3. Molteni Purchase Agreement

In March 2018, we entered into and in August 2018 amended an Asset Purchase, Supply and Support Agreement, or the Purchase Agreement, with L. Molteni & C. Dei Frattelli Alitti Societa Di Esercizio S.P.A., or Molteni, pursuant to which Molteni acquired the European intellectual property related to Probuphine and the exclusive right to commercialize Probuphine (which it renamed Sixmo) in Europe, as well as certain countries of the Commonwealth of Independent States, the Middle East and North Africa, or the Molteni Territory. We received an initial payment of €2.0 million ($2,448,000) for the purchased assets and an additional payment of €950,000  ($1,107,000) upon execution of the amendment. Additionally, Titan was entitled to receive earn-out payments for up to 15 years on net sales of Probuphine in the Molteni Territory.

The Purchase Agreement also provided that Titan would supply Molteni with semi-finished product (i.e., the implant and the applicator) on an exclusive basis at a fixed price through December 31, 2019, with subsequent price increases not to exceed annual cost increases to Titan under its current manufacturing agreement and for the purchase of the active pharmaceutical ingredient.

We concluded that the performance obligations identified in the Molteni Purchase Agreement included the transfer of the intellectual property and our efforts towards an approval by the EMA and other regulatory bodies. The initial payment was allocated between the property transfer and our EMA efforts as set forth below.

We used the expected cost-plus approach to estimate the standalone selling price of approximately $1.4 million related to our efforts towards an approval by the EMA and other regulatory bodies (“Titan Services”). This includes employee related expenses as well as other manufacturing, regulatory and clinical costs, which are incurred as part of our efforts. We recognized revenue associated with Titan Services ratably over the estimated service period. As of March 31, 2019, we fully recognized the revenue associated with the Titan Services under the Molteni Purchase Agreement as we completed the Titan Services.

We used the residual approach to value the transfer of the intellectual property at approximately $1.0 million as we had not established and had no reliable way to establish a standalone selling price for the intellectual property.

As a result of the outcome of the milestone and earn-out payments being unpredictable due to the involvement of third parties, we believe that using the most likely amount method is appropriate. Any subsequent revenue related to milestone and earn-out payments will be recognized at the time the milestones are achieved or when the related net sales have occurred.

The Molteni Purchase Agreement provides that we supply Molteni with semi-finished product (i.e., the implant, the applicator and related technology) on an exclusive basis at a fixed price through December 31, 2019, with subsequent price increases not to exceed annual cost increases to us for the active pharmaceutical ingredient and under our current manufacturing agreement. Revenue is recognized when the semi-finished product has been transferred to Molteni.

Molteni will be prohibited from marketing a competitor product as defined in the Molteni Purchase Agreement in the Molteni Territory for the five year period following approval of the marketing authorization application. Thereafter, Molteni will be required to pay us a low single digit royalty on net sales of any competitor product.

The following table presents changes in contract assets and liabilities during the year ended December 31, 2019 (in thousands):

 

 

In August 2018, we entered into an amendment to the Molteni Purchase Agreement , pursuant to which Molteni made an immediate payment of €950,000 (approximately $1.1 million) and a convertible loan of €550,000 (approximately $0.6 million) (“Molteni Convertible Loan”) (see Note 7) to us, both in exchange for the elimination of an aggregate of €2.0 million (approximately $2.3 million) of regulatory milestones provided for in the Molteni Purchase Agreement. We concluded that the approximately $1.1 million immediate payment by Molteni reflected a milestone payment with no additional obligations to us and, therefore, was recognized as revenue during the year ended December 31, 2018.

In September 2019, we entered into an additional amendment to the Molteni Purchase Agreement, pursuant to which the percentage earn-out payments on net sales was reduced from the original range of low-teens to mid-twenties to the current range of low-teens to mid-teens. We also agreed to delay payment of any earn-outs until the later of (i) January 1, 2021 or (ii) the one year anniversary of completion of compliance by our manufacturer with EU requirements (currently anticipated to occur during the second quarter of this year). The milestone payments under the Molteni Purchase Agreement remain unchanged.

In October 2020, we entered into a Debt Settlement and Release Agreement (“DSRA Agreement”) with Molteni and Horizon Technology Finance Corporation (“Horizon”), the holders of our outstanding secured  debt, to settle such obligations for $1.6 million in cash, the transfer of certain Probuphine assets to Molteni, including all of our manufacturing equipment, and the termination of our rights to future payments under the Purchase Agreement with Molteni. The DSRA Agreement, provided for the release to us of the remaining collateral. We recorded a loss of approximately $0.1 million related to the DSRA Agreement in the statements of operations and comprehensive loss for the period ended December 31, 2020.