10. Significant agreements

For the three and nine months ended September 30, 2019 and 2018, the Company had collaboration agreements with AstraZeneca AB (“AstraZeneca”), Sanofi (formerly Bioverativ), Oxurion (formerly ThromboGenics) and the Dementia Discovery Fund. The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations and comprehensive loss from the Company’s collaboration agreements (in thousands):


	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2019		2018		2019		2018
Collaboration revenues
AstraZeneca	$	441	$	388	$	1,229	$	1,078
Sanofi		—		1,047		6,016		3,258
Oxurion		—		175		—		1,743
Dementia Discovery Fund		173		—		275		—
Material transfer agreement		—		—		1,000		—
Total collaboration revenues	$	614	$	1,610	$	8,520	$	6,079

AstraZeneca Collaboration Agreement

Summary of Agreement — 2016 Agreement

In November 2016, the Company entered into a Research Collaboration Agreement (the “AstraZeneca Collaboration Agreement”) with AstraZeneca. The collaboration is focused on the research and development of Bicycle peptides that bind to up to six biological targets. After discovery and initial optimization of such Bicycle peptides, AstraZeneca will be responsible for all research and development, including lead optimization and drug candidate selection. AstraZeneca has option rights, at drug candidate selection, which allow it to obtain development and exploitation license rights with regard to such drug candidate. The initial research obligation focuses on two targets within respiratory, cardiovascular and metabolic disease. AstraZeneca also has an option to nominate up to four additional targets at any point up to the second anniversary of the agreement (“Additional Four Target Option”). The exercise of this option right results in an option fee payable to the Company of $5.0 million and the research obligations and rights are consistent with the obligations and rights related to the initial two targets discussed below.

Under the AstraZeneca Collaboration Agreement, the Company is obligated to use commercially reasonable efforts to perform research activities on the initial two targets, under mutually agreed upon research plans. The research plans includes two discrete parts, on a research program by research program basis: (i) the Bicycle Research Term, which is focused on the generation of Bicycle peptide libraries using the Company’s peptide drug discovery platform, to be screened against selected biological targets and optimization of promising compounds, with the goal of identifying compounds that meet the criteria set by the parties, and (ii) the AZ Research Term, during which AstraZeneca may select certain compounds and continue research activities on those compounds, at its sole expense, with the goal of identifying compounds that satisfy the relevant pharmacological and pharmaceutical criteria for clinical testing. AstraZeneca may, at its sole discretion, approve any compound to be progressed into drug development and, upon the selection of each drug candidate, AstraZeneca is to pay $8.0 million as an option fee, in order to obtain worldwide development and exploitation rights.

Each research program is to continue for an initial period of three years (the “Research Term”), including one year for the Bicycle Research Term and two for the AZ Research Term. AstraZeneca may extend the Research Term for each research program by twelve months (or fifteen months, if needed to complete certain toxicology studies). The Research Term for a specific program can be shorter if it is ceased due to a screening failure, a futility determination, abandonment by AstraZeneca, or upon selection of a drug candidate. AstraZeneca has certain substitution rights should a screening failure or futility determination be reached but is obligated to fund these additional efforts related to substitution.

Under the terms of the AstraZeneca Collaboration Agreement, the Company granted to AstraZeneca, for each research program, a right and license (with the right to sublicense) to certain background and platform intellectual property, for the duration of the applicable Research Term, to the extent necessary or useful for AstraZeneca to conduct the activities assigned to it in the applicable research plan, but for no other purpose.

The activities under the AstraZeneca Collaboration Agreement are governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and AstraZeneca. The JSC oversees and reviews each research program. Among other responsibilities, the JSC monitors and reports on research progress and it is responsible to ensure open and frequent exchange between the parties regarding research program activities.

AstraZeneca is obligated to fund two full time equivalents (“FTE”) during the Bicycle Research Term, for each research program, based on an agreed upon FTE reimbursement rate. Payment is made quarterly in advance of services being provided.

AstraZeneca has the option to obtain development and commercialization licenses associated with each designated drug candidate in return for a fee of $8.0 million per drug candidate. In addition, AstraZeneca is required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial milestones. More specifically, for each research program, the Company is eligible to receive up to $29.0 million in development milestone payments and up to $23.0 million in regulatory milestone payments. The Company is also eligible for up to $110.0 million in commercial milestone payments, on a research program by research program basis. Development milestone payments are triggered upon initiation of a defined phase of clinical research for a drug candidate. Regulatory milestone payments are triggered upon approval to market a product candidate by the United States Food and Drug Administration (“FDA”) or other global regulatory authorities. Commercial milestone payments are triggered when an approved pharmaceutical product reaches certain defined levels of net sales by the licensee. In addition, to the extent any of the product candidates covered by the licenses conveyed to AstraZeneca are commercialized, the Company would be entitled to receive tiered royalty payments of mid‑single digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including in certain countries where AstraZeneca faces generic competition. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from AstraZeneca.

