Note 4 - Revenue From Contracts With Customers
|9 Months Ended|
Sep. 30, 2018
|Notes to Financial Statements|
|Revenue from Contract with Customer [Text Block]||
The Company adopted ASU
09,along with all subsequent related ASUs impacting revenue from contracts with customers (collectively, “the new revenue recognition standard”), effective
January 1, 2018,using the modified retrospective method of adoption. The Company has applied the new revenue recognition standard for the
nine-month periods ended
September 30, 2018with the cumulative effect of initially applying the new accounting recognized on
January 1, 2018as an adjustment to opening accumulated deficit. This adjustment reflects only contracts that were
notcompleted as of
January 1, 2018.
We earn revenues related to our licensing and distribution agreements. The terms of these agreements
mayinclude payment to us of non-refundable up-front license fees, funding or reimbursement of research and development efforts, milestone payments if specified objectives are achieved, and/or royalties on product sales. The new revenue recognition standard generally results in the delay of revenue recognition for the Company, as compared to the previous guidance. Previously, the Company recognized revenue related to non-refundable up-front license fees either immediately upon contract execution, or over the estimated period required to fulfill the related obligations. Under the new revenue recognition standard, the Company will generally be required to defer any up-front license fees and pre-market milestones, and recognize the revenue over the period beginning with initial product sale through the end of the initial term of the agreement.
The cumulative effect of the change on accumulated deficit as of
January 1, 2018is an increase of
$100,000related to an up-front payment received upon execution of an exclusive license and distribution agreement with Sayre Pharmaceuticals (“Sayre”) for the development and commercialization of
Tc99mtilmanocept in India in
$600,000related to up-front and milestone payments received pursuant to an exclusive licensing and distribution agreement with Beijing Sinotau Medical Research Co., Ltd. (“Sinotau”) for the marketing and distribution of
Tc99mtilmanocept in China executed in
August 2014.The following table compares deferred revenue as if the new revenue recognition standard had
notbeen adopted to the amounts in the consolidated financial statements reflecting the adoption. Deferred revenue, the current portion of which is included in accrued liabilities and other in the consolidated balance sheets, and accumulated deficit are the only financial statement line items that were affected by the adoption of the new revenue recognition standard.
nine-month periods ended
September 30, 2018,the Company recognized revenue from contracts with customers of approximately
$287,000,respectively. The Company did
recognize any related impairment losses during those periods.
Navidea is focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics. We manage our business based on
twoprimary types of drug products: (i) diagnostic substances, including
Tc99mtilmanocept and other diagnostic applications of our Manocept platform, and (ii) therapeutic development programs, including therapeutic applications of our Manocept platform and all development programs undertaken by MT.
Tc99mtilmanocept, which the Company has a license to distribute outside of Canada, Mexico and the United States, is the only
oneof the Company’s drug product candidates that has been approved for sale in any market. The Company has license and distribution agreements in place in Europe, India and China, however
Tc99tilmanocept has only been approved for sale in Europe.
April 2018,the Company executed an agreement to provide Meilleur Technologies, Inc., (“Meilleur”), a wholly-owned subsidiary of Cerveau Technologies, Inc. (“Cerveau”), worldwide rights to conduct research using
NAV4694,as well as an exclusive license for the development and commercialization of
NAV4694in Australia, Canada, China, and Singapore. Meilleur also has an option to commercialize worldwide.
The following tables disaggregate the Company’s revenue from contracts with customers for the
nine-month periods ended
September 30, 2018.
The following economic factors affect the nature, amount, timing and uncertainty of the Company’s revenue and cash flows as indicated:
ustomers:Drug pricing models vary among different markets, which in turn
mayaffect the royalty rates and milestones we are able to negotiate with our distributors in those markets. Royalty rates and milestone payments vary by contract but
maybe based in part on the potential market size in each territory. Royalty rates for Europe are lower than rates in India but higher than in China.
Status of Regulatory Approval:The majority of revenue from contracts with customers will generally be recognized after the product is approved for sale in each market. Each customer operates in its own distinct regulatory environment, and the laws and pathways to drug product approval vary by market.
Tc99mtilmanocept has been approved for sale in Europe, thus the Company has begun to recognize royalties from sales in Europe.
notyet been approved for sale in India or China, and
maynever achieve approval in those markets. The regulatory pathways and timelines in those markets will impact whether and when the Company recognizes the related royalties and milestones.
