6. Collaboration Agreement

Bayer HealthCare LLC

In June 2014, the Company entered into a research and development collaboration and license agreement with Bayer for the development and commercialization of a gene therapy for the treatment of hemophilia A (the “collaboration agreement”). Under the agreement, the Company granted to Bayer an exclusive license to develop and commercialize one or more novel gene therapies for hemophilia A and a right of first notice for gene therapy treatments for hemophilia B. The Company is responsible for all research and development activities for those biologic therapeutics under the agreement prior to completion of clinical proof-of-concept (“POC”) trials, with Bayer funding the Company’s efforts and providing consulting and technological support. Upon the successful demonstration of clinical POC, the agreement requires that Bayer use commercially reasonable efforts to conduct later-stage development and commercialization of gene therapy products for treatment of hemophilia A for such therapy. Bayer will have worldwide rights to commercialize the potential future product.

Financial Terms

Under the terms of the agreement with Bayer, the Company received a nonrefundable, noncreditable upfront license payment of $20,000 in June 2014 and is eligible to receive development and commercialization milestone payments of up to $232,000, as well as tiered royalty payments ranging in the high single-digit to low double-digit percentages, not exceeding the mid-teens, of net sales of commercialized products resulting from the collaboration, as defined in the agreement with Bayer. Bayer will fund certain research and development services performed by the Company during the research term and will reimburse the Company for all project costs, including any third-party costs, in the performance of its obligations under the annual research plan and in accordance with the mutually agreed upon research budget.

The Company determined that the deliverables under its agreement with Bayer include (i) research services to be provided over the research term, (ii) a development and commercialization license and (iii) the Company’s participation in a Joint Steering Committee (“JSC”) and a Joint Research and Development Committee (“JRDC”) to be provided over the research term. The Company determined that the development and commercialization license and involvement in the JSC and the JRDC do not have standalone value to Bayer and, therefore, are not separable from the delivery of the research services. Therefore, all deliverables under the agreement have been combined and accounted for as a single unit of accounting. Accordingly, the upfront license payment and research payments are being recognized by the Company as revenue on a straight-line basis over the estimated performance period, which approximates the 54-month research term of the agreement with Bayer that commenced in June 2014. As future research payments are earned, the Company will recognize as revenue the portion of payments equal to the percentage of the elapsed research term to the total estimated research term, with the remaining portion of consideration received being recognized over the remaining estimated performance period on a straight-line basis. The Company concluded at the outset of the arrangement that none of the future milestone payments included in the arrangement qualified as substantive milestones. Any future milestone payments will be recognized, along with the other arrangement consideration, over the remaining estimated period of performance, if any, beginning at the time a milestone payment is earned, with a cumulative catch-up being recognized for the elapsed portion of the estimated research term. As of September 30, 2015, the Company had not earned any milestone or royalty payments.

Revenue recognized under the collaboration agreement with Bayer consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Revenue:
Bayer Collaboration	$	2,061	$	1,184	$	5,397	$	1,343

	$	2,061	$	1,184	$	5,397	$	1,343

During the three and nine months ended September 30, 2015 and 2014, research payments earned by the Company under the collaboration agreement totaled $2,092, $1,290, $5,470 and $1,290, respectively. The costs incurred by the Company related to the research activities of the collaboration agreement are recorded as research and development expense in the condensed statement of operations and comprehensive loss.

As of September 30, 2015, deferred revenue related to the collaboration agreement with Bayer totaled $22,715, which related to the upfront license payment, research services payments and to advance payments for future research services.

Term and Termination

The agreement with Bayer expires on a licensed treatment-by-licensed treatment and country-by-country basis until the later of ten years from the date of first commercial sale or when patent claims have expired, lapsed, been abandoned or been invalidated in such country. The Company and Bayer, through the JSC, may mutually agree to terminate the collaboration early in the event clinical development is ended as required by a regulatory authority or in light of data from any studies conducted prior the POC trial. Bayer has the unilateral right to terminate the agreement in its entirety or with respect to one or more country by providing written notice to the Company. Bayer may also terminate the agreement with notice after two unsuccessful attempts to demonstrate clinical POC in a Phase I human POC trial. Bayer may further terminate the agreement with notice in the event that, following the POC trial, there is a material safety issue with respect to a licensed product. Reciprocal termination rights under the agreement include termination for breach and termination for bankruptcy.