Either party may terminate the AstraZeneca Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Either party may terminate the AstraZeneca Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. AstraZeneca may terminate the AstraZeneca Collaboration Agreement, entirely or on a licensed product by licensed product or country by country basis, for convenience.

Accounting Analysis

The Company has identified the following performance obligations:

(i)

research license and the related research and development services during the Bicycle Research Term for the first target (the “Target One Research License and Related Services”),

(ii)

research license and the related research and development services during the Bicycle Research Term for the second target (the “Target Two Research License and Related Services”).

The Company concluded that the Additional Four Target Option is not a material right, as the option does not provide a discount that AstraZeneca otherwise would not have received. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract. The Company has concluded that the research license is not distinct from the research and development services during the Bicycle Research Term as AstraZeneca cannot obtain the benefit of the research license without the Company performing the research and development services. The services incorporate proprietary technology and unique skills and specialized expertise, particularly as it relates to constrained peptide technology that is not available in the marketplace. As a result, for each research program, the research license has been combined with the research and development services into a single performance obligation.

The total transaction price was initially determined to be $1.2 million, consisting solely of research and development funding. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. Additional consideration to be paid to the Company upon the exercise of the license options by AstraZeneca or upon reaching certain milestones is excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the option exercise or are outside of the initial contact term.

The Company will recognize revenue related to amounts allocated to the Research License and Related Services as the underlying services are performed over the one year Research Term using a proportional performance model over the period of service using input‑based measurements of total full‑time equivalent effort incurred to date as a percentage of total full‑time equivalent time expected and will remeasure its progress towards completion at the end of each reporting period, which best reflects the progress towards satisfaction of the performance obligation.

In October 2017, AstraZeneca selected a replacement target for the first target, and as such a new Research Term was started related to the Target One Research License and Related Services. In addition, both programs were extended. The total transaction price under the arrangement increased to $2.0 million for the additional research and development funding to be received.

For the three months and nine months ended September 30, 2019, the Company recognized zero and $0.2 million, respectively, and for the three and nine months ended September 30, 2018 the Company recognized $0.2 million and $0.8 million, respectively, of collaboration revenue related to the Target One and Target Two Research License and Related Services for its Collaboration Agreement with AstraZeneca. As of September 30, 2019 and December 31, 2018, the Company recorded zero deferred revenue and $24,000 of deferred revenue, respectively, in connection with the 2016 AstraZeneca Collaboration Agreement.

May 2018 AstraZeneca Option Exercise — Additional Four Targets

Under the AstraZeneca Collaboration Agreement, AstraZeneca was granted an option to nominate up to four additional targets at any point up to the second anniversary of the agreement (“Additional Four Target Option”). In May 2018, AstraZeneca made an irrevocable election to exercise the Additional Four Target Option. As a result, AstraZeneca is entitled to obtain research and development services with respect to Bicycle peptides that bind to up to four additional targets, along with license rights to those selected targets, in exchange for an option fee of $5.0 million, which was paid by AstraZeneca to the Company in January, 2019. AstraZeneca is obligated to fund two FTEs during the Bicycle Research Term, for each research program, based on an agreed upon FTE reimbursement rate. Payment is made quarterly in advance of services being provided. AstraZeneca has the option to obtain worldwide development and commercialization licenses associated with each designated drug candidate in return for a fee of $8.0 million per drug candidate, upon the selection of such drug candidate, after which AstraZeneca would be required to fund development and commercialization costs, and to pay regulatory and commercial milestone payments and royalties to the Company as for the other products developed under the AstraZeneca Collaboration Agreement.

Accounting Analysis

Upon the execution of the agreement, the Company has identified the following five performance obligations associated with the AstraZeneca May 2018 Agreement:

(i)

Research license and the related research and development services during the Bicycle Research Term for the third target (the “Target Three Research License and Related Services”),

(ii)

Material right associated with the development and exploitation license option for the third target (“Target Three Material Right”),

(iii)

Material right associated with the research services option, including the underlying development and exploitation license option for the fourth target (“Target Four Material Right”),

(iv)

Material right associated with the research services option, including the underlying development and exploitation license option for the fifth target (“Target Five Material Right”), and

(v)

Material right associated with the research services option, including the underlying development and exploitation license option for the sixth target (“Target Six Material Right”).

