13. Collaboration and license arrangements

In November 2012, the Company entered into the JDLA with bioMérieux, a related party. As discussed below, the JDLA has been subsequently amended. Under the terms the JDLA, the Company granted bioMérieux an exclusive, royalty-bearing license, without right to sublicense, to manufacture and sell instruments and assays using the Company’s Simoa technology exclusively for in vitro diagnoses used in clinical lab applications, food quality control testing, and pharma quality control testing, and co-exclusively in certain related fields, as defined in the contract. As part of the JDLA, the Company was also to develop and manufacture instruments to bioMérieux’s specifications for bioMérieux’s use or for sale by bioMérieux. The Company retained rights to sell the instrument in the co-exclusive fields and any other fields not licensed exclusively to bioMérieux. bioMérieux was to develop and sell diagnostic assays to be used in conjunction with the Company’s instruments.

Upon execution of the JDLA, the Company received $10.0 million in consideration and was entitled to receive two additional payments of $5.0 million each upon the achievement of certain developmental criteria. Neither of these criteria have been achieved. The Company was also entitled to receive royalty payments on the sale of assays and payments for the manufacture and delivery of instruments based on a contractual rate subject to future adjustments.

At the inception of the JDLA, the Company determined that the deliverables were as follows: (1) licenses to the Company’s technology and trademarks, training, completion and delivery of a prototype instrument per contractual specifications (License and Prototype), (2) various activities to assist bioMérieux in the development of the initial assay and an instrument that is IVD compliant (Initial Assay Assistance), (3) various activities to assist bioMérieux in the development of a benchtop instrument (Benchtop Assistance), and (4) joint steering committee participation (JSC). Each of these deliverables were considered separate units of accounting, and the License and Prototype unit of accounting was determined to have standalone value as the License and Prototype unit of accounting could be utilized by bioMérieux without the related services included in the other units of accounting.

The Company allocated the allocable arrangement consideration based on the relative selling price of each unit of accounting. For all units of accounting, the Company determined the selling price using the standalone selling price (SSP). Management’s best estimate of the selling price of the License and Prototype unit of accounting was based on a discounted cash flow analysis to support the estimated selling price of the license. The Company determined the SSP of the other units of accounting based on internal estimates of the costs to perform the services, adjusted to reflect a reasonable profit margin as well as based on market prices for similar instruments and services.

Revenue related to the License and Prototype unit of accounting of $8.3 million was recognized in 2013 upon delivery of both the license which was delivered at inception, and the first prototype instrument, which was required for bioMérieux to make use of the license. Prior to the effect of the 2016 Amendment described below, revenue for the other units of accounting were recognized over an estimated period of performance.

Amendments to the JDLA

In May 2014 and January 2015, the parties executed a First and Second Amendment to the JLDA, respectively. These amendments addressed revised timelines related to completing the development activities under the JDLA and enacted additional governance protocols to monitor those activities.

These amendments did not change the deliverables under the JDLA or the total arrangement consideration. The Company revised its estimates of the remaining period of performance for the remaining undelivered units of accounting and these revisions did not have a material effect on revenue recognition.

On December 22, 2016, the Company entered into the 2016 Amendment which ended the ongoing joint development efforts between the parties, and modified the rights and obligations of both parties accordingly, as follows:

For a period of not more than three years from the date of the 2016 Amendment bioMérieux had the ability to evaluate independently whether it would develop a new, smaller in vitro diagnostic instrument using the Simoa technology for use in clinical lab applications, food quality control testing, and pharmaceutical quality control testing benchtop (the "Feasibility Period") and had the sole right to determine whether or not to develop such a new instrument during the Feasibility Period. If bioMérieux elected to pursue development of such a new instrument, they would have a set number of years to complete development within a specified period, which contains various development milestones which must be accomplished.

bioMérieux received a license to the source and object code of the Company’s Level 1 Data Reduction (L1DR) software. The L1DR software the Company’s proprietary image processing algorithms that convert images of microscopic beads associated with biomarker molecules in microwells. Also, the Company agreed to provide to bioMérieux access to any know how and intellectual property associated with the L1DR software, including any updates and upgrades to the L1DR software during the Feasibility Period. If bioMéreiux exercised its right to develop an instrument independently, this right would continue throughout the development period to the end of the term of the agreement related to independently developed instruments.

It was clarified that the Company can engage a collaboration partner (IVD Partner), subject to restrictions as to the particular parties with which the Company could elect to partner and the assays that can be developed, in the field of in vitro diagnostics used in Clinical Lab Applications. The Company agreed to pay bioMérieux a mid-double-digit percentage of royalties received from the IVD Partner based on assays sales by the IVD Partner.

bioMérieux’s licenses included all patents and know-how owned or controlled by the Company related to the Company’s Simoa technology and upgrades thereto that are necessary for the development, manufacture, use or sale of instruments and assays or consumables on such instruments over the Feasibility Period. If bioMérieux exercised its right to develop an instrument independently, this right would continue throughout the development period to the end of the term of the 2016 Amendment related to independently developed instruments.

bioMérieux retained an option (the Option) to obtain worldwide distribution rights to the HD‑1 floor standing instrument in the applicable fields. The Option was exercisable over a three year period and upon exercise, the Company and bioMérieux were required to negotiate, in good faith, a distribution agreement that would include a specified upfront payment.

The 2016 Amendment included a cash payment of $2.0 million from bioMérieux which was paid in January 2017.

