Financial Terms Broken Down
From the SEC filing:
1. "The financial terms of the Agreement include upfront payments and committed funding over the first 12 months of the collaboration of $96 million"
The company, as is, without this partnership, is projected to have funds to last through Q4 of 2019 (over a year from now). With the $96 million, this will ensure even with increased R&D, they'll have less of a risk for an offering
2. "and up to approximately $5.0 billion in total milestone payments upon successful development and commercialization of all product candidates developed pursuant to the Agreement. Of the $5.0 billion in milestone payments, approximately $250 million relate to development activities, $1.1 billion relate to receipt of regulatory approvals, and $3.6 billion relate to achievement of specified thresholds of worldwide net sales."
This means the $5 billion includes milestones (i.e. think of this as kickbacks, rebates, reimbursements etc.) if various targets are reached.
3. "In addition, Affimed is eligible to receive tiered royalties from Genentech on net sales of licensed product candidates on a product-by-product and country-by-country basis until the later of the date when there are no valid patent claims under Affimed’s licensed patents covering such licensed product in the applicable country and the tenth anniversary of the date of first commercial sale of such licensed product in such country."
This means on top of the $96 million and $5 billion, the company will also receive tiered royalty based on region/country. Typical royalty are in the high single to high double digit figures. If for example in the U.S., net sales are $1 billion, at 15%, that equates to $150 million a year on the royalties alone.
4. "Under the terms of the Agreement, Genentech will be responsible for a majority of the research, development and commercialization costs incurred in respect of each product candidate. The development of each product candidate will be overseen by a joint project team, which will in turn be overseen by a joint research committee, or JRC, consisting of an equal number of representatives of Genentech and Affimed. If the JRC is unable to reach agreement, Genentech generally has final decision-making authority, provided that the JRC may not increase or decrease costs dedicated to Affimed’s research activities under any research plan without Affimed’s consent."
In other words, Genentech is footing the majority of the bill. This is critical. RARELY do I see a large pharma company do this for a biotech company. Generally you see where they will do everything mentioned here but expect the biotech company to foot the bill for development. Phase 3 for example is very costly and can run $300 million+ to a billion+. It sounds like Genentech is willing to foot the majority of expenses, meaning they must see something very promising in Affirmed's pipeline.