The Company concluded that the fourth, fifth and sixth targets available for selection are options. Upon exercise, AstraZeneca will obtain a research license and the related research and development services and an option to a development and exploitation license. The Company has concluded that each research services option, including the underlying development and exploitation license options related to each respective target, results in a material right as the option exercise fee related to the development and exploitation license contains a discount that AstraZeneca would not have otherwise received.

The research license and the related research and development services related to the fourth, fifth and sixth targets are not performance obligations at the inception of the arrangement, as they are optional services that will be performed if AstraZeneca selects additional targets and they reflect their standalone selling prices and do not provide the customer with material rights. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract.

The total transaction price was determined to be $5.7 million at the inception of the arrangement, consisting of the $5.0 million option exercise fee and research and development funding of an estimated $0.7 million. The research and development funding is being provided based on the costs that are incurred to conduct the research and development services. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. Additional consideration to be paid to the Company upon the exercise of the license options by AstraZeneca or upon reaching certain milestones are excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the license option exercise or are outside of the initial contact term.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for each Research License and Related Services obligation is primarily based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin what would be expected to be realized under similar contracts. The estimated standalone selling price for the material rights was determined based on the fees AstraZeneca would pay to exercise the license options, the estimated value of the License Option using comparable transactions, and the probability that (i) AstraZeneca would opt into the target development, and (ii) the license options would be exercised by AstraZeneca. Based on the relative standalone selling price, the allocation of the transaction price to the separate performance obligations at the inception of the arrangement is as follows (in thousands):


	Allocation of
Performance Obligations	Transaction Price
Target Three Research License and Related Services	$	650
Target 3 Material Right		1,504
Target 4 Material Right		1,204
Target 5 Material Right		1,165
Target 6 Material Right		1,127
	$	5,650

The Company will recognize revenue related to amounts allocated to the Target Three Research License and Related Services as the underlying services are performed using a proportional performance model over the period of service using input‑based measurements of total full‑time equivalent effort incurred to date as a percentage of total full‑time equivalent time expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company will commence revenue recognition upon exercise of or upon expiry of the option. The optional future research license and the related research and development services related to the fourth, fifth and sixth targets reflect their standalone selling prices and do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. In June 2019, AstraZeneca selected a replacement target for the third target, and as such a new Research Term was started related to the Target Three Research License and Related Services. The total transaction price under the arrangement increased to $6.3 million for the additional research and development funding to be received. During the nine months ended September 30, 2019, the Company commenced research and development services related to the fourth and fifth targets.

For the three and nine months ended September 30, 2019, the Company recognized $0.4 million and $0.2 million of revenue, respectively, and for the three and nine months ended September 30, 2018, the Company recognized $1.0 million and $0.3 million of revenue for the Target Three Research License and Related Service, and research and development services for the fourth target and fifth targets related to the May 2018 AstraZeneca Option Exercise. As of September 30, 2019 and December 31, 2018, the Company recorded $4.5 million and $4.7 million of deferred revenue, respectively, in connection with the May 2018 AstraZeneca Option Exercise and related contracts.

Sanofi Collaboration Agreement (formerly Bioverativ)

Summary of Agreement

In August 2017, the Company entered into a Collaboration Agreement with Bioverativ Inc., which was acquired by Sanofi in March 2018 (“Sanofi”). Under the collaboration agreement with Sanofi (the “Sanofi Collaboration Agreement”), the Company will provide for research and development services focused on up to three collaboration programs; (i) Sickle cell disease, (ii) Hemophilia, and (iii) and a third program (“Program 3”), which is an optional program, to be defined. The Company will use its bicyclic peptide screening platform to perform research and development services for the programs and Sanofi has the ability to select a collaboration product for each program and obtain a license to develop and exploit the selected collaboration product for an additional option fee.

