Revenues

9 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

The following table summarizes our revenues by collaboration, category of revenue, and the method of recognition (in millions):

			Three Months Ended September 30,				Nine Months Ended September 30,
	Over time	Point in time	2023		2022		2023		2022
Gilead Collaboration
License and R&D services	*		$	20	$	23	$	57	$	48
Access rights	*		8		8		25		25
Taiho Collaboration
R&D services	*		4		—		4		—
Access rights	*		—		2		—		5
Total revenues			$	32	$	33	$	86	$	78

Revenues from Gilead accounted for 88% and 94% of Total revenues for the three months ended September 30, 2023 and 2022, respectively and 95% and 94% for the nine months ended September 30, 2023 and 2022, respectively.

The following table summarizes the revenue recognized as a result of changes in the deferred revenue balance (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue recognized from amounts included in deferred revenue at the beginning of the period	$	28	$	33	$	79	$	78

Revenue for the nine months ended September 30, 2023 includes a net $1 million cumulative catch-up of revenue due to changes in the total estimated effort to be incurred in the future to satisfy the Gilead license and R&D services performance obligations, primarily related to lower estimated late-stage clinical trial costs for etrumadenant, partially offset by higher estimated late-stage clinical trial costs for quemliclustat.

We had $429 million and $452 million of deferred revenue remaining on our Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, respectively, allocated between current and noncurrent based on the expected timing of future recognition.

Revenue from the Gilead Collaboration

Activity for performance obligations under this arrangement for the periods presented herein was as follows:

Inflammation Programs - R&D Services

In May 2023, we entered into the Second Gilead Collaboration Agreement Amendment pursuant to which we expanded our collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities (see Note 3, Related party - Gilead Sciences, Inc., for more information). In June 2023, we received a total upfront payment of $35 million for an initial two jointly selected research-stage programs. We determined that the Second Gilead Collaboration Agreement Amendment represented a separate contract and, at the amendment closing date, we allocated the transaction price of $35 million to the performance obligations created as of the date of this amendment. The following table summarizes the allocation of the transaction price to the distinct performance obligations (in millions):

Allocation to performance obligations	Distinct	Amount
Inflammation target 1	*	$	18
Inflammation target 2	*	17
Total allocated transaction price		$	35

We determined that we have separate performance obligations to perform R&D services for Gilead related to discovery and early development activities for each research program for which they have made an upfront payment. The standalone selling price of these obligations was determined using an expected cost-plus margin approach. We recognize the amounts allocated to these services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program. The options to acquire additional licenses or services did not result in additional performance obligations because they did not provide a material right at contract inception, primarily due to the very early stages of the programs.

We recognized revenue of $2 million and $3 million for the three and nine months ended September 30, 2023, respectively, within Other collaboration revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $32 million of deferred revenue remaining on our Condensed Consolidated Balance Sheet related to these performance obligations.

Etrumadenant - License and R&D Services

Under the First Gilead Collaboration Agreement Amendment, Gilead has an exclusive license and we are also obligated to perform further R&D services for Gilead related to etrumadenant. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We allocated arrangement consideration of $219 million to the combined license and R&D services performance obligation and recognize the amounts allocated as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized revenue of $21 million and $3 million for the three months ended September 30, 2023 and 2022, respectively, and $39 million and $21 million for the nine months ended September 30, 2023 and 2022, respectively, within License and development service revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $146 million of deferred revenue remaining on our Condensed Consolidated Balance Sheet related to this performance obligation.

Quemliclustat - License and R&D Services

Under the First Gilead Collaboration Agreement Amendment, Gilead has an exclusive license and we are also obligated to perform further R&D services for Gilead related to quemliclustat. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We allocated arrangement consideration of $176 million to the combined license and R&D services performance obligation and recognize the amounts allocated as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized a reversal of revenue of $4 million for the three months ended September 30, 2023 due to changes in the total estimated effort to be incurred in the future to satisfy the performance obligations, primarily related to revised clinical trial assumptions and revenue of $12 million for the three months ended September 30, 2022. We recognized revenue of $11 million and $16 million for the nine months ended September 30, 2023 and 2022, respectively, within License and development service revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $138 million of deferred revenue remaining on our Condensed Consolidated Balance Sheet related to this performance obligation.

