2.	Summary of Significant Accounting Policies

The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent in all material respects with those presented in Note 1 to our financial statements included on the Annual Report on Form 10-K for the year ended December 31, 2017 except as noted below with respect to our revenue recognition accounting policy.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Translation of Foreign Currency

For our foreign subsidiaries that report in a functional currency other than U.S. dollars, we translate their assets and liabilities into U.S. dollars using the exchange rate at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates for the period. We translate transactions in our capital accounts at the historic exchange rate in effect at the date of the transaction. We include foreign currency translation adjustments as a component of accumulated other comprehensive loss within the condensed consolidated statements of comprehensive loss.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, or Topic 605, and creates a new Topic 606, Revenue from Contracts with Customers, or Topic 606. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. When we offer options for additional goods or services, such as an option to license a drug in the future or for additional goods or services to be provided in the future, we evaluate whether options are material rights that should be treated as additional performance obligations. We typically have not concluded that the option to license a drug or the options for additional goods or services that may be requested in the future under our collaboration agreement are material rights as the amounts attributable to such options represent standalone selling price, and therefore no consideration is allocated to these items at the inception of an agreement. When a partner exercises its option to license a drug or requests the additional goods or services, a new performance obligation is created for that item. Once performance obligations are identified, we then recognize as revenue the amount of the transaction price that we allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time. If the performance obligation is satisfied over time, we recognize revenue based on the use of an output or input method. Through June 30, 2018, we have one revenue stream from our strategic collaboration, option and license agreement, or collaboration agreement, with Novartis Pharma AG, or Novartis, which we entered into in January 2017. For a complete discussion of the accounting for our collaboration revenue, see Note 4, Strategic Collaboration with Novartis.

Effective January 1, 2018, we adopted Topic 606 using the full retrospective transition method. Under this method, we revised our consolidated financial statements for prior period amounts including the interim periods included in this Report on Form 10-Q, as if Topic 606 had been effective for such periods. The references "as revised" used herein refer to revisions of amounts originally reported for the three and six months ended June 30, 2017 and the year ended December 31, 2017 as a result of our adoption of Topic 606.

Impact of Adoption

As a result of adopting Topic 606 on January 1, 2018, we have revised our comparative financial statements for the prior year as if Topic 606 had been effective for that period. Under Topic 605, we recognized revenue over time. Under Topic 606, we recognize revenue using the input method based on total costs of performing services over time. As a result, the following financial statement line items for fiscal year 2017 were affected.

Condensed Consolidated Balance Sheets

	December 31, 2017 (in thousands)
	As Revised Under Topic 606			As Originally Reported Under Topic 605			Effect of Change
Current portion of deferred revenue	$	58,192		$	50,579		$	7,613
Long‑term portion of deferred revenue		12,501			8,306			4,195
Accumulated deficit	$	(296,221	)	$	(284,413	)	$	(11,808	)

Condensed Consolidated Statements of Operations and Comprehensive Loss

	Three Months Ended June 30, 2017 (in thousands, except per share data)
	As Revised Under Topic 606			As Originally Reported Under Topic 605			Effect of Change
Research and development revenue under collaborative agreement	$	5,713		$	14,128		$	(8,415	)
Loss from operations		(19,689	)		(11,274	)		(8,415	)
Net loss		(20,359	)		(11,944	)		(8,415	)
Net loss per share of preferred stock, basic and diluted	$	(0.70	)	$	(0.41	)	$	(0.29	)

	Six Months Ended June 30, 2017 (in thousands, except per share data)
	As Revised Under Topic 606			As Originally Reported Under Topic 605			Effect of Change
Research and development revenue under collaborative agreement	$	11,807		$	23,725		$	(11,918	)
Loss from operations		(83,065	)		(71,147	)		(11,918	)
Net loss		(84,214	)		(72,296	)		(11,918	)
Net loss per share of preferred stock, basic and diluted	$	(2.92	)	$	(2.50	)	$	(0.42	)

Condensed Consolidated Statement of Cash Flows

	Six Months Ended June 30, 2017 (in thousands)
	As Revised Under Topic 606			As Originally Reported Under Topic 605			Effect of Change
Net loss	$	(84,214	)	$	(72,296	)	$	(11,918	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred revenue		63,193			51,275			11,918
Cash, cash equivalents and restricted cash at beginning of period		7,857			7,857			—
Cash, cash equivalents and restricted cash at end of period	$	75,445		$	75,445		$	—

New Accounting Pronouncements - Recently Issued

In February 2016, the FASB issued amended accounting guidance related to lease accounting, which requires us to record all leases with a term longer than one year on our balance sheet. When we record leases on our balance sheet under the new guidance, we will record a liability with a value equal to the present value of payments we will make over the life of the lease and an asset representing the underlying leased asset. The new accounting guidance requires us to determine if any lease we have is an operating or financing lease, similar to current accounting guidance. We will record expense for an operating type lease on a straight-line basis as an operating expense and we will record expense for a financing type lease as interest expense. The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. This standard allows for a modified retrospective application and is effective as of the first quarter of 2019. Entities are allowed to apply the modified retrospective approach (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment. We are currently assessing the impact that adoption of this guidance will have on our consolidated financial statements and disclosures.

In June 2016, the FASB issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. If we have credit losses, this updated guidance requires us to record allowances for these instruments under a new expected credit loss model. This model requires us to estimate the expected credit loss of an instrument over its lifetime, which represents the portion of the amortized cost basis that we do not expect to collect. This change will result in us remeasuring our allowance in each reporting period we have credit losses. The new standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. When we adopt the new standard, we will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We are currently assessing the timing of adoption as well as the impact it will have on our consolidated financial statements and disclosures.

In February 2018, the FASB issued updated guidance for reclassification of tax effects from accumulated other comprehensive income (loss). The updated guidance gives entities an option to reclassify the stranded tax effects resulting from changes due to the Tax Act from accumulated other comprehensive income (loss) to retained earnings. The updated guidance is effective for all entities for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. Early adoption is permitted, and adoption is optional. We are currently assessing the impact this updated guidance could have on our consolidated financial statements and the timing of potential adoption.

In June 2018, the FASB issued updated guidance to simplify the accounting for stock-based compensation expense for non-employees. We adopted this guidance in the second quarter of 2018. We have not granted stock option grants to non-employees as of June 30, 2018 and therefore this new guidance has no impact to our financial statements.