Under the Sanofi Collaboration Agreement, the Company is obligated to perform research activities on the initial two named collaboration programs, under mutually agreed upon research plans. The research and development services for each program consist of two stages. The first is an initial stage of screening for high affinity binders and affinity maturation of such binders to identify lead compounds led by the Company (the “BV Bicycle Research Term”). Upon the conclusion of the BV Bicycle Research Term, Sanofi can, at its sole discretion, select a certain number of collaboration compounds to move forward into the Joint Research Term. Upon selection of the collaboration compounds, Sanofi is required to pay an option fee. During the Joint Research Term, the Company and Sanofi will jointly conduct research and development activities which will include lead optimization of lead compounds, in preparation for lead collaboration product nomination (“Joint Research Term”). Sanofi may, at its sole discretion, approve any compound to be progressed into drug development and upon the selection of each collaboration product candidate, Sanofi shall pay $5.0 million as an option fee, in order to obtain worldwide development and exploitation rights for that collaboration product.

Each research program shall continue for an initial period of three years (the “Research Term”) unless a program is abandoned by Sanofi or extended for up to one year. The first year of each Research Term shall be the BV Bicycle Research Term and the remaining part of the Research Term, including any extensions of the Research Term, shall be the Joint Research Term.

Under the terms of the Sanofi Collaboration Agreement, the Company granted to Sanofi, for each collaboration program, a non‑exclusive, sublicensable (through multiple tiers), worldwide license under certain intellectual property of the Company to conduct the activities assigned to Sanofi in the applicable research plan for the duration of the applicable Research Term, but for no other purpose.

The activities under the Sanofi Collaboration Agreement is governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and Sanofi. The JSC oversees, review and recommends direction of each collaboration program and variations of or modifications to the research plans.

Under the terms of the Sanofi Collaboration Agreement, the Company received a $10.0 million up‑front cash payment. Additionally, prior to the initiation of the research plan for each collaboration program, Sanofi made a non‑refundable payment of $1.4 million for the Sickle cell program and $2.8 million for the Hemophilia program as payment for the Company’s services during the BV Bicycle Research Term. During the Joint Research Term, Sanofi is obligated to fund a minimum of two FTE’s based on an agreed upon FTE reimbursement rate and fund certain external costs incurred by the Company. Sanofi has the option to obtain development and commercialization licenses associated with each designated collaboration product candidate in return for a fee of $5.0 million per drug candidate. In addition, Sanofi would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, for each collaboration program, the Company is eligible to receive between $47.5 million and $67.0 million in development milestone payments for the Sickle Cell and Hemophilia programs, respectively, and up to $104.0 million in regulatory milestone payments for each program. In addition, the Company is eligible for up to $55.0 million in commercial milestone payments, on a research program by research program basis. Development milestone payments are triggered upon initiation of a defined phase of clinical research for a collaboration product. Regulatory milestone payments are triggered upon approval to market a product candidate by the FDA or other global regulatory authorities. Commercial milestone payments are triggered when an approved collaboration product reaches certain defined levels of net sales by the licensee. In addition, to the extent any of the collaboration products covered by the licenses conveyed to Sanofi are commercialized, the Company would be entitled to receive tiered royalty payments of mid‑single digits to low double digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including for instances where Sanofi faces generic competition in certain countries. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from Sanofi.

Under the terms of the Collaboration Agreement, Sanofi was also provided with an option to obtain screening services on the additional Program 3 target upon making an option fee payment of $5.0 million in addition to a non‑refundable payment of $1.4 million as payment for the Company’s services related to Program 3 during the BV Bicycle Research Term. The option expired in November 2018 unexercised.

Either party may terminate the Sanofi Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Either party may terminate the Sanofi Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. Sanofi may terminate the Sanofi Collaboration Agreement, entirely or on a program by program, licensed product by licensed product or country by country basis, for convenience upon not less than 30 days prior written notice to the Company.

Accounting Analysis

The Company has identified the following four performance obligations associated with the Sanofi Collaboration Agreement:

(i)

Research License and the related research and development services during the BV Bicycle Research Term for Sickle cell program (the “Sickle Cell Research License and Related Services”),

(ii)

Research License and the related research and development services during the BV Bicycle Research Term for Hemophilia program (the “Hemophilia Research License and Related Services”),

(iii)

Material right associated with the sickle cell program development and exploitation license option (“Sickle Cell License Option Material Right”), and

(iv)

Material right associated with the hemophilia program development and exploitation license option (“Hemophilia License Option Material Right”).

The Company concluded that the option to obtain screening services on the additional Program 3 target is not a material right, as the option does not provide a discount that Sanofi otherwise would not have received. The Company’s participation in the JSC was assessed as immaterial in the context of the contract. Research license and the related research and development services related to the Joint Research Term are not performance obligations at the inception of the arrangement, as they are optional services that will be performed if Sanofi selects collaboration compounds for lead optimization. The amount paid by Sanofi for the services during the Joint Research Team do not reflect a discount that the customer would otherwise receive and do not provide the customer with material rights.