On September 6, 2018, bioMérieux notified the Company that it was terminating the Amended JDLA, forfeiting any future IVD licensing rights to the Company’s Simoa technology and enabling the Company to consolidate and regain control of all Simoa IVD licensing and intellectual property rights.

Accounting assessment

Prior to the execution of the 2016 Amendment, the Company was recognizing revenue over the estimated period of performance of the ongoing units of accounting (Initial Assay Assistance, Benchtop Assistance, and JSC). As a result, the Company recognized $0.2 million and $0.2 million in revenue for the years ended December 31, 2016 and 2015, respectively. At the date of the execution of the 2016 Amendment, the Company had $1.2 million in deferred revenue related to the JDLA. Upon the execution of the 2016 Amendment, all undelivered elements and contingent consideration of the JDLA were cancelled. The Company determined the 2016 Amendment should be accounted for as a modification to the JDLA and the balance of deferred revenue prior to the 2016 Amendment should be included as allocable consideration under the 2016 Amendment resulting in total allocable consideration of $3.2 million. The Company recorded an increase to deferred revenue upon receipt of the $2.0 million during the three months ended March 31, 2017.

The Company has determined that the deliverables included under the 2016 Amendment are rights to the L1DR software, training and rights to future technology improvements for L1DR Software, rights to all future technological improvements related to the Simoa technology, and participation on joint committees.

The Company determined that the L1DR and rights to unspecified technology improvements (the "L1DR Unit of Accounting") includes the sale of software and software related elements and therefore should be accounted for under ASC 985‑605—Software Revenue Recognition. The Company cannot demonstrate Vendor Specific Objective Evidence (VSOE) of fair value for the ongoing obligation to provide unspecified technology improvements. Therefore, the deliverables in the L1DR Unit of Accounting cannot be separated. The Company has applied the combined service approach and the consideration allocated to this unit of accounting is being recognized ratably over the estimated period of performance, which has initially been determined to be estimated to be the three year Feasibility Period. This will be reevaluated each period to determine if there are any changes to the estimated period of performance.

The Company concluded that the rights to future technology improvements for the Simoa technology and the participation on joint committees represented a second unit of accounting (the "Instrument Know How Unit of Accounting"). The deliverables in the Instrument Know How Unit of Accounting are considered non-software deliverables that are subject to ASC 605‑25 and will be delivered over time on a when and if available basis. Revenue is being recognized on a straight line basis over the estimated period of performance, which has initially been determined to be the three year Feasibility Period. This period will be reevaluated each period to determine if there are any changes to the period of performance.

The Option is considered substantive as the Company is at risk with regard to whether bioMérieux will exercise the Option. In addition, the Option exercise payment payable by bioMérieux upon exercise is not priced at a significant and incremental discount. Accordingly, the Option is not considered a deliverable at the inception of the arrangement and the associated Option exercise payment is not included in allocable arrangement consideration.

Under the 2016 Agreement the Company is eligible to receive royalties on net sales of assays sold by bioMérieux in the mid to high single digits, and to receive low double digit royalties on sales of instruments by bioMérieux based on manufactured cost. No royalties have been recognized through December 31, 2019.

Upon termination of the agreement, the Company no longer held an obligation to bioMérieux related to the initial agreement or the amendment to the agreement. As such, the Company immediately recognized all remaining deferred revenue related to the agreements as of the date of termination.

Uman has entered into certain licenses with other companies for use of Uman’s technology. These licenses have royalty components from which the Company earns and recognizes royalty revenue throughout the year. The Company recognized revenue of $0.2 million and $2.1 million for the years ended December 31, 2019 and 2018, respectively, as collaboration revenue.

Evaluation and option agreements and license agreement

In 2015, the Company entered into three agreements, for three separate fields, with a diagnostic company for the evaluation of the Company’s Simoa technology. These agreements each allowed for the option to negotiate a license agreement. In return, the Company received non-refundable payments totaling $2.0 million. In December 2016, the diagnostic company exercised one of its options and the parties entered into a license agreement in one of the fields. This agreement has a one-time non-refundable license fee of $1.0 million and the right to receive running low single digit royalties on licensed products. The negotiation periods for the other two agreements were extended and the negotiations remain ongoing.

For each of the three fields, the right to evaluate the technology, the right to negotiate a license to the technology, and the undelivered license to the technology represents a combined unit of accounting, and the licenses to each of the three fields each have standalone value. The Company has allocated the allocable arrangement consideration based on the relative selling price of each unit of accounting. The best estimated selling price of each of the three options was determined to be representative of the contractual amount paid for each option. The Company defers the amounts allocated to each of the three options until the corresponding license is delivered or, if no license agreement is executed and delivered, when the negotiations for each option terminates.

Upon execution of the license in one of the fields in December 2016, the $1.0 million license fee, in addition to the $0.8 million allocated to the option for this field, resulted in a total of $1.8 million of consideration being recognized as revenue as there were no remaining undelivered performance obligations. Because the negotiations remain ongoing with respect to the other two fields, the consideration allocated to these options of $1.2 million has been deferred and is recorded as deferred revenue as of December 31, 2019.

In December 2018 the Company entered into an option agreement for the rights to negotiate an exclusive agreement with the diagnostic company. In exchange for the rights to negotiate an exclusive agreement, the Company will receive $0.5 million in consideration. As the right to negotiate with the Company has not been executed, the consideration from this agreement is deferred until the sooner of the execution of the contract or the end of the option period. As the option has not been exercised as of December 31, 2019, the $0.5 million is recorded as deferred revenue.

As of December 31, 2019 the Company has $1.7 million of deferred revenue related to ongoing negotiations with the diagnostics company.