Revenue Recognition

12 Months Ended

Dec. 31, 2020

Revenue From Contract With Customer [Abstract]

Revenue Recognition

11. Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 for the GSK Collaboration Agreement (see No. 10, Significant Agreements).

Disaggregation of Revenue

The following table presents revenue disaggregated by research program (in thousands):

	Year Ended December 31, 2020
MAT2A	$	6,048
Pol Theta		7,917
WRN		5,573
Total collaboration revenue	$	19,538

Contract balances

As of December 31, 2020, the Company had $1.9 million of accounts receivable and $83.8 million of contract liabilities related to the GSK Collaboration Agreement.

The following table presents the significant changes in the balance of contract liabilities during the year ended December 31, 2020 (in thousands):

	Contract liabilities
Receipt of the Upfront Payment	$	100,000
Reclassification to revenue, as the result of performance obligations satisfied		(19,538	)
Cash received for cost reimbursement		1,434
Increase in accounts receivable		1,877
Total	$	83,773

The timing of revenue recognition, billings, and cash collections results in accounts receivable, contract assets, and contract liabilities on the balance sheets. Based on the estimated reimbursable program costs for a quarter, the Company recognizes accounts receivable, which are derecognized upon reimbursement. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Performance obligations

The Company has identified the following six performance obligations associated with the GSK Collaboration Agreement:

(1) Preclinical and Phase 1 Monotherapy clinical research and development services under the MAT2A program (“MAT2A R&D Services”)

(2) Preclinical research services and the related license to IDEAYA-owned technology under the Pol Theta program (“Pol Theta R&D Services”)

(3) Preclinical research services and the related license to IDEAYA-owned technology under the WRN program (“WRN R&D Services”)

(4) Material right associated with the option to license IDEAYA-owned technology under the MAT2A program (defined as the “Option” in Note 10)

(5) Material right associated with the option to license to IDEAYA-owned technology under the MAT2A program to the extent necessary for preclinical activities in preparation for the MAT2A Combination Trial (“Preclinical MAT2A License”)

(6) Material right associated with the supply of MAT2A product for the MAT2A Combination Trial (“MAT2A Supply”)

The Company will recognize revenue related to amounts allocated to the MAT2A R&D services as the underlying services are performed over the period through the delivery of the data package, which will be generated from its conduct of the MAT2A Phase 1 monotherapy clinical trial. The Company uses its internal research and development capability and may also engage third-party clinical research organizations, or CROs, in transferring the MAT2A R&D services, for which the Company acts as a principal.

With respect to the Pol Theta and WRN programs, the Company identified two promises: (1) granting of the license to develop and commercialize Pol Theta and WRN products, respectively, and (2) the preclinical research services. The Company has determined that these two promises are not distinct within the context of the contract. As of the effective date of the GSK Collaboration Agreement, both programs were at an early stage, and the Company was yet to identify any development candidate for either program, which will require the completion of certain preclinical studies. After the Company and GSK identify a development candidate, a series of IND-enabling studies will be conducted before an Investigational New Drug application is submitted to the FDA. Due to the early stage of development, the Company’s preclinical research services are expected to transform the underlying technology and significantly modify or customize the license. Therefore, the two promises are not distinct from each other and are accounted for as a single performance obligation for each of the Pol Theta and WRN programs, respectively. The Company will recognize revenue related to amounts allocated to the Pol Theta R&D Services and WRN R&D Services as the underlying services are performed over the period through the completion of the Pol Theta and WRN preclinical research programs, respectively. Within 90 days from the end of each calendar quarter, GSK will reimburse the Pol Theta program costs incurred by the Company. Within 75 days from the end of each calendar quarter, the Company and GSK will determine the amounts of WRN program costs incurred by both parties and the net amount owed by GSK to the Company or by the Company to GSK, which will be paid within 75 days from such determination by a reimbursing party. The Company uses its internal research capability and may also engage third-party clinical research organizations, or CROs, in transferring the Pol Theta R&D services and WRN R&D services, for which the Company acts as a principal.

Upon exercise of the Option, GSK will obtain the license to develop and commercialize MAT2A products. The Company has concluded that this Option results in a material right as the option exercise fee contains a discount that GSK would not have otherwise received. The Company has determined the nature of the license to develop and commercialize MAT2A products to be functional. After exercise of the Option, the Company will recognize revenue, when it makes the underlying MAT2A technology available to GSK, which will immediately be able to use and benefit from its right to use the intellectual property.

The Company has identified two additional customer options under the MAT2A program, both of which have been determined a material right. GSK may elect to conduct certain preclinical activities in preparation for the MAT2A Combination Trial and may elect to exercise the option to license to MAT2A technology. GSK may be able to use and exploit the license to the extent necessary for GSK’s performance of such preclinical activities. The Company will not receive any consideration for providing such license and has concluded that this license option results in a material right as it involves a discount that GSK would not have otherwise received. The Company has determined the nature of such license to MAT2A technology to be functional. As of December 31, 2020, GSK has exercised the Preclinical MAT2A License, and the Company has made the underlying MAT2A technology available to GSK, which is immediately able to use and benefit from its right to use the intellectual property. Accordingly, the Company recognized revenue from the Preclinical MAT2A License in the year ended December 31, 2020.

