On July 29, 2016, the Company entered into a License and Collaboration Agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) to develop engineered immune-cell therapeutics using the universal immune cell therapies platform (the “Regeneron Agreement”).

The Company received a non-refundable upfront payment of $25.0 million from Regeneron upon execution of the Regeneron Agreement, and has received an aggregate of $20.0 million of additional payments for research funding from Regeneron under the Regeneron agreement. In addition, Regeneron may have to pay the Company additional amounts in the future consisting of up to an aggregate of $100 million of option exercise fees, in each case as specified in the Regeneron Agreement. Regeneron must also pay the Company high single digit royalties as a percentage of net sales for ICPs to targets for which it has exclusive rights, and low single digit royalties as a percentage of net sales on any non-ICP product comprising a target generated by the Company through the use of Regeneron’s proprietary mice. The Company must pay Regeneron mid-single to low-double digit royalties as a percentage of net sales of ICPs to targets for which the Company has exercised exclusive rights, and low-to mid-single digit royalties as a percentage of net sales of targeting moieties generated from the Company’s license to use Regeneron’s proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or 12 years from first commercial sale.

For revenue recognition purposes, the Company determined that the duration of the contract is the same as the research term of five (5) years beginning on the execution of the Regeneron Agreement on July 29, 2016. The contract duration is defined as the period during which parties to the contract have present and enforceable rights and obligations. The Company determined that Regeneron faces significant in-substance penalties were it to terminate the Regeneron Agreement prior to the end of the research.

At contract inception, the Company determined a transaction price of the Regeneron Agreement consisting of the $25.0 million upfront payment and the aggregate research funding fees payable over the research term. In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Per the terms of the original Regeneron Agreement prior to the amendment effective from July 2019, the research funding fees were payable merely due to the passage of time and therefore did not represent a variable consideration. After the amendment became effective in July 2019, certain of these fees became contingent upon meeting certain development and regulatory milestones. Therefore, the Company concluded that after the amendment such potential payments became variable consideration. The receipt of the variable consideration was subject to substantial uncertainty and was therefore excluded from the transaction price upon the effective date of the amendment. As a result, during the three months ended September 30, 2019, the Company recorded $6.6 million as a reduction to cumulative revenue recognized prior to the amendment effective date. The Company will re-evaluate the transaction price if there is a significant change in facts and circumstances at least at the end of each reporting period. The Company increased the transaction price by $10.0 million in June 2020 when it achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement, resulting in a recognition of cumulative revenue of $5.0 million during the three months ended June 30, 2020.

For the three months ended September 30, 2020 and 2019, the Company recognized $3.0 million and $(7.0) million of license and collaboration revenue, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized $12.5 million and $(1.0) million of license and collaboration revenue, respectively.

The following tables present changes in the Company’s contract liabilities for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30, 2020

Balance at beginning

of period

Additions

Additions (Deductions) ⁽¹⁾

Balance at

end of

period

Contract asset

—

10,000

(10,000

)

—

Contract liability

21,883

10,000

(12,493

)

19,390

Nine Months Ended September 30, 2019

Balance at beginning

of period

Additions

Additions (Deductions) ⁽¹⁾

Balance at

end of

period

Contract liability

22,878

—

974

23,852

⁽¹⁾ Additions (deductions) to contract liabilities relate to deferred revenue derecognized (recognized) as revenue during the reporting period.

Contract assets are reflected as accounts receivable—related party on the condensed consolidated balance sheet. The Company achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement in June 2020 and was entitled to receive a payment of $10.0 million from Regeneron. The Company received the payment from Regeneron in July 2020.

Contract liabilities related to the Regeneron Agreement of $19.4 million and $23.9 million as of September 30, 2020 and 2019, respectively, which was comprised of the $25.0 million upfront payment and additional $5.0 million research funding fees in each of 2017 and 2018, and $10.0 million for achievement of the milestone for the selection of a clinical candidate to the second collaboration target in June 2020, less $25.6 million and $11.1 million of cumulative license and collaboration revenue recognized from the inception of the Regeneron Agreement as of September 30, 2020 and 2019, respectively, and will be recognized as the combined performance obligation is satisfied.