The total transaction price was initially determined to be $14.2 million, consisting of the $10.0 million upfront payment and non‑refundable research and development funding of $4.2 million. The Company may receive reimbursement of FTE costs and external costs associated with work under the Joint Research Term, milestone payments during the Joint Research Term, as well as upon exercise of the license options. These variable amounts are excluded from the transaction price as they relate to fees and milestones that can only be achieved subsequent to the exercise of an option.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for the Research License and Related Services is primarily based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin what would be expected to be realized under similar contracts. The estimated standalone selling price for the material rights was determined based on the fees Sanofi would pay to exercise the license options, the estimated value of the license option using comparable transactions, and the probability that the license options would be exercised by Sanofi. Based on the relative standalone selling price, the allocation of the transaction price to the separate performance obligations at the inception of the arrangement is as follows (in thousands):


	Allocation of
Performance Obligations	Transaction Price
Sickle Cell Research License and Related Services	$	1,405
Hemophilia Research License and Related Services		2,811
Sickle Cell License Option Material Right		5,286
Hemophilia License Option Material Right		4,698
	$	14,200

The Company will recognize revenue related to amounts allocated to the Sickle Cell Research License and Related Services and the Hemophilia Research License and Related Services obligations as the underlying services are performed using a proportional performance model, over the period of service using input‑based measurements of total full‑time equivalent effort incurred to date as a percentage of total full‑time equivalent time expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company will commence revenue recognition when the underlying option is exercised or upon expiry of the option.

During the nine months ended September 30, 2019, Sanofi extended the research and development services on both programs. The arrangement consideration increased to $14.9 million. On March 28, 2019, Sanofi notified the Company that it would not exercise the Sickle Cell License Option. As a result, the amount allocated to the Sickle Cell License Option Material Right of $5.3 million was recognized into revenue during the nine months ended September 30, 2019. The collaboration with Sanofi was terminated effective October 23, 2019, and as a result, deferred revenue related to amounts allocated to the Hemophilia License Option Material Right will be recognized in the fourth quarter of 2019.

The Company recognized zero and $6.0 million of collaboration revenue for the three and nine months ended September 30, 2019, respectively, and $1.0 million and $3.3 million of collaboration revenue for the three and nine months ended September 30, 2018, respectively, related to its collaboration with Sanofi. As of September 30, 2019, and December 31, 2018, the Company recorded deferred revenue of $4.5 million and $9.9 million, respectively, related to its collaboration with Sanofi.

Oxurion Collaboration Agreement

Summary of Agreement

In August 2013, the Company entered into a Research Collaboration and License Agreement with Oxurion (the “Oxurion Collaboration Agreement”). Under the Oxurion Collaboration Agreement, the Company was responsible for identifying Bicycle peptides related to the collaboration target, plasma kallikrein, for use in various ophthalmic indications. Oxurion is responsible for further development and product commercialization after the defined research screening is performed by the Company.

Under the Oxurion Collaboration Agreement, the Company is obligated to perform specified research activities in accordance with the research plan, which includes two stages. Stage I, now completed, focused on the screening of targets using the Company’s Bicycle peptide discovery platform with the goal of identifying compounds that meet the criteria set by the parties, and Stage II, during which Oxurion has continued research activities on selected Bicycle peptides with the goal of identifying compounds for further development and commercialization. The Company is not obligated or expected to perform any research services during Stage II of the research plan.

The Company granted certain worldwide intellectual property rights to Oxurion for the development, manufacture and commercialization of licensed compounds associated with plasma kallikrein. The Oxurion Collaboration Agreement provided for an upfront payment of €1.0 million and potential additional research and development funding, at an agreed upon FTE rate, should the research effort require more than one FTE or the research plan be amended or extended by Oxurion. In addition, Oxurion is required to make certain milestone payments to the Company upon the achievement of specified research, development, regulatory and commercial events. More specifically, for each collaboration program, the Company is eligible to receive up to €8.3 million in research and development milestones of which €1.8 million has been received as of September 30, 2019. In addition, the Company is eligible to receive up to €16.5 million upon achievement of certain regulatory milestone payments (e.g. €5 million for granting first regulatory approval in either the United States or EU for the first indication). In addition, to the extent any of the collaboration products covered by the licenses granted to Oxurion are commercialized, the Company would be entitled to receive tiered royalty payments of mid‑single digits based on a percentage of net sales. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from Oxurion.

