|6 Months Ended|
Jun. 30, 2020
7. Licenses Acquired
In accordance with ASC 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use. The licenses purchased by Fortress, Aevitas, Avenue, Baergic, Cellvation, Checkpoint, Cyprium, Helocyte, Mustang and Oncogenuity require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility. As such, for the three and six months ended June 30, 2020 and 2019, the purchase price of licenses acquired was classified as research and development-licenses acquired in the Condensed Consolidated Statements of Operations as reflected in the table below:
For the three and six months ended June 30, 2020 and 2019, Mustang recorded the following expense in research and development for licenses acquired:
Effective May 6, 2020, Oncogenuity entered into a license agreement with the Trustees of Columbia University in the City of New York (“Columbia”) to develop novel oligonucleotides for the treatment of genetically driven cancers (the “Columbia License”). The proprietary platform produces oligomers, known as “ONCOlogues.”
As consideration for the Columbia License, Oncogenuity paid an upfront fee of $0.3 million, and Fortress transferred to Columbia 1,000,000 shares of Oncogenuity common stock, representing 10.00% ownership of Oncogenuity. In connection with the share transfer, Oncogenuity also provided Columbia with limited anti-dilution protection. Oncogenuity valued the stock grant to Columbia utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 41.7%, weighted average cost of capital of 20.5%, and net of debt utilized, resulting in a value of $0.021 per share or $21,000 for the three and six months ended June 30, 2020. As a portion of the acquisition of the license was settled through the transfer of shares of the Company's common stock, this transaction fell within the scope of ASC Topic 718, Compensation-Stock Compensation, since equity was transferred in exchange for goods (the license). Specifically, the Company recorded the cost of the license as a non-employee share based payment, measured at the grant date fair value of the common stock. The common shares were equity-classified. The anti-dilution provision was concluded to represent a performance condition tied to a future liquidity event, which was not considered as probable to occur at June 30, 2020, because it was deemed outside of the Company's control.
Development milestone payments totaling up to approximately $18.0 million in the aggregate are due upon achievement of certain milestones in connection with the initial indication. Additional milestone payments totaling up to $15.3 million in the aggregate are due in connection with product development milestones for subsequent indications. A $15 million sales milestone is due upon the achievement of a licensed product sales threshold, and low- to mid-single digit royalties are due on aggregate cumulative worldwide net sales of licensed products.
For the three and six months ended June 30, 2020 and 2019, Oncogenuity recorded expense of $0.3 million and nil, respectively in research and development - licenses acquired in the Company’s Condensed Consolidated Statements of Operations.