| Revenue Recognition and Adoption of New Accounting Pronouncement | 3. Revenue Recognition and Adoption of New Accounting
Pronouncement
Our license and collaboration agreements may contain multiple
elements, including license and technology access fees, research
and development funding, product supply revenue, cost-sharing,
milestones and royalties. The deliverables under such an
arrangement are evaluated under ASU No. 2014-09,
We adopted this guidance as of January 1, 2018, utilizing the
modified retrospective transition method applied to contracts that
were not complete as of January 1, 2018. We evaluated all of
our arrangements on a contract-by-contract
Our performance obligations and methods used for determining the
relative selling prices and transaction prices of the Healios
contract elements is further discussed in Note 6.
Milestone Payments
Topic 606 does not contain guidance specific to milestone payments,
but rather requires potential milestone payments to be considered
in accordance with the overall model of Topic 606. As a result,
revenues from contingent milestone payments are recognized based on
an assessment of the probability of milestone achievement and the
likelihood of a significant reversal of such milestone revenue at
each reporting date. This assessment may result in recognizing
milestone revenue before the milestone event has been achieved.
Since the milestones in the Healios arrangement are generally
related to development and commercial milestone achievement by
Healios, we have not included any of the Healios milestones in the
estimated transaction price of the Healios arrangement, since they
would be constrained, as a significant reversal of revenue could
result in future periods.
Other than for our collaboration with Healios that has remaining
deliverables, as of the date of adoption of Topic 606 on
January 1, 2018, we had recognized the full amount of license
fees under our collaboration agreements as contract revenue under
the prior guidance associated with multiple-element arrangements,
since the performance periods for our multiple element arrangements
have concluded. The events triggering any future contingent
milestone payments from these arrangements were determined to
be non-substantive
Grant Revenue
Grant revenue, which is not within the scope of Topic 606, consists
of funding under cost reimbursement programs primarily from federal
and non-profit
Royalty Revenue
We recognize royalty revenue relating to the sale by a licensee of
our licensed products. Royalty revenue is recognized upon the later
to occur of (i) achievement of the collaborator’s
underlying sales and (ii) satisfaction of any performance
obligation(s) related to these sales, in each case assuming the
license to our intellectual property is deemed to be the
predominant item to which the sales-based royalties
relate.
Unbilled Accounts Receivable
We record amounts that are due to us under contractual arrangements
for which invoicing has not yet occurred if our performance has
concluded for the billable activity, and we have the unconditional
right to the consideration, but such amounts are not yet billable.
At June 30, 2018, the unbilled accounts receivable from
Healios was $8.3 million, which includes $7.5 million of
license fees that are being paid to us by Healios in
$2.5 million installments over the next several quarters
related to the expansion described in Note 6.
Contractual Right to Consideration and Deferred
Revenue
Amounts included in deferred revenue or contract assets are
determined at the contract level, and for our Healios arrangement,
such amounts are included in a contract asset. Amounts received
from customers or collaborators in advance of our performance of
services or other deliverables are included in deferred revenue,
while amounts for performance of services or other deliverables
before customer payment is received or due are included in contract
assets, with those amounts that are unconditional being included in
either accounts receivable or unbilled accounts receivable. Grant
proceeds received in advance of our performance under the grant is
included in deferred revenue. Generally, deferred revenue is
classified as a current obligation, as opposed
to non-current. six-month
Advances from Healios
The clinical trial supply agreement with Healios was amended in
July 2017 to clarify a cost-sharing arrangement associated with our
supply of clinical product for their ischemic stroke trial. The
proceeds from Healios that relate specifically to the cost-sharing
arrangement may result in a decrease in the amount of proceeds we
receive from Healios upon the achievement of two future milestones,
and an increase to a late-stage commercial milestone, if the
cost-share amounts are not repaid at our election. While the
amendment to the supply agreement resulted in a revision to the
terms associated with the product supply, namely the cost of
product supply, the revision did not affect any of the performance
obligations under the overall arrangement. The proceeds from
Healios that relate specifically to the cost-sharing arrangement
for Healios’ stroke study in Japan are recognized
as non-current six-month
Effect of Adoption of Topic 606
Our arrangement with Healios was the only collaboration that was
impacted by the adoption of Topic 606. Notes 6 and 8 further
describe our arrangement with Healios, including subsequent
modifications to the collaboration. For contracts that were
modified prior to January 1, 2018, we aggregated the effect of
those modifications when identifying the satisfied and unsatisfied
performance obligations and determining the transaction price to be
allocated. We have applied the practical expedient under Topic 606
and have reflected the aggregate effect of all modifications at
January 1, 2018. The components of the cumulative effect of
the changes made to our consolidated January 1, 2018 balance
sheet for the adoption of Topic 606 were as follows (in
thousands):
Balance at Adjustments Balance at
Assets
Accounts receivable—Healios $ 153 $ 30 $ 183
Contractual right to consideration from Healios $
— $ 1,436 $ 1,436
Liabilities
Deferred revenue—Healios $ (521 ) $ 521 $
—
Advance from Healios $ (134 ) $ (116 ) $ (250 )
Equity
Accumulated deficit $ 350,630 $ (1,871 ) $ 348,759
In accordance with the new revenue recognition requirements, the
disclosure of the impact of adoption on our condensed consolidated
balance sheet as of June 30, 2018 and statement of operations
for the three- and six-month
As of June 30, 2018
As Reported Balances without Effect of Change
Assets
Unbilled accounts receivable from Healios $ 8,280 $ 780 $ 7,500
Contractual right to consideration from Healios $ 34 $
— $ 34
Liabilities
Deferred revenue $
— $ (2,308 ) $ 2,308
Equity
Accumulated deficit $ 351,981 $ 361,823 $ (9,842 )
Three Months ended June 30, 2018 Six months ended June 30,
2018
As Balances without Effect of As Balances Effect of
Revenues
Contract revenues from Healios $ 18,755 $ 10,710 $ 8,045 $ 19,103 $ 11,132 $ 7,971
Net income (loss) $ 6,933 $ (1,112 ) $ (8,045 ) $ (3,222 ) $ (11,193 ) $ (7,971 )
Net income (loss) per common share
Basic $ 0.05 $ (0.01 ) $ (0.06 ) $ (0.02 ) $ (0.08 ) $ (0.06 )
Diluted $ 0.05 $ (0.01 ) $ (0.06 ) $ (0.02 ) $ (0.08 ) $ (0.06 )
The adoption of Topic 606 had no impact on our total cash flows
from operations.
Disaggregation of Revenues
We recognize license-related amounts, including upfront payments,
exclusivity fees, additional disease indication fees, and
development, regulatory and sales-based milestones, at a point in
time when earned. Similarly, product supply revenue is recognized
at a point in time, while service revenue is recognized when earned
over time. See Note 6 for the discussion of the elements to Healios
revenue and the accounting treatment of a related warrant. The
following table presents our contract revenues disaggregated by
timing of revenue recognition and excludes royalty revenue (in
thousands):
Three months ended Six months ended June 30, 2018
Point in Over Time Point in Over Time
Contract revenue from Healios
License fee revenue $ 17,530 $ 17,530
Product supply revenue 223 450
Service revenue $ 1,002 $ 1,123
Other contract revenue 250 250
Total disaggregated revenues $ 18,003 $ 1,002 $ 18,230 $ 1,123 |
