9.	Collaboration Revenue

Nestec Ltd.

In January 2016 the Company entered into a Collaboration and License Agreement (the “License Agreement”) with Nestec Ltd. (“NHS”), an affiliate of Nestlé Health Science US Holdings, Inc., a significant stockholder of the Company, for the development and commercialization of certain product candidates in development for the treatment and management of CDI and IBD, including ulcerative colitis and Crohn’s disease. The License Agreement will support the development of the Company’s portfolio of products for CDI and IBD in markets outside of the United States and Canada (“the Licensed Territory”). The Company has retained full commercial rights to its entire portfolio of product candidates with respect to the United States and Canada.

Under the License Agreement, the Company granted to NHS an exclusive, royalty-bearing license to develop and commercialize, in the Licensed Territory, certain products based on its microbiome technology that are being developed for the treatment of CDI and IBD, including SER-109, SER-262, SER-287 and SER-301, or, collectively, the NHS Collaboration Products. The License Agreement sets forth the Company’s and NHS’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities for the NHS Collaboration Products with respect to the licensed fields and the Licensed Territory.

Under the License Agreement, the Company’s and NHS’ development activities will be governed by global and regional development plans, including the conduct of additional clinical studies. The Company has agreed to manufacture and supply NHS Collaboration Products to support development and commercialization of NHS Collaboration Products in the licensed fields and in the Licensed Territory. NHS will have the right to obligate the Company to transfer technology necessary to manufacture Collaboration Products in the event that the Company materially fails to meet its supply commitments to NHS under the commercial supply agreement. The Company has also agreed to use diligent efforts to develop NHS Collaboration Products under a global development plan and to obtain approval for such NHS Collaboration Products in the European Union, or EU.

In exchange for the license, NHS agreed to pay the Company an upfront cash payment of $120,000, which the Company received in February 2016. NHS also agreed to pay the Company tiered royalties, at percentages ranging from the high single digits to high teens, of net sales of NHS Collaboration Products in the Licensed Territory. The Company is eligible to receive up to $295,000 in development milestone payments, $365,000 in regulatory payments and up to an aggregate of $1,125,000 for the achievement of certain commercial milestones related to the sales of NHS Collaboration Products.

For the development of NHS Collaboration Products for IBD under a global development plan, the Company agreed to pay the costs of clinical trials of such products up to and including Phase 2 clinical trials, and 67% of the costs for Phase 3 and other clinical trials of such products, with NHS bearing the remaining 33% of such costs. For other clinical development of NHS Collaboration Products for IBD, the Company agreed to pay the costs of such activities to support approval in the United States and Canada, and NHS agreed to bear the cost of such activities to support approval of NHS Collaboration Products in the Licensed Territory.

With respect to development of NHS Collaboration Products for CDI under a global development plan, the Company agreed to pay all costs of an ongoing Phase 2 clinical trial for SER-109 and of Phase 3 clinical trials for SER-109. The Company agreed to bear all costs of conducting any Phase 1 or Phase 2 clinical trials under a global development plan for NHS Collaboration Products other than SER-109 for CDI. The Company agreed to pay 67% and NHS agreed to pay 33% of other costs of Phase 3 clinical trials conducted for NHS Collaboration Products other than SER-109 for CDI under a global development plan. For other clinical development of NHS Collaboration Products for CDI, the Company agreed to pay costs of such development activities to support approval in the United States and Canada, and NHS agreed to bear the cost of such activities to support approval of NHS Collaboration Products in the Licensed Territory.

The License Agreement continues in effect until terminated by either the Company or NHS on the following bases: (i) NHS may terminate the License Agreement in the event of serious safety issues related to any of the NHS Collaboration Products; (ii) the Company may terminate the License Agreement if NHS challenges the validity or enforceability of any of our licensed patents; and (iii) either the Company or NHS may terminate the License Agreement in the event of the other party’s uncured material breach or insolvency. Upon termination of the License Agreement, all licenses granted to NHS by the Company will terminate, and all rights in and to the NHS Collaboration Products in the Licensed Territory will revert to the Company. If the Company commits a material breach of the License Agreement, NHS may elect not to terminate the License Agreement but instead apply specified adjustments to its payment obligations and other terms and conditions of the License Agreement.

The License Agreement contains customary representations and warranties, intellectual property protection provisions, certain indemnification rights in favor of each party and customary confidentiality provisions and limitations of liability.

At the inception of the License Agreement, the Company identified the following deliverables: (i) a license to develop and commercialize the NHS Collaboration Products in the Licensed Territory, (ii) obligation to perform research and development services, (iii) participation on a joint steering committee (“JSC”), and (iv) manufacturing services to provide clinical supply to complete future clinical trials. The Company also identified a contingent deliverable, the obligation to perform manufacturing services to provide commercial supply if commercialization occurs, which is contingent upon regulatory approval. This contingent deliverable has been excluded from the initial allocation and will be treated as a separate unit of accounting when and if delivered.

The Company concluded that none of the four deliverables identified at the inception of the License Agreement has standalone value from the other undelivered elements. Accordingly, all deliverables represent a single unit of accounting.

All consideration received relating to the four identified deliverables that comprise the single unit of accounting will be recognized over the period of performance. The period of performance will be through the completion of development services for the NHS Collaboration Products which has been estimated to be ten years. The Company will periodically review and, if necessary, revise the estimated development period.

The Company will recognize revenue utilizing a time-based proportional performance model where revenue related to each payment is recognized over the ten year performance period. As of March 31, 2016, the only consideration that is fixed and determinable is the non-refundable upfront payment of $120,000. For additional consideration that could be received for research and development services and/or manufacturing services for clinical supply, the Company will recognize a cumulative catch-up for the amount of time that has elapsed and spread the unrecognized portion over the remaining performance period.

Development and regulatory milestones that involve substantial effort on the Company’s part and the achievement of which are not considered probable at the inception of the License Agreement are considered substantive milestones, and will be recognized in their entirety in the period in which the milestone is achieved, assuming all other revenue recognition criteria are met. All commercial milestones will be recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.

Royalties will be recorded as revenue in the period they are earned assuming all other revenue recognition criteria are met.

During the three months ended March 31, 2016, the Company recognized $2,710 of related party revenue associated with the License Agreement. As of March 31, 2016, there was $117,290 of deferred revenue related to the License Agreement, which is classified as current or non-current in the consolidated balance sheets based on the Company’s estimate of revenue that will be recognized within the next twelve months. All costs associated with the License Agreement are recorded in research and development expense in the condensed consolidated statements of operations and comprehensive loss.