3. Collaboration agreements

Merck KGaA

In June 2014, the Company entered into a Collaboration and Commercial License Agreement with Merck KGaA (the Merck KGaA Agreement). Upon the execution of the agreement, Merck KGaA paid the Company a nonrefundable technology access fee of $12,000 for the right to develop ADCs directed to six exclusive targets over a specified period of time. No additional fees are due when a target is designated and the commercial license to the target is granted. Merck KGaA will be responsible for the product development and marketing of any products resulting from this collaboration. All six targets were designated prior to 2018. The Company is eligible to receive milestones under the Merck KGaA Agreement. The next potential milestone payment is a development milestone of $500 on Merck KGaA’s designation of a preclinical development candidate for any target. Revenue for the milestone is fully constrained until it is certain the milestone would be achieved.

Under the terms of the Merck KGaA Agreement, the Company and Merck KGaA develop research plans to evaluate Merck KGaA's antibodies as ADCs incorporating the Company's technology. The Company receives reimbursement for its efforts under the research plans. The goal of the research plans is to provide Merck KGaA with sufficient information to formally nominate a development candidate and begin IND-enabling studies or cease development on the designated target.

In May 2018, the Company entered into a Supply Agreement with Merck KGaA (the Merck KGaA Supply Agreement). Under the terms of the Merck KGaA Supply Agreement, the Company will provide Merck KGaA preclinical non-GMP ADC Drug Substance and clinical GMP Drug Substance for use in clinical trials associated with one of the antibodies designated under the Merck KGaA Agreement. The Company receives fees for its efforts under the Merck KGaA Supply Agreement and reimbursement equal to the supply cost. The Company may also enter into future supply agreements to provide clinical supply material should Merck KGaA pursue clinical development of any other candidates nominated under the Merck KGaA Agreement.

Accounting Analysis

The Company identified the following performance obligations under the Merck KGaA agreement: (i) exclusive license and research services for six designated targets, (ii) rights to future technological improvements and (iii) participation of project team leaders and providing joint research committee services.

The Company is recognizing revenue related to the exclusive license and research and development services over the estimated period of the research and development services using a proportional performance model. The Company measures proportional performance based on the costs incurred relative to the total costs expected to be incurred. To the extent that the Company receives fees for the research services as they are performed, these amounts are recorded as deferred revenue. Revenue related to future technological improvements and joint research committee services will be recognized ratably over the respective performance period (which in the case of the joint research committee services approximates the time and cost incurred each period), which are 10 and five years, respectively. The Company is continuing to reassess the estimated remaining term at each subsequent reporting period.

For the three months ended March 31, 2020 and 2019, the Company recorded collaboration revenue of $11 and $18, respectively, related to its efforts under the Merck KGaA Agreement. During the three months ended March 31, 2020 and 2019, the Company recognized $0 and $1,037, respectively, in collaboration revenue and corresponding research and development expense related to the Merck KGaA Supply Agreement.

As of March 31, 2020 and December 31, 2019, the Company had $4,804 and $4,815, respectively, in deferred revenue related to the Merck KGaA Agreement and Merck KGaA Supply Agreement that will be recognized over the remaining performance period.

Takeda XMT-1522 Strategic Partnership

In January 2016, the Company entered into a Development Collaboration and Commercial License Agreement with Takeda’s wholly owned subsidiary, Millennium Pharmaceuticals, Inc. for the development and commercialization of XMT-1522 (the XMT-1522 Agreement). Under the XMT-1522 Agreement, Takeda was granted the exclusive right to commercialize XMT-1522 outside of the United States and Canada. Under the XMT-1522 Agreement, the Company was responsible for conducting certain Phase 1 development activities for XMT-1522, including the ongoing Phase 1 clinical trial, at its own expense. The parties agreed to collaborate on the further development of XMT-1522 in accordance with a global development plan (Post-Phase 1 Development). On January 2, 2019, the Company received notice from Takeda stating that Takeda was exercising its right to terminate the XMT-1522 Agreement upon 30 days’ prior written notice. The XMT-1522 Agreement terminated in accordance with its provisions, and the Company and Takeda wound down activities related to the XMT-1522 Agreement as of March 31, 2019. Under the XMT-1522 Agreement, the Company and Takeda shared equally all Post-Phase 1 Development costs through the date of termination and for a period of 30 days after the effective termination date.

For the applicable period within the three months ended March 31, 2019, the Company was billed $200 by Takeda, representing the Company’s share of Post-Phase 1 Development costs incurred by Takeda. This amount has been reflected as research and development costs in the consolidated statement of operations.

Takeda strategic research and development partnership

In March 2014, the Company entered into a Research Collaboration and Commercial License Agreement with Takeda through Takeda’s wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (the 2014 Agreement). The 2014 Agreement was amended in January 2015 and amended and restated in January 2016 (the 2016 Restated Agreement). The agreements provided Takeda with the right to develop ADCs directed to a total of seven exclusive targets, designated by Takeda, over a specified period of time. On January 2, 2019, the Company received notice from Takeda stating that Takeda was exercising its right to terminate the 2016 Restated Agreement upon 45 days’ prior written notice. The 2016 Restated Agreement terminated in accordance with its provisions, and the Company and Takeda wound down activities related to the 2016 Restated Agreement as of March 31, 2019.

During the applicable period within the three months ended March 31, 2019, the Company billed Takeda $195 related to ASC 808 costs.

Accounting Analysis

The Company’s collaboration agreements with Takeda were terminated following receipt of written notices during the first quarter of 2019. As there are no further performance obligations, the Company recognized the remaining deferred revenue of $39,965 related to the termination of the Takeda agreements in the first quarter of 2019.

Included in accounts payable as of March 31, 2020 and December 31, 2019 was $2,335 related to the Takeda agreements.

Summary of Contract Assets and Liabilities

The following table presents changes in the balances of our contract assets and liabilities during the three months ended March 31, 2020 and 2019:


	Balance at
	Beginning						Balance at
	of Period		Additions		Deductions		End of Period
Three months ended March 31, 2020
Contract assets	$	—	$	—	$	—	$	—
Contract liabilities:
Deferred revenue	$	4,815	$	—	$	11	$	4,804

	Balance at
	Beginning						Balance at
	of Period		Additions		Deductions		End of Period
Three months ended March 31, 2019
Contract assets	$	—	$	—	$	—	$	—
Contract liabilities:
Deferred revenue	$	46,196	$	—	$	40,592	$	5,604

During the three months ended March 31, 2020 and 2019, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods:


	Three months ended
	March 31,
	2020		2019
Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the period	$	11	$	40,592
Performance obligations satisfied in previous periods	$	—	$	—

Other Revenue

The Company has provided limited services for a collaboration partner, Asana BioSciences. For the three months ended March 31, 2020 the Company did not recognize any revenue related to these services and for the three months ended March 31, 2019, the Company recognized $15 of revenue related to these services. The Company did not recognize any revenue related to milestones in the three months ended March 31, 2020 and 2019. The next potential milestone the Company is eligible to receive is $2,500 upon dosing the fifth patient in a Phase 1 clinical study by Asana BioSciences. As of March 31, 2020, the Company considers this next milestone to be fully constrained as there is considerable judgment involved in determining whether it is probable that a significant revenue reversal would occur. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestone is outside the control of the Company and there is a high level of uncertainty in achieving this milestone, as this would require initiation of clinical trials by the collaboration partner. The Company reevaluates the probability of achievement of a milestone subject to constraint at each reporting period and as uncertain events are resolved or other changes in circumstances occur.