In August 2014, the Company entered into an exclusive License and Collaboration Agreement (“Collaboration Agreement”) with Aventis Inc., a wholly-owned subsidiary of Sanofi, for the research, development and potential commercialization of pharmaceutical products for the treatment, prevention and diagnosis of hypertrophic and dilated cardiomyopathy, as well as potential additional indications. During the period August 2014 through December 2018, Sanofi paid the Company a total of $105.0 million in cash to perform research and development on the development of such products, as well as for granting to Sanofi certain royalty bearing licenses. Of the $105.0 million, $0.7 million was attributed to a freestanding convertible preferred stock call option and $104.3 million was recognized as revenue during the period from August 2014 through December 31, 2018, the date on which the Company received a notice of termination of the Collaboration Agreement.

The Collaboration Agreement provided for a termination clause whereby on or before December 31, 2018, Sanofi was required to notify the Company of its intent to continue the collaboration. The continuation would have committed Sanofi to specific research and development activities in support of the commercialization of the Company’s products as well as resulted in a continuation of its obligation under the cost sharing portion of the collaboration to co-fund development as discussed further below. On December 31, 2018 Sanofi notified the Company it was terminating the Collaboration Agreement. Under the terms of the termination:

The Company has determined that Sanofi was a related party of the Company due to its previous collaborative relationship, certain royalty bearing license obligations on future sales of HCM-1 in the United States, and that it is the Company’s only partner. As of December 31, 2018, Sanofi was also a beneficial shareholder of the Company’s common stock.

Under the Collaboration Agreement, the Company granted Sanofi royalty-bearing licenses to develop and commercialize products resulting from its lead candidate programs HCM-1, HCM-2 and DCM-1. The licenses provide Sanofi with worldwide rights in the case of DCM-1 and rights outside the United States with respect to the HCM-1 and HCM-2 programs. The terms of the Collaboration Agreement also state that the Company is responsible for conducting research and development activities through early human efficacy studies for all three programs, except for specified research activities to be conducted by Sanofi.

Upon entering into this agreement, the Company received an up-front non-refundable cash payment of $35.0 million and Sanofi made an up-front equity purchase of $10.0 million (additional equity investments from Sanofi totaling $26.5 million were received subsequent to the effective date of the Collaboration Agreement). The Company was also eligible to receive additional payments and services, as follows:

During the fourth quarter of 2016, the Company submitted an IND application to the U.S. Food and Drug Administration and as a result, the Company received the $25.0 million milestone payment from Sanofi.

In December 2016, Sanofi provided notice to the Company of its election to continue the collaboration through December 31, 2018 pursuant to the terms of the Collaboration Agreement. In connection with Sanofi’s decision to continue the collaboration, in January 2017 the Company received the $45.0 million milestone payment.

Under the terms of the agreement, the Company was entitled to receive tiered royalties ranging from the mid-single digits to the mid-teens on net sales of certain HCM-1, HCM-2 and DCM-1 finished products outside the United States and on net sales of certain DCM-1 finished products in the United States.

In the implementation of ASC 606 “Revenues from Contracts with Customers” using the full retrospective transition method effective January 1, 2016, the Company evaluated the Collaboration Agreement under ASC 606 and determined that it had the following performance obligations:

1. the licenses of intellectual property for each of the HCM-1, HCM-2 and DCM-1 programs, and

2. the performance of research and development services, including regulatory support, for each of the three programs.

The Company considered whether the licenses had standalone functionality and were capable of being distinct; however, given the fact that the research and development services were of such a specialized nature that could only be performed by the Company and Sanofi could not benefit from the intellectual property licenses without the Company’s performance, the Company determined that the intellectual property licenses were not distinct from the research and development services and thus the license and research and development services for each program were combined into three separate performance obligations.

For revenue recognition purposes, the Company determined that the Collaboration Agreement was a period to period contract for which the Company had enforceable rights and obligations from inception through the initial term of December 31, 2016. Sanofi had the right to terminate the Collaboration Agreement prior to December 31, 2016 or to extend the contract term through December 31, 2018. If Sanofi had elected to terminate the agreement, the termination would have taken effect on December 31, 2016 and all licensed rights would have reverted to the Company. The Company did not have any obligation to reimburse Sanofi any portion of the payments received if Sanofi had terminated the agreement.

In December 2016, Sanofi elected to continue the Collaboration Agreement through an extended term ending December 31, 2018 and made the $45.0 million continuation payment to the Company in January 2017. The Company determined that the extended term was to be treated as a separate contract because such an extension was not probable at the inception of the contract, the extension represented additional goods and services, and such activities were priced commensurate to the effort required and do not involve any significant discount. It was also concluded that the extended term provided the Company with enforceable rights and obligations for the two-year period ended December 31, 2018.

Because Sanofi retained the option in the Collaboration Agreement to extend the arrangement, neither party was committed to perform and the contract did not have enforceable rights and obligations beyond December 31, 2018.

The Company’s assessment of the transaction price included an analysis of amounts to which it was expected to be entitled for providing goods or services to the customer which at contract inception consisted of the upfront cash payment, valued at $34.3 million, net of the fair value of $0.7 million allocated to the option provided to Sanofi to acquire equity, and variable consideration of $25.0 million, subject to an IND application. Sanofi paid the Company the $25.0 million milestone payment upon the Company’s application for the IND. In 2016, after the IND application was made and when the Company determined it was deemed probable that significant reversal in the amount of cumulative revenue recognized will not occur, the Company included this amount in the transaction price. As of December 31, 2016, all performance obligations associated with the initial term were satisfied.

