Revenue Recognition

On January 1, 2018, we adopted Topic 606, applying the modified retrospective method to all contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period results are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded an increase to opening accumulated deficit of $4.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606. The impact to revenue for the three months ended March 31, 2018 was an increase of $3.8 million as a result of adopting Topic 606. The increase in revenues from the adoption of ASC 606 was primarily due to revenue from a distinct, functional license granted on January 1, 2018 and revenue from a product that was recognized over time as we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically for the customer’s use.

Disaggregation of Revenue

The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APAC (Australia, New Zealand, Southeast Asia, China).



	Three months ended March 31, 2018						Three months ended March 31, 2017
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	6,163	$	—	$	6,163	$	5,586	$	—	$	5,586
Research and development revenue	4,566		3,313		7,879		2,385		—		2,385
Total revenues	$	10,729	$	3,313	$	14,042	$	7,971	$	—	$	7,971

Primary geographical markets:
Americas	$	3,597	$	—	$	3,597	$	1,788	$	—	$	1,788
EMEA	1,679		3,313		4,992		3,208		—		3,208
APAC	5,453		—		5,453		2,975		—		2,975
Total revenues	$	10,729	$	3,313	$	14,042	$	7,971	$	—	$	7,971

The following table shows the reconciliation of contract liabilities from what was disclosed in the Form 10-K for the year ended December 31, 2017 and gives effect to the modified retrospective adoption of the revenue guidance on January 1, 2018 (in thousands):



Deferred Revenue, balance at December 31, 2017	$	13,793
Changes in estimated consideration	—
Unsatisfied performance obligations	$	5,173
Deferred Revenue, balance at January 1, 2018	$	18,966

Contract Balances

Contract assets primarily relate to our rights to consideration for custom products with no alternate use and under binding non-cancellable purchase orders. Our contract assets are transferred to receivables when our rights to the consideration become unconditional. Contract costs relate to incremental costs of obtaining a contract with a customer. Deferred contract costs are amortized along with the associated revenue over the term of the contract. The contract liabilities primarily relate to development agreements with upfront payments and supply agreements under which the customer makes upfront payments and the customer has options with material rights which are recognized using the alternative method. The advance consideration received from customers is a contract liability until development services are provided to the customer or control of the products has been transferred to the customer.

The following table presents changes in the contract assets, deferred contract costs, and liabilities (in thousands):



	March 31, 2018
	Beginning balance		Additions		Deductions ⁽¹⁾			Ending balance
Contract Assets	$	—	$	1,556	$	(1,556	)	$	—
Contract Costs	239		—		(47		)	192
Contract Liabilities: Deferred Revenue	18,966		1,465		(7,383		)	13,048

⁽¹⁾ The asset or liability balances are presented as a net position per contract and accordingly the deductions column includes the netting effect of presenting each contract on a net position basis as either a net liability or asset.

Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are realized with the associated revenue recognized under the contract. A portion of our contract liabilities relate to arrangements that contain material rights that are recognized using the alternative method, under which the aggregate amount invoiced to the customer for shipped products, including annual fees, is higher than the amount of revenue recognized based on the transaction price allocated to the shipped products.

We had no asset impairment charges related to contract assets in the period.

During the three months ended March 31, 2018, we recognized the following revenues (in thousands):



Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	5,828
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	—
Performance obligations satisfied from new activities in the period - contract revenue	8,214
Total revenue	$	14,042

Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period, in thousands. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of March 31, 2018. We did not recognize any revenue from performance obligations satisfied in previous periods.

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts.



(in thousands)	2018		2019		2020		2021 and Thereafter		Total
Product Revenue	$	597	$	2,568	$	1,631	$	1,623	$	6,419
Research and development revenue	6,154		475		—		—		6,629
Total	$	6,751	$	3,043	$	1,631	$	1,623	$	13,048

Practical Expedients, Elections, and Exemptions

We used a practical expedient available under ASC 606-10-65-1(f)4 that permits us to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations.

We also used a practical expedient available under ASC 606-10-32-18 that permits us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.

We perform monthly services under our research and development agreements and we use a practical expedient available under ASC 606-10-55-18 that permits us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date.

We have elected to treat shipping and handling activities as fulfillment costs.

Additionally, we have elected to record revenue net of sales and other similar taxes.

Impacts on Financial Statements

In accordance with Topic 606, the disclosure of the impact of adoption to our unaudited condensed consolidated statements of operations and balance sheets was as follows (in thousands, except per share amounts):



	Three Months Ended March 31, 2018
	As reported			Adjustments			Balances without adoption of Topic 606
Revenues:
Product revenue	$	6,163		$	(2,515	)	$	3,648
Research and development revenue	7,879			(1,322		)	6,557
Total revenues	14,042			(3,837		)	10,205
Costs and operating expenses:
Cost of product revenue	3,825			(1,285		)	2,540
Research and development	7,178			(47		)	7,131
Selling, general and administrative	7,746			—			7,746
Total costs and operating expenses	18,749			(1,332		)	17,417
Loss from operations	(4,707		)	(2,505		)	(7,212		)
Interest income	71			—			71
Other expenses	(60		)	—			(60		)
Loss before income taxes	(4,696		)	(2,505		)	(7,201		)
Provision (benefit) from income taxes	(2		)	—			(2		)
Net loss	$	(4,694	)	$	(2,505	)	$	(7,199	)

Net loss per share, basic and diluted	$	(0.10	)	$	(0.05	)	$	(0.15	)
Weighted average common shares used in computing net loss per share, basic and diluted	48,385						48,385



	March 31, 2018
	As reported			Adjustments			Balances without adoption of Topic 606
Assets
Accounts Receivable	$	8,974		$	(1,064	)	$	7,910
Other non-current assets	470			(192		)	278
Liabilities
Other accrued liabilities	5,304			(1,522		)	3,782
Deferred revenue - current	7,518			1,933			9,451
Deferred revenue - non-current	5,529			(3,221		)	2,308
Stockholders' equity
Accumulated deficit	(324,291		)	1,554			(322,737		)