STRATEGIC ALLIANCE AND COLLABORATION WITH SERVIER

In October 2011, the Company entered into a license and collaboration agreement (the “Servier Collaboration Agreement”) with Les Laboratoires Servier and Institut de Recherches Servier (collectively, “Servier”) for the research, development, and commercialization of RNA-targeting therapeutics in cardiovascular disease. Under the Servier Collaboration Agreement, the Company granted Servier an exclusive license to research, develop, manufacture, and commercialize RNA-targeting therapeutics for certain microRNA targets in the cardiovascular field.

In August 2019, Servier terminated the Servier Collaboration Agreement effective in February 2020. During the period from receipt of notice from Servier in August 2019 and termination in February 2020, the Company completed certain activities under its development plan with Servier, which included finalizing the two Phase 1 clinical trials of MRG-110. The activities for which the Company is eligible for reimbursement under the Servier Collaboration Agreement are considered a research and development performance obligation and revenue are recognized in accordance with ASC 606 through the termination date.

Accounting Analysis

The Company evaluated the Servier Collaboration Agreement in accordance with the provisions in ASC 606. The Company has accounted for amendments to the Servier Collaboration Agreement as modifications to the original contract and not as separate contracts. The Company combined the amendments with the original agreement due to the modifications not resulting in increased promised goods or services that were distinct, and the price of the contract did not increase by an amount of consideration that reflects the Company’s standalone selling prices.

The Company identified the following performance obligations under the Servier Collaboration Agreement: (i) up-front license fee for a multiple-year research collaboration, under which it jointly performed agreed upon research activities directed to the identification and characterization of named targets and oligonucleotides in the cardiovascular field (the “Research Collaboration”); (ii) research and development activities; (iii) transfer of materials; (iv) developmental, clinical, regulatory, and commercial sales milestone payments; and (v) royalties on net sales of licensed products. The Company acts as a principal as it controls the goods or services prior to transfer to the customer. The Company performed the research and development activities specified in the contracts and controlled the laboratories and resources that performed the research and development activities.

The Company concluded that the up-front license fees were not distinct from the Research Collaboration as Servier cannot obtain the benefit of the license without the Research Collaboration. This performance obligation represented the licensing of Company‑owned intellectual property related to the Company’s knowledge of microRNA therapeutics for certain specific diseases, together with research activities that were interdependent with licensed intellectual property to determine feasibility of commercialization.

As of January 1, 2019, the date of the initial application of ASC 606 by the Company, the remaining total transaction price associated with the Servier Collaboration Agreement was determined to be approximately $3.1 million consisting of maximum reimbursements of development costs under the development plan. During February 2019, the Joint Steering Committee approved an additional $1.0 million of development plan activities. As of January 1, 2019, the Company identified up to $60.4 million in development and regulatory milestones under the Servier Collaboration agreement, and the Company had recognized $7.5 million in milestone revenue through the initial application date. The Company utilizes the most likely amount method to estimate any development and regulatory milestone payments to be received. The Company considered the stage of development and the risks associated with the remaining development required to achieve these milestones, as well as whether the achievement of the milestones is outside the control of the Company. The Company determined that the remaining milestone payments were fully constrained, as a result of the uncertainty whether the milestones would be achieved by December 31, 2019. The Company also determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and, therefore, these payments have also been excluded from the transaction price. The Company re-evaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of December 31, 2019, no adjustments to the transaction price were noted.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation or, in the case of certain variable consideration, to one or more performance obligations. Research and development activities are priced generally at the standard labor rates for the respective activity and transfer of materials are generally priced at cost. Milestone payments are individually negotiated and because of the unique nature of each milestone, there are no comparable transactions to compare to; therefore, the negotiated amounts of the milestones in the agreement are the standalone selling price.

Amounts incurred and billable, but not billed to Servier, for research and related intellectual property activities totaled $0.3 million and $0.5 million as of December 31, 2019 and December 31, 2018, respectively. These amounts are included in prepaid expenses and other current assets in the Company’s consolidated balance sheets. As of December 31, 2019 and 2018, the Company had no accounts receivable balances outstanding for Servier research and related intellectual property activities. The amounts recognized in 2019 under ASC 606 did not differ from what the Company would have recognized under ASC 605.

Collaboration revenue under the Servier Collaboration Agreement consisted of the following:



	Year Ended December 31,
	2019		2018
	(in thousands)
Milestone payments	$	—	$	3,690
Research and development reimbursable costs	4,308		3,683
Total collaboration revenue	$	4,308	$	7,373