The extended term (from January 1, 2017 to December 31, 2018) had a fixed fee of $45.0 million, paid by Sanofi contemporaneously with the notice of continuation of the contract. The Company therefore determined that the transaction price for this extended term was $45.0 million.

As previously noted above, the Collaboration Agreement also included up to $45.0 million in funding from Sanofi of approved in-kind research and clinical activities. Sanofi was the decision maker on how to provide these services and such services were used in the development of joint program technology which is co-owned by both parties. As such the Company concluded that these in-kind contributions did not constitute consideration paid by Sanofi to the Company.

Any consideration related to sales-based royalties were to be recognized when the related sales occurred and therefore have also been excluded from the transaction price.

Since the Company determined that the three performance obligations were satisfied over time, the Company selected a single revenue recognition method that it believed most faithfully depicts the Company’s performance in transferring control of the services. ASC 606 allows entities to choose between two methods to measure progress toward complete satisfaction of a performance obligation:

1. Output methods - recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract (e.g. surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units produced, or units delivered); or

2. Input methods - recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation.

The Company utilized a cost-based input method to measure proportional performance and calculated the corresponding amount of revenue to recognize. The Company believed this was the best measure of progress because other measures did not reflect how the Company executed its performance obligations under the contract with Sanofi. In applying the cost-based input methods of revenue recognition, the Company used actual costs incurred relative to budgeted costs to fulfill the combined performance obligations. Revenue was recognized based on actual costs incurred as a percentage of total actual and budgeted costs as the Company completed its performance obligations, which were fulfilled on December 31, 2018. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations were recorded in the period in which changes were identified and amounts could be reasonably estimated.

For the years ended December 31, 2018, 2017 and 2016, the Company recognized $33.6 million, $11.4 million and $42.0 million of collaboration and license revenue, respectively and no further revenue from the Collaboration Agreement has been deferred or will be recognized.

The following table presents changes in the Company’s contract assets and liabilities, which excludes research and development reimbursements under the cost sharing plan further discussed below, for the years ending December 31, 2018 and 2017 (in thousands):

	Year Ended December 31, 2018
	Balance at Beginning of Period		Additions		Deductions			Balance at End of Period
Contract liabilities:
Deferred revenue	$	33,558	$	—	$	(33,558	)	$	—

	Year Ended December 31, 2017
	Balance at Beginning of Period		Additions		Deductions			Balance at End of Period
Contract assets:
Receivable from collaboration partner	$	45,000	$	—	$	(45,000	)	$	—
Contract liabilities:
Deferred revenue	$	45,000	$	—	$	(11,442	)	$	33,558

During the years ended December 31, 2018 and 2017 the Company has received research and development cost reimbursements from Sanofi under the terms of the Collaboration Agreement.

Since the inception of the Collaboration Agreement and up until the termination date, Sanofi has been conditionally responsible for reimbursing the Company for:

Effective October 2017, Sanofi is sharing RPP costs for the mavacamten program until June 30, 2019 pursuant to the Collaboration Agreement termination terms. Registration program costs are subject to review and approval by the Company and Sanofi and include amounts incurred relating to clinical trials, development and manufacturing of, and obtaining regulatory approvals for mavacamten, and include direct employee costs and direct out-of-pocket costs incurred, by or on behalf of a party, that are specifically identifiable or reasonably and directly allocable to those activities.

Pursuant to the additional compounds provisions of the Collaboration Agreement, in August 2018 Sanofi agreed to reimburse the Company for eligible costs it has incurred in the development of the MYK-224 compound, which has been identified as an additional compound under the HCM-1 program. Eligible costs are subject to review and approval under the same procedures as under the RPP program; reimbursable costs consist of research and development activities agreed to by the Company and Sanofi that were negotiated and budgeted prior to the application for reimbursement. Reimbursements for this compound will continue to be received from Sanofi until March 31, 2019, in accordance to the Collaboration Agreement termination terms.

Estimated reimbursements are invoiced to Sanofi before each interim period based on budgeted amounts. For the RPP program, these estimates consist of one half of the Company’s mavacamten development budget in excess of Sanofi’s mavacamten development budget each interim period. For the MYK-224 compound, these estimates consist of all of the Company’s research and development budget related to the compound for the forthcoming quarter. After each period end, a review of the actual expenses incurred is performed and any adjustments are carried forward to future invoices. Actual amounts received from Sanofi are applied to the applicable interim period to reduce the Company’s research and development expenses.

The Company recorded zero and $1.0 million for reimbursable RPP and MYK-224 expenses, as of December 31, 2018 and 2017, respectively, which are recorded as receivable from collaboration partner and included in current assets in the consolidated balance sheets. As of December 31, 2018, and 2017, the Company has recorded $13.0 million and $4.4 million, respectively, as prepayments from collaboration partner, to apply to future research and development expenses. Prepayments from collaboration partner are included in current liabilities on the consolidated balance sheets. The Company recorded $23.1 million, $7.3 million and zero as reductions to research and development expenses for the years ended December 31, 2018, 2017 and 2016, respectively.

The following table presents the Sanofi research and development reimbursement receivables and related prepayment activity during the years ended December 31, 2018 and 2017 (in thousands):

	Year Ended December 31,
	2018			2017
Receivable from collaboration partner
Balance at beginning of year	$	1,013		$	—
Additions		3,994			1,013
Deductions		(5,007	)		—
Balance at end of year	$	-		$	1,013

Prepayment from collaboration partner for mavacamten
Balance at beginning of year	$	4,432		$	—
Additions for advance billings		-			1,013
Payments received from Sanofi		31,659			10,697
Actual expenses incurred		(23,118	)		(7,278	)
Balance at end of year	$	12,973		$	4,432