10M was a research fee
45M was an upfront payment
I see no reason for not booking those in Q4
I also was wondering about this $45M because we only show ~$10M in revenue from Collaboration and Services. In the 10K, there is no sign of this 45 Million in the Operations Statement. However, in the Consolidated Balance Sheets, under Current liabilities, we find:
"Deferred payments from collaborations - current 36,885 " (In thousands.)
There's an explanation from the Notes to the Financial Statements (scroll down to the parts in bold):
"Revenue Recognition — Net Revenue — Collaborations and Services — The Company enters into licensing or research agreements under which the
Company licenses certain rights to its product candidates to third parties or conducting research services to third parties. The terms of these arrangements may
include, but are not limited to payment to the Company of one or more of the following: nonrefundable, up-front license fees; development, regulatory, and
commercial milestone payments; payments for manufacturing supply services the Company provides; and royalties on net sales of licensed products and
sublicenses of the rights. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment such as
determining the performance obligation in the contract and determining the stand-alone selling price for each performance obligation identified in the
contract. The Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for
personnel costs, discount rates, and probabilities of technical and regulatory success. Given the significant estimates depend on the development plan, these
estimates could change and impact the revenue recognition. Consideration received that does not meet the requirements to satisfy the revenue recognition
criteria is recorded as deferred revenue. Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months.
Amounts that we expect will not be recognized within the next 12 months are classified as long-term deferred revenue. For the years ended December 31,
2018 and 2017 net revenue - collaborations and services consisted of $10.6 million and $0.3 million, respectively. For further information see Note 8 —
Collaboration and Licensing Agreements.
The Company recognizes upfront license payments as revenue upon delivery of the license only if the license is determined to be a separate unit of
accounting from the other undelivered performance obligations. The undelivered performance obligations typically include manufacturing or development
services or research and/or steering committee services. If the license is not considered as a distinct performance obligation, then the license and other
undelivered performance obligations would be accounted for as a single unit of accounting. In this case, the license payments and payments for performance
obligations are recognized as revenue over the estimated period of when the performance obligations are performed.
Whenever the Company determines that an arrangement should be accounted for over time as a single performance obligation, the Company
determines the period over which the performance obligations will be performed, and revenue will be recognized over the period the Company is expected to
complete its performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the
period over which the Company is expected to complete its performance obligations under an arrangement. If the Company determines that an arrangement
has multiple performance obligations, the allocation of the transaction price is determined from observable market inputs and revenue is recognized based on
the measurement of progress as the performance obligation is satisfied.
The Company’s collaboration agreements typically entitle the Company to additional payments upon the achievement of development, regulatory
approval and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related
milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue calculation. If
these milestones are not considered probable at the inception of the collaboration, the milestones will typically be recognized in one of two ways depending
on the timing of when the milestone is achieved. If the milestone is achieved during the performance period, the Company will only recognize revenue to the
extent of the proportional performance achieved at that date, or the proportion of the ratable method achieved at that date, and the remainder will be recorded
as deferred revenue to be amortized over the remaining performance period. If the milestone is achieved after the performance period has completed and all
performance obligations have been delivered, the Company will recognize the milestone payment as revenue in its entirety in the period the milestone was
achieved.
For collaborative agreements, the Company has concluded for accounting purposes they represent contracts with customers, and are not subject to
accounting literature on collaborative arrangements. This is because the Company grants to collaboration partners licenses to its intellectual property,
supplies bulk FDKP and provides research and development services, all of which are outputs of the Company’s ongoing activities, in exchange for
consideration. The Company does not develop assets jointly with collaboration partners, and does not share in significant risks of their development or
commercialization activities. Accordingly, the Company concluded that its collaborative agreements must be accounted for pursuant to Topic 606, Revenue
from Contracts with Customers.
71
For collaboration agreements that allow collaboration partners to select additional optioned products, the Company evaluates whether such options
contain material rights, (i.e. have exercise prices that are discounted compared to what the company would charge for a similar license to a new collaboration
partner). The exercise price of these options includes a combination licensing fees, event-based milestone payments and royalties. When these amounts in
aggregate are not offered at a discount that exceeds discounts available to other customers, the company concludes the option does not contain a material
right, and considers grants of additional licensing rights upon option exercises to be separate contracts. The Company concluded there is no material right in
these options.
The Company follows detailed accounting guideance in measuring revenue and certain judgments affect the application of its revenue policy. For
example, in connection with its existing collaboration agreements, the Company has recorded on its consolidated balance sheets short-term and long-term
deferred revenue based on its best estimate of when such revenue will be recognized.
Short-term deferred revenue consists of amounts that are expected to be
recognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as longterm deferred revenue. However, this estimate is based on the Company’s current project development plan and, if the development plan should change in the
future, the Company may recognize a different amount of deferred revenue over the next 12-month period.
At December 31, 2018 and 2017, the Companyhad current deferred payment from collaborations of $36.9 million and $0.2 million, respectively and long-term deferred payment from collaborations of$10.7 million and $0.5 million, respectively, related to the Company’s collaborations."I conclude that $37M is due in 2019. (These are deferred payments and are not milestone payments; milestones are not yet incurred.)
