Immunogen (IMGN)

Management Discussion

• For the three months ended June 30, 2022, our total revenues decreased $2.8 million compared to the three months ended June 30, 2021, driven by lower non-cash royalty revenue, partially offset by an increase in license and milestone fees. For the six months ended June 30, 2022, our total revenues increased $19.6 million compared to the six months ended June 30, 2021, driven by an increase in license and milestone fees, partially offset by lower non-cash royalty revenue. See further discussion below.
• The amount of license and milestone fees we earn is directly related to the number of our collaborators, the advancement of product candidates covered by the agreements with our collaborators, and the overall success in the clinical trials of these product candidates. As such, the amount of license and milestone fees recognized may vary significantly from quarter to quarter and year to year. License and milestone fee revenue increased $6.7 million and $37.5 million in the three and six months ended June 30, 2022, respectively, compared to the three and six months ended June 30, 2021. Driving the increases, pursuant to our license agreement with Huadong executed in October 2020, upon delivery of clinical supply in the three and six months ended June 30, 2022, we recognized $6.9 million and $28.5 million of the remaining deferred revenue balance as of December 31, 2021 related to upfront and development milestone payments previously received. Additionally, pursuant to a license agreement with Lilly, during the six months ended June 30, 2022, we recognized $9.2 million of the $13.0 million upfront payment received.
• KADCYLA is a marketed ADC resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of KADCYLA from Roche one quarter in arrears. We sold our rights to receive royalty payments on the net sales of KADCYLA through two separate transactions in 2015 and 2019. In accordance with our revenue recognition policy, $7.1 million and $13.5 million of non-cash royalties on net sales of KADCYLA were recorded and included in non-cash royalty revenue for the three and six months ended June 30, 2022, respectively, compared to $16.7 million and $32.2 million in non-cash royalty revenue recorded for the three and six months ended June 30, 2021, respectively. The decrease in non-cash royalty revenue is a result of the aggregate royalty threshold, as outlined in the 2015 royalty purchase agreement, being met in the second quarter of 2021, effectively reducing the royalty payments under the 2015 transaction from 100% to 15% of KADCYLA royalty payments received over the remaining royalty term. Pursuant to the terms of these agreements, we expect to recognize less non-cash royalty revenue in 2022 and subsequent years as compared to 2021 and prior years. See further details regarding these agreements in Note F, “Liability Related to Sale of Future Royalties,” of the Consolidated Financial Statements.