If GSK elects to conduct the MAT2A Combination Trial, the Company will supply MAT2A product to be used for the MAT2A Combination Trial at its own cost. The Company has concluded that this supply option results in a material right as it involves a discount that GSK would not have otherwise received. The Company will recognize revenue, as it transfers the control of the MAT2A product to GSK. The Company has not supplied MAT2A product as of December 31, 2020.

Transaction price allocated to the remaining performance obligations

At inception of the GSK Collaboration Agreement, the Company determined that the transaction price was $108.5 million, including the Upfront Payment, and the estimated reimbursable program costs. The following table presents the transaction price allocated to the remaining performance obligations as of December 31, 2020 (in thousands):

Performance Obligations	Allocation of Transaction Price
MAT2A R&D Services	$	16,144
Pol Theta R&D Services		25,776
WRN R&D Services		27,785
The Option		17,235
MAT2A Supply		2,351
Total transaction price allocated to the remaining performance obligations	$	89,291

The Company applies the sales-based royalty exception to the commercial milestones and tiered royalties for all programs because GSK would ascribe significantly more value to the license than to the other goods or services to which the commercial milestones and tiered royalties relate. The Company will be entitled to receive the commercial milestones either when the first commercial sale occurs, or when the predefined net sales in a calendar year are achieved, upon which the variability will be resolved. Also, the Company will be entitled to receive the tiered royalties during a calendar year when global net sales of each product occur, upon which the variability will be resolved.

Significant judgements

In applying ASC 606 to the GSK Collaboration Agreement, the Company made the following judgments that significantly affect the timing and amount of revenue recognition:

(i) Determination of the transaction price, including whether any variable consideration is included at inception of the contract

The transaction price is the amount of consideration that the Company expects to be entitled to in exchange for transferring promised goods or services to the customer. The transaction price must be determined at inception of a contract and may include amounts of variable consideration. However, there is a constraint on inclusion of variable consideration in the transaction price, if there is uncertainty at inception of the contract as to whether such consideration will be recognized in the future.

The decision as to whether or not it is probable that a significant reversal of revenue will occur in the future, depends on the likelihood and magnitude of the reversal and is highly susceptible to factors outside the Company’s influence (for example, the Company cannot determine the outcome of clinical trials; the Company cannot determine if or when the counterparty will initiate or complete clinical trials; and the Company cannot determine if or when an regulatory agency provides any approval). In addition, the uncertainty is not expected to be resolved for a long period and finally, the Company has limited experience in the field. Therefore, at inception of the GSK Collaboration Agreement, development and regulatory milestones were fully constrained and were not included in the transaction price based on the factors noted above.

The Company constrains estimates of other variable consideration, such as reimbursable program costs, to amounts that are not expected to result in a significant revenue reversal in the future. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

(ii) Determination of the estimate of the standalone selling price of performance obligations

In order to recognize revenue under ASC 606, for contracts for which more than one distinct performance obligation has been identified, the Company must allocate the transaction price to the performance obligations based upon their standalone selling prices. The best evidence of standalone selling price is an observable price of a good or service when sold separately by an entity in similar circumstances to similar customers. If such evidence is not available, standalone selling price should be estimated so that the amount that is allocated to each performance obligation equals the amount that the entity expects to receive for transferring goods or services. The Company has identified more than one performance obligation in the GSK Collaboration Agreement. Since evidence based on observable prices is not available for the performance obligations, the Company considered market conditions and entity-specific factors, including those contemplated in negotiating the agreements, as well as certain internally developed estimates.

The Company determined the estimate of standalone selling price of the MAT2A R&D Services by using the expected costs of satisfying the performance obligation, adjusted for probabilities of technical success where appropriate. The Company determined the estimate of standalone selling price of the Pol Theta R&D Services and WRN R&D Services by using a combination of risk-adjusted net present value analysis and the expected costs of satisfying the performance obligation, adjusted for probabilities of technical success where appropriate. The Company determined the estimate of standalone selling price of the Option by using risk-adjusted net present value analysis. Finally, the Company determined the estimate of standalone selling price of the Preclinical MAT2A License and MAT2A Supply by using the expected costs of satisfying the performance obligation.

(iii) Determination of the method of allocation of the transaction price to the distinct performance obligations

At inception of the GSK Collaboration Agreement, the Company allocated the transaction price among the six performance obligations based on their relative selling prices, determined as described above.

(iv) Determination of the timing of satisfaction of performance obligations

The Company recognizes revenue from the MAT2A R&D Services, Pol Theta R&D Services and WRN R&D Services over time, as GSK simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs. The Company measures its progress toward complete satisfaction of the MAT2A R&D Services, Pol Theta R&D Services and WRN R&D Services based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligations. As the Company performs, it shares the results of research and development studies with GSK through the joint development committee. Accordingly, the cost incurred method faithfully depicts the Company’s performance of the MAT2A R&D Services, Pol Theta R&D Services and WRN R&D Services.

The license to IDEAYA-owned technology under the MAT2A program underlying the Option and Preclinical MAT2A License is functional in nature. Upon the exercise of the material right associated with the option to license to IDEAYA-owned technology under the MAT2A program, the Company will recognize revenue upon the later of transfer of the underlying technology to GSK and the beginning of the period during which GSK is able to use and benefit from its right to use the underlying technology.

After the exercise of the material right associated with the supply of MAT2A product for the MAT2A Combination Trial, the Company recognize revenue as it transfers the control of MAT2A product to GSK.