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 nine months ended September 30, 2018 was an increase of $1.0 million and $6.4 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 September 30, 2018						Three months ended September 30, 2017
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	8,405	$	—	$	8,405	$	6,948	$	—	$	6,948
Research and development revenue	3,720		4,821		8,541		3,036		—		3,036
Total revenues	$	12,125	$	4,821	$	16,946	$	9,984	$	—	$	9,984

Primary geographical markets:
Americas	$	4,315	$	—	$	4,315	$	3,606	$	—	$	3,606
EMEA	1,453		4,821		6,274		3,415		—		3,415
APAC	6,357		—		6,357		2,963		—		2,963
Total revenues	$	12,125	$	4,821	$	16,946	$	9,984	$	—	$	9,984



	Nine months ended September 30, 2018						Nine months ended September 30, 2017
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	18,291	$	—	$	18,291	$	19,134	$	—	$	19,134
Research and development revenue	15,728		10,507		26,235		9,167		—		9,167
Total revenues	$	34,019	$	10,507	$	44,526	$	28,301	$	—	$	28,301

Primary geographical markets:
Americas	$	13,968	$	—	$	13,968	$	9,795	$	—	$	9,795
EMEA	4,568		10,507		15,075		8,581		—		8,581
APAC	15,483		—		15,483		9,925		—		9,925
Total revenues	$	34,019	$	10,507	$	44,526	$	28,301	$	—	$	28,301

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):



	As of September 30, 2018
	January 1, 2018 balance		Additions		Deductions ⁽¹⁾			Ending balance
Contract Assets	$	—	$	3,953	$	(2,085	)	$	1,868
Contract Costs	239		—		(176		)	63
Contract Liabilities: Deferred Revenue	18,966		6,446		(16,728		)	8,684

⁽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 nine months ended September 30, 2018, we recognized the following revenues (in thousands):



Revenue recognized in the period from:	Three months ended September 30, 2018			Nine months ended September 30, 2018
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	4,052		$	12,873
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	(229		)	(165		)
Performance obligations satisfied from new activities in the period - contract revenue	13,123			31,818
Total revenue	$	16,946		$	44,526

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. 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 September 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	$	—	$	—	$	2,784	$	1,623	$	4,407
Research and development revenue	3,952		325		—		—		4,277
Total	$	3,952	$	325	$	2,784	$	1,623	$	8,684

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 September 30, 2018									Nine months ended September 30, 2018
	As reported			Adjustments			Balances without adoption of Topic 606			As reported			Adjustments			Balances without adoption of Topic 606
Revenues:
Product revenue	$	8,405		$	(2,935	)	$	5,470		$	18,291		$	(5,904	)	$	12,387
Research and development revenue	8,541			1,975			10,516			26,235			(496		)	25,739
Total revenues	16,946			(960		)	15,986			44,526			(6,400		)	38,126
Costs and operating expenses:
Cost of product revenue	3,791			(441		)	3,350			10,228			(1,796		)	8,432
Research and development	7,917			(96		)	7,821			22,464			(176		)	22,288
Selling, general and administrative	7,344			—			7,344			22,485			—			22,485
Total costs and operating expenses	19,052			(537		)	18,515			55,177			(1,972		)	53,205
Loss from operations	(2,106		)	(423		)	(2,529		)	(10,651		)	(4,428		)	(15,079		)
Interest income	199			—			199			444			—			444
Other expenses	(80		)	—			(80		)	(221		)	—			(221		)
Loss before income taxes	(1,987		)	(423		)	(2,410		)	(10,428		)	(4,428		)	(14,856		)
Provision for (benefit from) income taxes	1			—			1			(11		)	—			(11		)
Net loss	$	(1,988	)	$	(423	)	$	(2,411	)	$	(10,417	)	$	(4,428	)	$	(14,845	)

Net loss per share, basic and diluted	$	(0.04	)	$	—		$	(0.04	)	$	(0.20	)	$	(0.09	)	$	(0.29	)
Weighted average common shares used in computing net loss per share, basic and diluted	53,597						53,597			51,609						51,609



	As of September 30, 2018
	As reported			Adjustments			Balances without adoption of Topic 606
Assets
Accounts Receivable	$	9,308		$	(1,860	)	$	7,448
Contract Assets	1,868			(1,868		)	—
Inventory	830			116			946
Other non-current assets	304			(63		)	241
Liabilities
Other accrued liabilities	5,933			(1,916		)	4,017
Deferred revenue - current	4,253			(655		)	3,598
Deferred revenue - non-current	4,431			(734		)	3,697
Stockholders' equity
Accumulated deficit	(330,014		)	(369		)	(330,383		)