On December 6, 2017, the Company entered into a license agreement (“License Agreement”) with XOMA Corporation (“Xoma”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which Xoma granted an exclusive global license to the Company to develop and commercialize Xoma 358 (formerly X358, now RZ358) for all indications. Xoma and the Company concurrently entered into a Common Stock purchase agreement (the “Purchase Agreement” and, together with the License Agreement, the “Transaction Documents”) pursuant to which the Company would issue equity securities to Xoma in connection with certain financing milestones.  On March 30, 2018, Xoma and the Company amended the Transaction Documents to add terms specifying the financial responsibility for certain tasks related to the technology transfer and to adjust the number of shares issuable to Xoma under the Purchase Agreement.

 

On January 7, 2019, the parties further amended the Transaction Documents.  The License Agreement was amended to eliminate the requirement that equity securities be issued to Xoma upon the future closing of Qualified Financings (as defined in the License Agreement) and to replace it with a requirement for the Company to make five cash payments to Xoma totaling $8,500,000 on or before specified staggered future dates (the “Future Cash Payments”) upon the closing of a Qualified Financing.  The Future Cash Payments are payable for $1.5 million by September 30, 2019, $1.0 million by December 31, 2019, $2.0 million by March 31, 2020, $2.0 million by June 30, 2020, and $2.0 million by September 30, 2020. As a result of this amendment to the License Agreement, during the three months ended March 31, 2019 the Company recognized a liability for the entire $8.5 million of future payments that are required. Of this amount, $4.5 million is classified as current liability and $4.0 million is classified as a long-term liability in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2019.

 

Until the Future Cash Payments are fully paid, the Company is required to pay Xoma 15% of the net proceeds of each Future Financing (“Early Payments”) to be credited against the remaining unpaid Future Cash Payments in reverse order of their future payment date.  Obligations to make the Future Cash Payments following a Qualified Financing and the obligations to make Early Payments shall end when the Future Cash Payments are fully paid for the total of $8.5 million. 

 

In addition to the Future Cash Payments, Xoma was paid $5,925,000 in cash upon the closing of the Series AA Financing discussed in Note 7, which consists of $5,476,000 of consideration for the license, $50,000 for a delay fee, and payment of accrued liabilities of approximately $399,000. The Company recognized an expense of $5,476,000 upon payment of the license fee for the fiscal quarter ending March 31, 2019. The Company satisfied the aggregate payment obligation of $5,925,000 on February 11, 2019 from a portion of the net proceeds from the Series AA Financing discussed in Note 7.

 

The amendment to the License Agreement also revised the amount the Company is required to expend on development of RZ358 and related licensed products and revised provisions with respect to the Company’s diligence efforts in conducting clinical studies. Finally, the amendment to the License Agreement eliminated Xoma’s right to appoint a member to the Company’s board of directors.