Either party may terminate the Oxurion Collaboration Agreement if the other party has materially breached any of its material obligations and such breach continues after the specified cure period. Either party may terminate the Oxurion Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. Oxurion may terminate the Oxurion Collaboration Agreement, entirely or on a program by program, licensed product by licensed product or country by country basis, for convenience upon not less than 90 days prior written notice to the Company.

In November 2017, the parties executed the First Deed of Amendment to the Oxurion Collaboration Agreement (“First Amendment”). The First Amendment confirms that THR‑149 has been selected as a development compound under the Oxurion Collaboration Agreement and that Stage II of the research plan has been completed. The First Amendment provided for additional research services to be performed by the Company related to the identification of two additional compounds for Oxurion, in its discretion, to select as development compounds. As for the work under the Oxurion Collaboration Agreement, the Company will perform the work under Stage I of the research plan, which will be funded at a specified FTE rate, plus any direct out of pocket expenses, and Oxurion will be responsible for Stage II research and any development after the selection of a development compound. Additional milestones and royalties were added for the potential additional licensed compounds, consistent with those of the initial Oxurion Collaboration Agreement. The Company is not obligated or expected to perform any research services during Stage II of the research plan.

Accounting Analysis

Under the Oxurion Collaboration Agreement, all licenses were granted and research services to be provided by the Company were fully completed and revenue associated with those obligations was fully recognized prior to January 1, 2016. Under the First Amendment, the Company has identified a single performance obligation associated with the performance of research services associated with Stage I of the research plan for which the Company will be reimbursed for its services at a specified FTE reimbursement rate plus out of pocket costs which will be recognized on a proportional performance basis as the associated FTE efforts and costs are incurred, which best reflects the progress towards satisfaction of the performance obligation. None of the unpaid development or regulatory milestones have been included in the transaction price, as all milestones are not considered probable at December 31, 2018 and September 30, 2019.

The Company recognized zero revenue for the three and nine months ended September 30, 2019, and $0.2 million and $1.7 million of revenue for the three and nine months ended September 30, 2018, respectively, related to its agreements with Oxurion. As of September 30, 2019, the research services under the First Amendment were complete. The revenue recognized for the nine months ended September 30, 2018 includes $1.2 million related to the achievement of developmental milestones during the advancement of the research by Oxurion into a Phase I clinical study. There was zero deferred revenue recorded as of September 30, 2019 and December 31, 2018 in connection with the agreements with Oxurion.

Dementia Discovery Fund Agreement

In May 2019, the Company entered into a collaboration with the Dementia Discovery Fund (“DDF”) to use Bicycle technology for the discovery and development of novel therapeutics for dementia (the “DDF Collaboration Agreement”). Under the terms of the DDF Collaboration Agreement, the Company and DDF will collaborate to identify Bicycles that bind to clinically validated dementia targets (the “DDF Research Plan”). The Company is obligated to use commercially reasonable efforts to perform research activities under the DDF Research Plan. DDF shall not be directly engaged in the conduct of any research activities under the arrangement. The activities under the DDF Collaboration Agreement will be governed by a project advisory panel, composed of two representatives from each Party. The Research Advisory Panel will oversee, review and recommend direction for the Research Plans and variations of or modifications of research plans.

The Company received an upfront payment of $1.1 million in May 2019. The Company may receive up to an additional $0.7 million, upon achievement of certain milestones such as the identification of lead bicycle candidates with a certain affinity, which would be used to fund additional research and development services including lead optimization.

Intellectual property created by the collaboration shall be owned by the Company, and background intellectual property improvements shall be owned by the party from whose background intellectual property they exclusively relate. If promising lead compounds are identified, the Company and DDF have the option (the “DDF Option”) to establish a jointly owned new company (“NewCo”) to advance the compounds through further development towards commercialization. NewCo will receive a royalty and milestone-bearing assignment and license of intellectual property from the Company for this purpose. The DDF Option is exercisable at any time until 90 days following the completion of the Research Plan and delivery of a final report. If DDF does not elect to exercise the DDF Option during the Option period, then DDF shall have no right in the collaboration intellectual property. NewCo will initially be owned 66% by the Company and 34% by DDF; however, the Company shall not be entitled to exercise more than 50% of the total voting rights related to its ownership interests. After completion of the DDF Option exercise, for a period of two years following the option exercise, NewCo shall have the right to initiate a new research program to develop up to three additional dementia targets, on a target by target basis, and the Company will be entitled to charge NewCo an agreed upon FTE rate for peptide screening and optimization for the active targets.

