to three gene targets, Isis’ product candidates for the treatment of myotonic dystrophy type 1 (DM1), and the treatment of spinal muscular atrophy (SMA), respectively.
Under the terms of the December 2012 agreement, we provided Isis with an upfront payment of $30.0 million and will make potential additional payments, prior to licensing, of up to $10.0 million based on the development of the selected product candidate as well as a mark-up of the cost estimate of the Phase 1 and Phase 2 trials. Isis will be responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Isis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Isis could receive up to another $130.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
Under the terms of the June 2012 agreement for the DM1 candidate, we provided Isis with an upfront payment of $12.0 million and will make potential additional payments, prior to licensing, of up to $59.0 million based on the development of the selected product candidate. In 2013, we made a $10.0 million milestone payment to Isis related to the selection and advancement of ISIS-DMPKRx to treat DM1. Isis will be responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We also have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Isis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Isis could receive up to another $130.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
Under the terms of the January 2012 agreement for the antisense investigation drug, ISIS-SMNRx, we paid Isis $29.0 million as an upfront payment. In January 2014, we amended the agreement and agreed to pay the clinical trial costs of up to $40.0 million related to the development of ISIS-SMNRx through two studies which Isis will be responsible for performing. We are providing input on the clinical trial design and regulatory strategy and have an option to license ISIS-SMNRx until completion of the first successful Phase 2/3 trial. If we exercise our option, we will pay Isis a $75.0 million license fee and assume global development, regulatory and commercialization responsibilities. Isis could receive up to another $150.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales of ISIS-SMNRx if we successfully develop ISIS-SMNRx after option exercise.
Proteostasis Therapeutics, Inc.
In December 2013, we entered into a collaborative research, development, commercialization and license agreement with Proteostasis Therapeutics, Inc. (Proteostasis) under which both companies will develop and commercialize small molecule therapeutics for the treatment of neurological diseases.
Under the terms of the agreement, we paid Proteostasis an upfront payment of $2.5 million with potential additional payments of up to $197.5 million based on the achievement of certain development, regulatory and commercial milestones plus royalties on commercial sales. In addition, we will fund certain research and development expenses. Proteostasis has the option to co-commercialize any potential products. In January 2014 we purchased $5.0 million of the preferred stock of Proteostasis.
Other Research and Discovery Arrangements
During the year ended December 31, 2013, we entered into research and discovery arrangements that resulted in $35.0 million recorded as investments and other assets within our consolidated balance sheet and $4.0 million recorded as research and development expense within our consolidated statements of income. These additional arrangements include the potential for future milestone payments based on clinical and commercial development over a period of several years.
Samsung Bioepis
In February 2012, we finalized an agreement with Samsung Biologics that established an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. Under the terms of the agreement, Samsung Biologics agreed to contribute 280.5 billion South Korean won (approximately $250.0 million) for an 85 percent stake in Samsung Bioepis and we agreed to contribute approximately 49.5 billion South Korean won (approximately $45.0 million) for the remaining 15 percent ownership interest. Our investment is limited to this contribution as we have no obligation to provide any additional funding; however, we maintain an option to purchase additional stock based in Samsung Bioepis that would allow us to increase our ownership percentage up to 49.9 percent. The exercise of this option is within our control and is based on paying for 49.9 percent of the total investment made to Samsung Bioepis in excess of what we have already contributed during the agreement plus interest.
Samsung Biologics has the power to direct the activities of Samsung Bioepis which will most significantly and directly impact its economic performance. We account for this investment under the equity method of accounting as we maintain the ability to exercise significant influence over Samsung Bioepis through a presence on the entity’s Board of Directors and our contractual relationship. Under the equity method, we record our original investment at cost and subsequently adjust the carrying value of our investments for our share of equity in the entity’s income or losses according to our percentage of ownership. If losses accumulate, we will record our share of losses until our investment has been fully depleted. Once our investment has been fully depleted, we will recognize additional losses only if we provide or are required to provide additional funding. During the year ended December 31, 2013, we contributed the remaining 13.5 billion South Korean won (approximately $12.4 million) to Samsung Bioepis to complete our obligation to contribute an aggregate of approximately 49.5 billion South Korean won (approximately $45.0 million) for our 15 percent ownership interest of Samsung Bioepis. As of December 31, 2013 and 2012, the carrying value of our investment in Samsung Bioepis totaled 25.2 billion and 29.7 billion South Korean won (approximately $23.9 million and $27.8 million), respectively, which is classified as a component of investments and other assets within our consolidated balance sheets. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears when the results of the entity become available, which is reflected as equity in loss of investee, net of tax within our consolidated statements of income. During the years ended December 31, 2013 and 2012, we recognized a loss on our investment of $17.2 million and $4.5 million, respectively.
Simultaneous with the formation of Samsung Bioepis, we entered into a license agreement, a technical development services agreement and a manufacturing agreement with Samsung Bioepis. Under the terms of the license agreement, we granted Samsung Bioepis an exclusive license to use, develop, manufacture, and commercialize biosimilar products created by Samsung Bioepis using Biogen Idec product-specific technology. In exchange, we will receive single digit royalties on all biosimilar products developed and commercialized by Samsung Bioepis. Under the terms of the technical development services agreement, we provide Samsung Bioepis technical development and technology transfer services, which include, but are not limited to, cell culture development, purification process development, formulation development, and analytical development. Under the terms of our manufacturing agreement, we will manufacture clinical and commercial quantities of bulk drug substance of biosimilar products for Samsung Bioepis pursuant to contractual terms. Under limited circumstances, we may also supply Samsung Bioepis with quantities of drug product of biosimilar products for use in clinical trials through arrangements with third party contract manufacturers. For the years ended December 31, 2013 and 2012, we recognized $43.1 million and $13.3 million, respectively, in other revenues in relation to these services, which is reflected as a component of other revenues within our consolidated statement of income.
On December 17, 2013, pursuant to our joint venture agreement with Samsung Biologics, we exercised our right to enter into an agreement with Samsung Bioepis to commercialize anti-TNF biosimilar product candidates in Europe. Under the terms of this agreement, we paid $21.0 million and accrued $15.0 million, which was recorded as a research and development expense within our consolidated statements of income. These payments are classified as research and development expense as the programs they relate to have not achieved regulatory approval. Samsung Bioepis is eligible to receive an additional $85.0 million in additional milestones related to clinical development and regulatory approval of the product candidates. Upon commercialization, there will be a 50 percent profit share with Samsung Bioepis.