Domvanalimab - R&D Services

Under the First Gilead Collaboration Agreement Amendment, we have an obligation to perform further R&D services for Gilead related to domvanalimab. We determined that these services are distinct based on an evaluation of the delivery of the related license, noting that the program was in the later stages of development and license met the criteria for being distinct from the R&D services required. We allocated arrangement consideration of $34 million to the R&D services performance obligation and recognize the amounts allocated as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized revenue of $1 million for the three months ended September 30, 2023, and $3 million and $2 million for the nine months ended September 30, 2023 and 2022, respectively, within License and development service revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $27 million of deferred revenue remaining on our Condensed Consolidated Balance Sheet related to this performance obligation.

Zimberelimab - R&D and Commercialization Services

Under the First Gilead Collaboration Agreement Amendment, we have an obligation to perform further R&D and commercialization services for Gilead related to zimberelimab, as a monotherapy and in combination with other agents. We determined that these services are distinct based on an evaluation of the delivery of the related license, noting that the program was in the later stages of development and license met the criteria for being distinct from the R&D and commercialization services required. We allocated arrangement consideration of $11 million to the R&D and commercialization services performance obligation and recognize the amounts allocated as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized no revenue for the three months ended September 30, 2023 and $8 million for the three months ended September 30, 2022. We recognized $1 million and $9 million for the nine months ended September 30, 2023 and 2022, respectively, within License and development service revenue in our Condensed Consolidated Statements of Operations. As of December 31, 2022, substantially all the revenue related to this performance obligation had been recognized.

Access Rights and Option Continuation Periods

Under the First Gilead Collaboration Agreement Amendment, Gilead has exclusive access to our current programs as well as the future programs for a period of ten years, contingent upon option continuation payments totaling $300 million, consisting of a $100 million payment on each of the fourth, sixth, and eighth anniversaries of the agreement. We allocated arrangement consideration of $121 million to this performance obligation.

We use a time-elapsed input method to measure progress toward satisfying this obligation, which is the method we believe most faithfully depicts our performance in transferring the promised services during the time period in which Gilead has access to our R&D pipeline. Accordingly, the revenue allocated to this performance obligation is being recognized using this input method over the minimum four-year period. We have determined that Gilead is not obligated to pay the remaining $300 million due over the remainder of the term and excluded these payments from the transaction price. Failure to pay the non-obligatory option continuation payments will result in Gilead’s loss of certain rights to access and obtain licenses to the programs arising from our R&D pipeline.

We recognized revenue of $8 million associated with the performance of this obligation for each of the three months ended September 30, 2023 and 2022, and $25 million for each of the nine months ended September 30, 2023 and 2022, within Other collaboration revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $62 million of deferred revenue on our Condensed Consolidated Balance Sheet related to this performance obligation.

Revenue from the Taiho Collaboration

In September 2023, under the Taiho collaboration, certain clinical milestones for domvanalimab and zimberelimab were met through the STAR-221 study and Taiho became obligated to pay us $28 million, which is recorded in Receivable from collaboration partners at September 30, 2023 on our Condensed Consolidated Balance Sheet. We determined that we have a performance obligation to perform R&D services for Taiho related to the global development activities for the STAR-221 study in support of the Taiho Territory. We allocated the $28 million to this single performance obligation and recognize the amounts allocated to this service as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the programs.

We recognized revenue of $4 million for both the three and nine months ended September 30, 2023 within License and development service revenue in our Condensed Consolidated Statements of Operations. At September 30, 2023, we had $24 million of deferred revenue remaining on our Condensed Consolidated Balance Sheet related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

Capitalized Costs to Obtain Contracts

We incurred certain costs to obtain the Gilead Collaboration Agreement in 2020 and the First Gilead Collaboration Agreement Amendment in 2021, which consisted of consultant and legal fees. We allocated these costs to the various performance obligations, to be recognized as the underlying performance obligations are satisfied and revenue is recognized.

For the three months ended September 30, 2023 and 2022, the recognized expense was not significant. For each of the nine months ended September 30, 2023 and 2022, we recognized $1 million expense related to these capitalized costs in G&A expense. At September 30, 2023, we had $3 million in capitalized costs to obtain the contracts, of which $1 million was recorded as Prepaid expenses and other current assets and $2 million was recorded as Other noncurrent assets in our Condensed Consolidated Balance Sheet.