Company: PTHS
Filing Date: 2025-11-13
Form Type: 10-Q
Source: 0001753926-25-001764
Chunk: 37

Company: Pelthos Therapeutics Inc.
Filing Date: 2025-11-13
Form: 10-Q
Item: Part I, Item 1
Chunk 37
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 the Sato Agreement
to Ligand.

The
Company concluded that Sato is a customer with respect to all promises in the Amended Sato Agreement, and as such, revenue is
recognized in accordance with ASC 606. The Company allocated the transaction price (including the upfront payments received and
the unconstrained variable consideration), between the individual performance obligations based on their relative standalone-selling
prices. In future periods, the Company would lift the variable consideration constraint from each contingent payment if there
were no longer a probable likelihood of significant revenue reversal.

A
portion of transaction price allocated to license performance obligation was recognized in revenues on the date of license delivery.
For all other performance obligations, the Company concluded that a cost-based input method for revenue recognition is most appropriate.
The Company monitors and reassesses actual and estimated costs over the expected development period to calculate a percentage
of completeness for purposes of revenue recognition during each reporting period.

The
Company currently estimates the end of development period in the first quarter of 2028, based upon a Sato-prepared Japanese development
program timeline. The estimated percentage of completeness remains subject to prospective reassessment and adjustment based upon
Sato’s interaction with the Japanese regulatory authorities and other developmental and timing considerations.

All
contract liabilities (deferred revenue) recognized on the condensed balance sheets as of September 30, 2025, were related
to the Sato Agreement. All license and collaboration revenue recognized for the three months ended September 30, 2025 was
related to the Sato Agreement and was recognized out of the deferred revenue balance as of the beginning of respective period.
The net amount of existing performance obligations under long-term contracts unsatisfied as of September 30, 2025 was $2,541,
out of which the Company expects to recognize approximately $1,019 in revenue over the next 12 months and the remaining balance
thereafter.

The
Sato Agreement may be terminated by (i) Sato without cause upon 120 days’ advance written notice; (ii) either party in the
event of the other party’s uncured material breach upon 60 days’ advance written notice; (iii) force majeure; (iv)
either party in the event of the other party’s dissolution, liquidation, bankruptcy or insolvency; and (v) immediately upon
written notice if Sato challenges the validity, patentability, or enforceability of any of the patents or patent applications
licensed to Sato under the Amended Sato Agreement. In