Either party may terminate the DDF Collaboration Agreement upon providing not less than 60 days written notice. A party may terminate the DDF Collaboration Agreement with immediate effect without notice if at any time the other party files for protection under bankruptcy or insolvency laws, makes an arrangement for the benefit of creditors, appoints a receiver, administrator, manager or trustee over its property, proposes a written agreement of composition or extension of its debts, is a party to any dissolution, winding-up or liquidation, or is in material breach that has not been remedied.

Accounting Analysis

The Company identified a single performance obligation associated with the performance of research and development services under the DDF Research Plan.

The Company concluded that the DDF Option is an immaterial obligation at the inception of the arrangement, as it represents a right to acquire shares of NewCo that have de minimis value. The DDF Option also does not contain a material right that otherwise would not have been received. The Company’s participation in the Research Advisory Panel was assessed as immaterial in the context of the contract. In addition, the Company concluded that the option for NewCo to obtain additional peptide screening and optimization services is not an obligation at the inception of the arrangement, as they are optional services and the amount that will be paid for the services do not reflect a discount that the customer would otherwise receive and do not provide the customer with material rights.

The total transaction price was initially determined to be $1.1 million, consisting of the upfront payment for research and development funding. The Company may receive additional milestone payments during the DDF Research Plan, as well as for research and development services for additional targets following the exercise of DDF Option. These variable amounts are excluded from the transaction price as they relate to fees that can only be achieved subsequent to the exercise of an option.

The transaction price was allocated to the single performance obligation of research and development services. The Company will recognize revenue as the underlying services are performed using a proportional performance model, over the period of service using input‑based measurements of total costs, including total full‑time equivalent effort incurred to date as a percentage of total costs expected, which best reflects the progress towards satisfaction of the performance obligation.

The Company recognized $0.2 million and $0.3 million of revenue for the three and nine months ended September 30, 2019, respectively, and recorded deferred revenue of $0.8 million as of September 30, 2019 related to its collaboration with DDF.

Material Transfer Agreement

In October 2018, the Company entered into a Materials Transfer Agreement. Under the terms of the agreement, the Company agreed to transfer bicyclic peptides (the “Materials”) to the recipient for the purpose of testing the materials in order to evaluate the Company’s technology platform. The recipient agreed to pay the Company $1.0 million within 30 business days after receipt of the materials and related data package, which was paid to the Company in May 2019. The agreement has a term of 14 months after delivery of the Materials and data package and may be terminated upon 45 days’ notice by the recipient. At any point during the term of the agreement and continuing through two months after the completion of the permitted research, the recipient has the option to enter into good faith negotiations to obtain a license to the Company’s background intellectual property and/or the Company’s interest in the new substances or developments for the purpose of continued research and development of collaboration products. The Company recognized zero and $1.0 million of revenue during the three and nine months ended September 30, 2019, respectively, related to its Materials Transfer Agreement, as the Company concluded that the recipient has the ability to direct the use of and obtain substantially all of the remaining benefit from the Materials upon the delivery of the Materials and the data package.

Summary of Contract Assets and Liabilities

Up‑front payments and fees are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements. A contract asset is a conditional right to consideration in exchange for goods or services that the Company has transferred to a customer. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

The following table presents changes in the balances of the Company’s contract assets and liabilities (in thousands):


	Balance at						Impact of		Balance at
	Beginning of						Exchange		End of
	Year		Additions		Deductions		Rates		Period
Period ended December 31, 2018
Contract assets	$	—	$	91	$	(91)	$	—	$	—
Contract liabilities:
Deferred revenue
AstraZeneca collaboration deferred revenue		—		5,350		(466)		(157)		4,727
Sanofi collaboration deferred revenue		14,467		—		(4,006)		(553)		9,908
Total deferred revenue	$	14,467	$	5,350	$	(4,472)	$	(710)	$	14,635


	Balance at						Impact of		Balance at
	Beginning of						Exchange		End of
	Period		Additions		Deductions		Rates		Period
Period ended September 30, 2019
Contract assets	$	—	$	149	$	(103)	$	—	$	46
Contract liabilities:
Deferred revenue
AstraZeneca collaboration deferred revenue		4,727		24		(35)		(167)		4,549
Sanofi collaboration deferred revenue		9,908		—		(5,286)		(116)		4,506
DDF collaboration deferred revenue		—		1,114		(275)		(31)		808
Total deferred revenue	$	14,635	$	1,138	$	(5,596)	$	(314)	$	9,863

The contract assets represents research and development services which have been performed but have not yet been billed, and are reduced when they are subsequently billed.