The following table summarizes the changes in contract liabilities, the current portion of which is included in accrued liabilities and other in the consolidated balance sheets, during the
nine-month periods ended
September 30, 2018and
Currently, the Company recognizes revenue from up-front license fees and pre-market milestones after the cash has been received from its customers and the performance obligations have been met. Payments for sales-based royalties and milestones are generally received after the related revenue has been recognized and invoiced. Normal payment terms generally range from
90days following milestone achievement or royalty invoice, in accordance with each contract. The Company had trade receivables of approximately
$10,000outstanding as of
September 30, 2018.
nine-month periods ended
September 30, 2018,the Company did
recognize any revenue from performance obligations associated with long-term contracts that were satisfied (or partially satisfied) in previous periods.
Up-front and milestone payments received related to our license and distribution agreements in India and China are deferred until
Tc99mtilmanocept has been approved by the regulatory authorities in each of those countries. It is
notpossible to determine with any degree of certainty whether or when regulatory approval for this product will be achieved in India or China, if at all. In addition, since sales of
notyet begun in India or China, there is
nobasis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Therefore, it is
notpossible to determine with any degree of certainty the expected sales in future periods in those countries. As such, the Company intends to recognize revenue from up-front and milestone payments on a straight-line basis beginning at the time of regulatory approval in each country through the end of the initial term of each agreement. The initial term of each agreement is
eightyears in India and
10years in China.
The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. Transaction prices do
notinclude amounts collected on behalf of
thirdparties (e.g., sales taxes). To determine the transaction price of a contract, the Company considers the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the goods or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will
notbe cancelled, renewed, or modified.
When estimating a contract’s transaction price, the Company considers all the information (historical, current, and forecasted) that is reasonably available to it and identifies possible consideration amounts. Most of the Company’s contracts with customers include both fixed and variable components of the transaction price. Under those contracts, some or all of the consideration for satisfied performance obligations is contingent on events over which the Company has
nodirect influence. For example, regulatory approval or product sales volume milestones are contingent upon the achievement of those milestones by the distributor. Additionally, the prices charged to end users of
Tc99mtilmanocept, upon which royalty payments are based in Europe, India and China, are set by the distributor in each of those countries.
The milestone payments have a binary outcome (that is, the Company will either receive all or
noneof each milestone payment) and can be estimated using the most-likely-amount method. Taking into account the constraint on variable consideration, the Company has assessed the likelihood of achieving the non-sales-based milestone payments in our contracts and has determined that it is probable the milestones will be achieved and the Company will receive the consideration. Accordingly, it is probable that including those payments in the transaction price will
notresult in a significant revenue reversal when the contingency is resolved. Therefore, the amount of the non-sales-based milestone payments is included in the transaction price.
Royalties are estimated based on the expected value method because they are based on a variable amount of sales representing a range of possible outcomes. However, when taking into account the constraint on variable consideration, the estimate of future royalties included in the transaction price is generally
$0.This conclusion is based on the fact that
Tc99mtilmanocept is early in the commercial launch process in Europe and sales have
notyet begun in India or China, therefore there is currently
nobasis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Similarly, we currently have
nobasis for estimating whether sales-based milestones will ever be achieved. Accordingly, the Company recognizes revenue from royalties when the related sales occur and from sales-based milestones when they are achieved.
The sublicense of
NAV4694to Meilleur provides for payments to Navidea including up-front payments, milestones, an option for worldwide commercial rights, royalties on net sales, and reimbursement for product development assistance during the initial transition period. In accordance with the new revenue recognition standard, the upfront payments were recognized upon contract inception, and reimbursement for product development assistance will be recognized on a monthly basis. Should some or all of the variable consideration from milestones, the option and royalties meet the requirements of the new revenue recognition standard to be included in the transaction price, those amounts will be recognized as revenue in future periods.
Up-front fees, milestones and royalties are generally non-refundable. Therefore, the Company does
notestimate expected refunds nor do we adjust revenue downward. The Company will evaluate and update the estimated transaction prices of its contracts with customers at the end of each reporting period.
September 30, 2018,the Company has
notcapitalized any contract-related costs as contract assets.
The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef