The Company has entered into collaboration and license agreements and supply agreements with various pharmaceutical and biotechnology companies. See “Note 5. Collaboration and License Agreements and Supply Agreements” to the Company’s financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022, or as further described below, for additional information on each of its collaboration agreements.

The Company’s accounts receivable balances may contain billed and unbilled amounts from milestones and other contingent payments, as well as reimbursable costs from collaboration and license agreements and supply agreements. The Company performs a regular review of its customers’ credit risk and payment histories, including payments made after the period end. Historically, the Company has not experienced credit loss from its accounts receivable and, therefore, has not recorded a reserve for estimated credit losses as of September 30, 2023 and December 31, 2022.

In accordance with the collaboration agreements, the Company recognized revenue as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Bristol Myers Squibb Company (“BMS”)	$	189		4,343	$	5,591		8,774
Merck Sharp & Dohme Corporation (“Merck”)		83		10,157		2,776		11,367
Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”)		-		166		8		2,200
Astellas Pharma Inc. (“Astellas”)		9,988		4,985		23,593		4,985
Tasly Biopharmaceuticals Co., Ltd. (“Tasly”)		5,072		-		5,072		25,000
Vaxcyte		1,592		1,496		2,970		2,814
BioNova Pharmaceuticals, Ltd. (“BioNova”)		-		4,000		-		4,000
Total revenue	$	16,924	$	25,147	$	40,010		59,140

The following table presents the changes in the Company’s deferred revenue balance from collaboration agreements during the nine months ended September 30, 2023:


	Nine Months Ended
	September 30, 2023
	(in thousands)
Deferred revenue—December 31, 2022	$	106,644
Additions to deferred revenue		11,018
Recognition of revenue in current period		(15,525	)
Deferred revenue—September 30, 2023	$	102,137

The Company’s balance of deferred revenue contains upfront and contingent payments for obligations from our agreements which remain partially unsatisfied. The Company expects to recognize approximately $24.0 million of the deferred revenue over the next twelve months.

In September 2014, the Company signed a Collaboration and License Agreement (the “BMS Agreement”) with BMS to discover and develop bispecific antibodies and/or antibody-drug conjugates (“ADCs”), focused primarily on the field of immuno-oncology, using the Company’s proprietary integrated cell-free protein synthesis platform, XpressCF®. In August 2017, the Company entered into an amended and restated collaboration and license agreement with BMS to refocus the collaboration on four programs that were advancing through preclinical development, including an ADC program targeting B cell maturation antigen (“BCMA ADC” or “CC-99712”).

In May 2019, the U.S. Food and Drug Administration cleared the investigational new drug (“IND”) application for the BCMA ADC, which was discovered and manufactured by the Company and is the first collaboration program IND.

In March 2018, the Company entered into a Master Development and Clinical Manufacturing Services Agreement (the “2018 BMS Master Services Agreement”) with BMS, wherein BMS requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply.

In June 2023, the Company received a notice of termination from BMS indicating that it was stopping development of CC-99712 due to a portfolio prioritization decision. The termination of the BMS Agreement was effective as of October 7, 2023 (the "Termination Date"). Following the Termination Date, the Company has sole worldwide rights to CC-99712.

As of September 30, 2023, and December 31, 2022, there was no deferred revenue related to payments received by the Company under the BMS Agreement.

As of September 30, 2023, and December 31, 2022, there was zero and $3.1 million, respectively, of deferred revenue under the 2018 BMS Master Services Agreement.

Revenues under the BMS Agreement and the 2018 BMS Master Services Agreement were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Research and development services	$	-	$	107	$	413	$	591
Materials supply		189		4,236		5,178		8,183
Total revenue	$	189	$	4,343	$	5,591	$	8,774

In July 2018, the Company entered into an agreement (the “2018 Merck Agreement”) with Merck for access to the Company’s technology and the identification and preclinical research and development of two target programs, with an option for Merck to engage the Company to continue these activities for a third program, upon the payment of an additional amount, focusing on cytokine derivatives for cancer and autoimmune disorders, with an initial transaction price of $60.0 million. The option to expand activities to a third program expired in January 2021.

In March 2020, Merck exercised its option to extend the research term of the collaboration’s first cytokine-derivative program by one year, which, pursuant to the terms of the 2018 Merck Agreement, triggered a payment of $5.0 million.

In April 2021, the Company earned a $15.0 million contingent payment for the initiation by Merck of the first IND-enabling toxicology study under the first cytokine-derivative program in the collaboration.

In September 2021, the Company entered into an amendment to the 2018 Merck Agreement (the “2021 Amendment”) to extend the research term for the first program in the 2018 Merck Agreement. Under the terms of the 2021 Amendment, the Company received a payment of $2.5 million with an additional $7.5 million to be received upon the achievement of certain developmental milestones by Merck on a second molecule under the first cytokine-derivative program of the collaboration. Merck decided not to pursue further development of a second molecule under the first cytokine-derivative program of the collaboration and, therefore, allowed the option to extend the period for nomination of additional clinical candidates under the 2021 Amendment to expire in June 2022.

In December 2021, Merck did not extend the research term for the second research program of the collaboration, which research program reverted to the Company. The first research program of the collaboration is focused on one distinct cytokine derivative molecule for the treatment of cancer. The Company is eligible to receive aggregate contingent payments of up to approximately $0.5 billion for the target program selected by Merck, assuming the development and sale of the therapeutic candidate and all possible indications identified under the collaboration. If one or more products from the target program is developed for non-oncology or a single indication, the Company will be eligible for reduced aggregate contingent payments. In addition, the Company is eligible to receive tiered royalties ranging from mid-single digit to low teen percentages on the worldwide sales of any commercial products that may result from the collaboration.

In July 2022, the first patient was dosed in a Phase 1 study of an investigational candidate resulting from the 2018 Merck Agreement for the development of a novel cytokine derivative therapeutic for the treatment of cancer. As a result of this achievement, the Company earned and received a $10.0 million contingent payment from Merck during the year ended December 31, 2022.

As of both September 30, 2023 and December 31, 2022, there was no deferred revenue related to the 2018 Merck Agreement and 2021 Amendment.

In August 2020, the Company entered into a Pre-Clinical and Clinical Supply Agreement (the “2020 Merck Master Services Agreement”) with Merck, wherein Merck requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply, upon completion of the research programs under the 2018 Merck Agreement.

As of both September 30, 2023 and December 31, 2022, there was no deferred revenue under the 2020 Merck Master Services Agreement.

Revenues under the 2018 Merck Agreement and the 2020 Merck Master Services Agreement were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Ongoing performance related to unsatisfied performance obligations	$	-	$	-	$	-	$	862
Contingent payment		-		10,000		-		10,000
Research and development services		20		136		224		402
Materials supply		63		21		2,552		103
Total revenue	$	83	$	10,157	$	2,776	$	11,367

The Company signed a Collaboration Agreement and a License Agreement with EMD Serono in May 2014 and September 2014, respectively, which were entered into in contemplation of each other and, therefore, treated as a single agreement for accounting purposes. The Collaboration Agreement was subsumed into the License Agreement (the “MDA Agreement”), which agreement is to develop ADCs for multiple cancer targets.

In April 2019, the Company entered into an ADC Product Preclinical and Phase I Clinical Supply Agreement (the “2019 EMD Serono Supply Agreement”) with EMD Serono, wherein EMD Serono requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply.

In March 2023, EMD Serono disclosed its decision to close the Phase 1a trial of M1231 in patients with solid tumors and not initiate a previously planned expansion study. EMD Serono stated that the decision was based on strategic portfolio considerations.

As of both September 30, 2023 and December 31, 2022, there was no deferred revenue related to payments received by the Company under the MDA Agreement or the 2019 EMD Serono Supply Agreement.

Revenues under the EMD Serono agreements were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Research and development services	$	-	$	78	$	6	$	494
Materials supply		-		88		2		1,706
Total revenue	$	-	$	166	$	8	$	2,200

In June 2022, the Company entered into a License and Collaboration Agreement (the “Astellas Agreement”) with Astellas for the development of immunostimulatory antibody-drug conjugates for up to three biological targets, to be identified by Astellas. The Company will conduct research and pre-clinical development of any compound (as designated by Astellas) in each of the three programs in accordance with the terms of a research plan between the Company and

Astellas. Astellas will have an exclusive worldwide license to develop and commercialize any such designated compound, subject to the Company’s rights to participate in cost and profit sharing in the United States, as described below.

Pursuant to the Astellas Agreement, the Company received from Astellas a one-time, nonrefundable, non-creditable, upfront payment of $90.0 million during the year ended December 31, 2022. Under ASC 808 and ASC 606, the Company determined that both parties are active participants in the activities and are exposed to significant risks and rewards dependent on the success of the development program, and identified four performance obligations under the Astellas Agreement as: (1) performance of services related to the first target program; (2) performance of services related to the second target program; (3) performance of services related to the third target program; and (4) the Company’s estimated future services on the collaboration JSC. The transaction price of $90.0 million was allocated among the performance obligations using the Company’s best estimate of the standalone selling price, or SSP, for each of the associated performance obligations. Revenue allocated to the three target programs, which totaled $89.1 million, is being recognized on a proportion of performance basis, using FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of four years for each target program. As it pertains to the JSC performance obligation, the revenue allocated to such performance obligation was $0.9 million, and is being recognized on a proportion of performance basis using FTE cost as the basis of measurement, and such effort is expected to be incurred on a relatively consistent basis throughout the term of the Astellas Agreement.

Additionally, under ASC 606, the Company determined a financing component associated with the $90.0 million upfront payment and has calculated $32.3 million as of September 30, 2023, on the unearned revenue portion beyond one year from the effective date of the agreement, which amount is being recognized as interest expense and revenue over the estimated service period for the three target programs.

The Company is also eligible to receive up to $422.5 million in development, regulatory and commercial milestones for each product candidate, and tiered royalties ranging from low double-digit to mid-teen percentages on worldwide sales of any commercial products that may result from the collaboration, subject to customary deductions under certain circumstances. The Company can also elect to convert any product candidate into a cost and profit-sharing arrangement, for the United States only. In the event the Company makes such election, it will share commercialization costs and profits relating to such product candidate equally with Astellas in the United States, and no royalties will be due from Astellas for net sales of such product candidates in the United States.

Revenues under the Astellas Agreement were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Ongoing performance related to unsatisfied performance obligations	$	5,612	$	1,925	$	11,423	$	1,925
Research and development services		1,920		809		4,639		809
Financing component on unearned revenue		2,456		2,251		7,531		2,251
Total revenue	$	9,988	$	4,985	$	23,593	$	4,985

As of September 30, 2023 and December 31, 2022, there was $74.6 million and $86.1 million of deferred revenue, respectively, related to the upfront payment received by the Company under the Astellas Agreement.

In December 2021, the Company entered into a license agreement with Tasly to grant Tasly an exclusive license to develop and commercialize STRO-002, or luveltamab tazevibulin, or luvelta, in Greater China (the “Tasly License Agreement”). Tasly will pursue the clinical development, regulatory approval, and commercialization of luvelta in multiple indications, including ovarian cancer, non-small cell lung cancer, triple-negative breast cancer, and other indications in Greater China. The Company will retain development and commercial rights of luvelta globally outside of Greater China, including the United States.

Under the Tasly License Agreement, Tasly was obligated to make to the Company an initial nonrefundable upfront payment of $40.0 million, with additional potential payments totaling up to $345 million related to development, regulatory and commercialization contingent payments and milestones. The Company will provide luvelta to Tasly under appropriate clinical and commercial supply service agreements. Upon commercialization, the Company will receive tiered royalties,

ranging from low- to mid-teen percentages based on annual net sales of luvelta in Greater China for at least ten years following the first commercial sale of luvelta in Greater China.

The Company determined that the Tasly License Agreement falls within the scope of ASC 808, as both parties are active participants in the activities and are exposed to significant risks and rewards dependent on the success of the commercialization of indications for luvelta in Greater China. The Company concluded that the Tasly License Agreement contained the following units of account: i) licensed know-how and Sutro patents, license to trademark rights, and initial regulatory data and information necessary to prepare an IND; and ii) collaboration governance and information sharing activities, such as JSC participation and ongoing regulatory and pharmacovigilance support.

The promises related to the licensed know-how and Sutro patents, license to trademark rights, and initial regulatory data and information necessary to prepare an IND are considered to be interdependent and not distinct from each other, representing a combined output. The Company determined that these promises are capable of being distinct from the collaboration governance and information sharing activities discussed below and further determined that this unit of account is a vendor-customer relationship and accounted for it in accordance with ASC 606. All potential future milestones and other payments were considered constrained at the inception of the Tasly License Agreement since the Company could not conclude it was probable that a significant reversal in the amount of revenue recognized would not occur. Since there is only one performance obligation accounted for under ASC 606, no allocation of the transaction price was necessary.

The Company determined that the unit of account consisting of collaboration governance and information sharing activities, such as JSC participation and ongoing regulatory and pharmacovigilance support, do not represent a customer-vendor relationship between the Company and Tasly. These promises are considered to be interdependent and not distinct from each other, representing a combined output. However, the Company determined that these promises are capable of being distinct from the intellectual property and data license promises discussed above. As such, based on the nature of the agreement and collaborative activities, the Company determined that the costs associated with these governance and information sharing activities performed under the agreement will be included in research and development expenses in the Statements of Operations, with any reimbursement of costs by Tasly reflected as a reduction of such expenses. During the three and nine months ended September 30, 2023 and 2022, the Company recognized a reduction of $16 thousand and zero, respectively, in research and development expenses under the Tasly License Agreement.

In April 2022, the Company entered into amendment No. 1 (the “Tasly Amendment”) to the Tasly License Agreement with Tasly. Pursuant to the Tasly Amendment, the initial nonrefundable upfront payment due by Tasly was amended to $25.0 million, and a $15.0 million payment will become payable to the Company upon the achievement of certain regulatory milestones. The Tasly Amendment also added an additional regulatory milestone payment to the Tasly License Agreement, providing additional potential payments totaling up to $350.0 million related to development, regulatory and commercialization milestones, beyond the payments described above, and made certain other ministerial edits.

During the year ended December 31, 2022, the Company recognized the $25.0 million upfront payment as revenue after the payment, net of a withholding tax, was received by the Company from Tasly. The withholding tax of $2.5 million was recorded as an income tax charge related to the upfront payment.

During the three months ended September 30, 2023, the Company recognized a $5.0 million contingent payment as revenue, net of withholding tax, after Tasly received its first IND clearance by National Medical Products Administration, or NMPA, in Greater China. The withholding tax of $0.5 million was recorded as an income tax charge related to the contingent payment.

During the three months ended September 30, 2023, the Company recognized a $5.0 million contingent payment, received by the Company from Tasly related to the first patient dosed in the Company’s REFRaME trial for luvelta, as deferred revenue, net of withholding tax of $0.5 million. The REFRaME study consists of two parts, Part I being the dose-finding portion and Part II being the portion of the study that will focus on the selected dose from Part I, and is intended to generate data to enable the potential registration of luvelta. Although it currently intends to conduct the REFRaME study to completion, the Company has the sole discretion to terminate the REFRaME study at any time. As such, the Company has agreed with Tasly that, in the event the Company terminates the REFRaME study prior to dosing the first patient in Part II, the Company will refund Tasly the contingent payment received by the Company within 30 days of such study termination. Given the above, the contingent payment received by the Company was considered constrained for accounting purposes during the three months ended September 30, 2023, since the Company could not conclude it was probable that a significant reversal in the amount of revenue recognized would not occur. The withholding tax was recorded by the Company as a tax charge related to the received contingent payment.

Revenues under the Tasly License Agreement were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Upfront payment	$	–	$	–	$	–	$	25,000
Contingent payments		5,000		–		5,000		–
Research and development services		72		–		72		–
Total revenue	$	5,072	$	–	$	5,072	$	25,000

In May 2018, the Company entered into a Supply Agreement (the “Supply Agreement”) with Vaxcyte, wherein Vaxcyte engaged the Company to provide research and development services and to supply extracts and custom reagents, as requested by Vaxcyte. The pricing is based on an agreed upon cost-plus arrangement.

During 2020, upon Vaxcyte’s request and their agreement to reimburse the related costs, the Company entered into agreements with third-party contract manufacturing organizations, or CMOs, to conduct process transfers to allow for such CMOs to manufacture and supply extract and custom reagents for Vaxcyte. As part of the agreement with Vaxcyte, should the Company decide to purchase extract from the extract CMO, the Company would be required to reimburse Vaxcyte for a portion of all incurred process transfer costs. As of September 30, 2023 and December 31, 2022, there was $6.1 million and $4.8 million, respectively, in such accruals related to the Vaxcyte Supply Agreement.

For the three and nine months ended September 30, 2023, the agreed-upon reimbursements by Vaxcyte of the costs associated with such arrangements, principally for pass-through costs from the CMOs, were $2.8 million and $5.6 million, respectively, and were accounted for by the Company as a reduction to research and development expense based on the Company’s conclusion that Vaxcyte was not a customer for such activities and associated payments.

For the three and nine months ended September 30, 2022, the agreed-upon reimbursements by Vaxcyte of the costs associated with such arrangements, principally for pass-through costs from the CMOs, were $4.0 million and $10.2 million, respectively.

Revenues under the Vaxcyte Supply Agreement were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Research and development services	$	636	$	651	$	1,707	$	1,794
Materials supply		956		845		1,263		1,020
Total revenue	$	1,592	$	1,496	$	2,970	$	2,814

In December 2022, the Company entered into a letter agreement (the “Vaxcyte Agreement”) with Vaxcyte under which the Company granted to Vaxcyte (i) authorization to enter into an agreement with an independent alternate CMO to source cell-free extract solely for the products it licensed from the Company, allowing Vaxcyte to have direct oversight over financial and operational aspects of the relationship with the CMO (“CMO Relationship Rights”), and (ii) a right, but not an obligation, to obtain certain exclusive rights to internally manufacture and/or source extract from certain CMOs and the right to independently develop and make improvements to extract for use in connection with the exploitation of certain vaccine compositions (the “Option”). The Option is exercisable for five years following the effective date of the Vaxcyte Agreement (the “Option Period”), subject to potential acceleration in the event of a change of control of Vaxcyte.

Pursuant to the Vaxcyte Agreement, the Company received a one-time, nonrefundable, non-creditable, upfront payment of $10.0 million in cash, and 167,780 shares of Vaxcyte common stock with a fair value of $7.5 million in December 2022.

Additionally, pursuant to the Vaxcyte Agreement, the Company and Vaxcyte agreed to negotiate the terms and conditions of a form definitive agreement to be entered into in the event Vaxcyte exercises the Option (the “Form Definitive Agreement”). In September 2023, the Company and Vaxcyte mutually agreed upon the Form Definitive Agreement, and in October 2023, the Company received a $5.0 million payment from Vaxcyte.

Effective immediately upon agreement to the Form Definitive Agreement, the Company and Vaxcyte entered into amendment No 3. (the “Amendment”) to that certain license agreement between the Company and Vaxcyte, dated August 1, 2014, and amended and restated on October 12, 2015, and amended again on May 9, 2018 and May 29, 2018 (the “License Agreement”). The Amendment amended certain terms of the License Agreement including with respect to (i) royalty reduction provisions applicable in the event of expiration of relevant patent claims, which would result in lower royalties payable by Vaxcyte under certain circumstances, (ii) the ownership, prosecution, maintenance and enforcement of certain intellectual property rights licensed or arising under the License Agreement, and (iii) the timing and form for financial reporting of royalty payment calculations.

In the event Vaxcyte elects to exercise the Option, Vaxcyte will pay the Company $75.0 million in cash in two installments, and upon the occurrence of certain regulatory milestones, certain additional payments totaling up to $60.0 million. In the event that Vaxcyte undergoes a change of control, and subsequently exercises the Option, a substantial majority of the milestone payments will be accelerated.

The Company evaluated the terms of the Vaxcyte Agreement and concluded that the Vaxcyte Agreement is considered a new standalone contract and distinct from the previously existing agreements with Vaxcyte. Under ASC 606, the Company determined that Vaxcyte is a customer for this arrangement and identified the promised goods and services under the Vaxcyte Agreement as: (1) the Option; (2) the Form Definitive Agreement; (3) CMO Relationship Rights; and (4) Joint steering committee participation. The Company concluded that the promises within the contract are interrelated and interdependent of one another. As such, these are not considered distinct but are combined as a single performance obligation. This single performance obligation is considered a material right as it provides Vaxcyte with the right to acquire additional goods at a price it would not have received without having entered into the Vaxcyte Agreement. Revenue for the single performance obligation was deferred and will be eligible to begin to be recognized at the earlier of when the Option is exercised or expires.

As of September 30, 2023 and December 31, 2022, there was $22.5 million and $17.5 million, respectively, of deferred revenue, related to the payment receivable upon agreement to the Form Definitive Agreement, and the upfront cash and stock payments received by the Company under the Vaxcyte Agreement.

Refer to Note 9 below for information relating to the Purchase Agreement between the Company and Blackstone, pursuant to which the Company sold to Blackstone its 4% royalty, or revenue interest, in potential future net sales of Vaxcyte products, including VAX-24.