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CONTRACT WITH CUSTOMER
6 Months Ended
Jun. 30, 2024
Revenue from Contract with Customer [Abstract]  
CONTRACT WITH CUSTOMER

4) CONTRACT WITH CUSTOMER

 

On February 21, 2023, the Company and Lineage Cell Therapeutics, Inc. (“Lineage”) entered into an exclusive option and license agreement (the “Lineage Agreement”), which provided Lineage with the option (the “Option Right”) to obtain an exclusive sublicense of intellectual property from the Company and to request the Company to develop a customized cell line. The Lineage Agreement was amended in August 2023 to provide for changes specifically related to the cell line customization activities such as (i) payment terms, (ii) certain definitions, (iii) certain courses of action if the customized cell line selected by Lineage is not successful and (iv) documentation requirements. Lineage paid the Company a $0.3 million non-refundable up-front payment (the “Option Fee”) for the Option Right and paid an initial payment of $0.4 million to commence the cell line customization activities, per the amended payment terms. If Lineage obtains the sublicense, the Company would be entitled to receive additional license fees, including milestone payments and royalties.

 

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”) when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services.

 

Pursuant to ASC 606, the Company determined that the Option Right was an unexercised right held by Lineage under the Lineage Agreement at contract inception, as the cell line customization activities and the sublicense were optional purchases at contract inception. These optional purchases of goods and services would be treated as separate contracts if and when Lineage determines that it will make such purchases. Therefore, 100% of the Option Fee was allocated to the Option Right. The Option Fee will remain in deferred revenue until such time that Lineage enters into the sublicense or when the Option Right expires.

 

The Option Right and the cell line customization activities are accounted for as separate contracts, and the Company has determined that the amended terms discussed above represent a modification to the cell line customization contract. Because there were no goods or services transferred to Lineage before entering into the amendment, and therefore, no previously recognized revenue, there was no catch-up adjustment to revenue required at the time of the amendment.

 

Lineage will make payments to the Company for the cell line customization activities over the development period. The Company will only earn the remaining full amount of the cell line customization fee if it makes certain progress towards delivery of the customized cell line. The Company has determined that $0.4 million of consideration received could be recognized without the probability of being reversed, and it has placed a constraint on the remaining contractual customization fee. The $0.4 million is being recognized equally over the development period, which is expected to be approximately 20 to 25 months, as the level of effort to perform the services is happening at the same rate over time. If the development period is expected to be longer or shorter than originally planned, the Company will recognize a cumulative catch-up adjustment in the period that such determination is made. For the three and six months ended June 30, 2024, the Company recognized less than $0.1 million and $0.1 million of revenue, respectively, for the customization activities. The Company did not recognize any revenue for either of the three or six months ended June 30, 2023.

 

The granting of the license that the Company may provide to Lineage if Lineage exercises the Option Right is not considered a performance obligation at this time, as it is an optional request that the customer may make in the future and will be accounted for as a separate contract when the customer exercises the Option Right.

 

The Company recognizes direct labor and supplies used in the customization activities as incurred and are recorded as a cost of revenue. As provided for in the A&R Factor License Agreement discussed in Note 9, the Company is obligated to pay Factor Limited 20% of any amounts the Company receives from a customer that is related to the licensed technology under the A&R Factor License Agreement, which is also recorded as a cost of revenue. For the six months ended June 30, 2023, the Company recognized less than $0.1 million in license fees, which is recorded in cost of revenues, due to Factor Limited as a result of receiving the $0.3 million Option Fee payment from Lineage. There was no such license fee incurred during the three months ended June 30, 2023 or during the three or six months ended June 30, 2024.