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 on revenue for the three and six months ended June 30, 2018 was an increase of $1.6 million and $5.4 million, respectively, as a result of adopting Topic 606. The increase in revenues from the adoption of ASC 606 was primarily due to 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, and revenues from research and development contracts that were recognized when we had the right to invoice our customers for monthly services completed to date. Also revenue from a distinct, functional license granted on January 1, 2018 contributed to the increase in revenue from the adoption of ASC 606.

Disaggregation of Revenue

The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and 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 June 30, 2018						Three months ended June 30, 2017
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	3,723	$	—	$	3,723	$	6,600	$	—	$	6,600
Research and development revenue	7,442		2,373		9,815		3,747		—		3,747
Total revenues	$	11,165	$	2,373	$	13,538	$	10,347	$	—	$	10,347

Primary geographical markets:
Americas	$	6,058	$	—	$	6,058	$	4,401	$	—	$	4,401
EMEA	1,435		2,373		3,808		1,959		—		1,959
APAC	3,672		—		3,672		3,987		—		3,987
Total revenues	$	11,165	$	2,373	$	13,538	$	10,347	$	—	$	10,347



	Six months ended June 30, 2018						Six months ended June 30, 2017
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	9,886	$	—	$	9,886	$	12,186	$	—	$	12,186
Research and development revenue	12,008		5,686		17,694		6,131		—		6,131
Total revenues	$	21,894	$	5,686	$	27,580	$	18,317	$	—	$	18,317

Primary geographical markets:
Americas	$	9,655	$	—	$	9,655	$	6,189	$	—	$	6,189
EMEA	3,114		5,686		8,800		5,166		—		5,166
APAC	9,125		—		9,125		6,962		—		6,962
Total revenues	$	21,894	$	5,686	$	27,580	$	18,317	$	—	$	18,317

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):



	Balance
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):



	June 30, 2018
	January 1, 2018 balance		Additions		Deductions ⁽¹⁾			Ending balance
Contract Assets	$	—	$	3,047	$	(2,493	)	$	554
Contract Costs	239		—		(80		)	159
Contract Liabilities: Deferred Revenue	18,966		1,965		(11,477		)	9,454

⁽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 and six months ended June 30, 2018, we recognized the following revenues (in thousands):



Revenue recognized in the period from:	Three months ended June 30, 2018		Six months ended June 30, 2018
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	2,994	$	8,822
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	64		64
Performance obligations satisfied from new activities in the period - contract revenue	10,480		18,694
Total revenue	$	13,538	$	27,580

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 June 30, 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	$	664	$	2,753	$	2,183	$	1,623	$	7,223
Research and development revenue	1,756		475		—		—		2,231
Total	$	2,420	$	3,228	$	2,183	$	1,623	$	9,454

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 June 30, 2018									Six months ended June 30, 2018
	As reported			Adjustments			Balances without adoption of Topic 606			As reported			Adjustments			Balances without adoption of Topic 606
Revenues:
Product revenue	$	3,723		$	(454	)	$	3,269		$	9,886		$	(2,970	)	$	6,916
Research and development revenue	9,815			(1,148		)	8,667			17,694			(2,470		)	15,224
Total revenues	13,538			(1,602		)	11,936			27,580			(5,440		)	22,140
Costs and operating expenses:
Cost of product revenue	2,611			(69		)	2,542			6,436			(1,355		)	5,081
Research and development	7,370			(33		)	7,337			14,548			(80		)	14,468
Selling, general and administrative	7,395			—			7,395			15,141			—			15,141
Total costs and operating expenses	17,376			(102		)	17,274			36,125			(1,435		)	34,690
Loss from operations	(3,838		)	(1,500		)	(5,338		)	(8,545		)	(4,005		)	(12,550		)
Interest income	174			—			174			245			—			245
Other expenses	(82		)	—			(82		)	(142		)	—			(142		)
Loss before income taxes	(3,746		)	(1,500		)	(5,246		)	(8,442		)	(4,005		)	(12,447		)
Provision (benefit) from income taxes	(11		)	—			(11		)	(13		)	—			(13		)
Net loss	$	(3,735	)	$	(1,500	)	$	(5,235	)	$	(8,429	)	$	(4,005	)	$	(12,434	)

Net loss per share, basic and diluted	$	(0.07	)	$	(0.03	)	$	(0.10	)	$	(0.17	)	$	(0.08	)	$	(0.25	)
Weighted average common shares used in computing net loss per share, basic and diluted	52,787						52,787			50,598						50,598



	June 30, 2018
	As reported			Adjustments			Balances without adoption of Topic 606
Assets
Accounts Receivable	$	9,910		$	(1,136	)	$	8,774
Contract Assets	554			(554		)	—
Other non-current assets	414			(159		)	255
Liabilities
Other accrued liabilities	5,051			(1,591		)	3,460
Deferred revenue - current	4,460			2,909			7,369
Deferred revenue - non-current	4,994			(3,220		)	1,774
Stockholders' equity
Accumulated deficit	(328,026		)	55			(327,971		)