The Sanofi deferred revenue balance at September 30, 2019 is composed of $4.5 million allocated to the Hemophilia License Option Material Right, which will be recognized as of the expiration of the option in connection with the termination of the collaboration arrangement, which was effective October 23, 2019.

The AstraZeneca deferred revenue balance at September 30, 2019 includes $4.5 million allocated to the Target 3, Target 4, Target 5 and Target 6 Material Rights, which will commence revenue recognition when the respective option is exercised at the end of AZ Research Term or when the option expires.

During the three and nine months ended September 30, 2019 and 2018, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue recognized in the period from:
Revenue recognized based on proportional performance	$	(173)	$	(1,121)	$	(310)	$	(3,408)
Revenue recognized based on expiration of material rights		—		—		(5,286)		—
Total	$	(173)	$	(1,121)	$	(5,596)	$	(3,408)

Cancer Research UK

On December 13, 2016, the Company entered into a Clinical Trial and License Agreement with Cancer Research Technology Limited (“CRTL”) and Cancer Research UK (“CRUK”) (the “CRUK Agreement”). Pursuant to the CRUK Agreement, as amended in March 2017 and June 2018, CRUK’s Centre for Drug Development will sponsor and fund a Phase Ia and Phase IIa clinical trial for the Company’s lead product candidate, BT1718, a Bicycle Toxin Conjugate, in patients with advanced solid tumors.

CRUK is responsible to design, prepare, carry out and sponsor the clinical trial at its cost. The Company is responsible for supplying agreed quantities of GMP materials for the study, the supply of which has been completed. In the event that additional quantities are needed, the Company will provide CRUK with all reasonable assistance to complete the arrangements necessary for the generation and supply of such additional GMP materials but CRUK will be responsible for supplying and paying for such additional quantities of GMP materials.

The Company granted CRUK a license to its intellectual property in order to design, prepare for, sponsor, and carry out the clinical trial the Company retains the right to continue the development of BT1718 during the clinical trial. Upon the completion of the Phase I/IIa clinical study, the Company has the right to obtain a license to the results of the clinical trial upon the payment of a milestone, in cash and ordinary shares, with a combined value in the mid six digit dollar amount. If such license is not acquired, or if it is acquired and the license is terminated and the Company decides to abandon development of all products that deliver cytotoxic payloads to the MT1 target antigen, the Company will assign or grant to CRTL an exclusive license to develop and commercialize the product on a revenue sharing basis (in which case the Company will receive a mid to high double digit percentage of the net revenue depending on the stage of development when the license is granted). The CRUK Agreement contains additional future milestone payments upon the achievement of development and regulatory milestones, payable in cash and shares, with an aggregate total value of $50.9 million, as well as royalty payments based on a high double digit percentage on net sales of products developed.

The CRUK Agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, or upon a change in control (and the new controlling entity generates its revenue from the sale of tobacco products or is an affiliate of such party). CRUK may terminate the arrangement for safety reasons or if it determines that the objectives of the clinical trial will not be met, in which case, if the study is terminated by CRUK prior to the completion of the Phase 1a dose escalation portion of the study for such reasons or if CRUK refuses release of any additional quantities of GMP materials or if the parties cannot agree upon a plan to supply the additional quantities of GMP materials, the Company will be obligated to refund fifty percent of the costs and expenses incurred or committed by CRUK to perform the clinical trial. If the study is terminated by CRUK for an insolvency event, a material breach by the Company, or if the Company is acquired by an entity that generates its revenue from the sale of tobacco products or is an affiliate of such party, the Company will reimburse CRUK in full for all costs paid or committed in connection with the clinical trial and no further license payments, where applicable, shall be due. In such case where the Company is acquired by an entity that generates its revenue from the sale of tobacco products or is an affiliate of such party, CRUK will not be obliged to grant a license to the Company in respect of the results of the clinical trial and the Company will assign or grant to CRT an exclusive license to develop and commercialize the product without CRT being required to make any payment to the Company.

The Company concluded that the costs incurred by CRUK is a liability in accordance with ASC 730, Research and Development, as the payment is not based solely on the results of the research and development having future economic benefit. As such, the Company recorded a liability of $1.4 million and $0.8 million at September 30, 2019 and December 31, 2018, respectively, which is recorded in other long‑term liabilities in the condensed consolidated balance sheets. The liability is recorded as incremental research and development expense in the statements of operations and comprehensive loss.