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Collaboration Agreements | 12 Months Ended
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Dec. 31, 2020
Research and Development [Abstract] |
Collaboration Agreements | Collaboration Agreements The following table summarizes our total consolidated net revenue from our strategic collaborators for the periods presented (in thousands):
|  | Years Ended December 31,
Collaboration Revenue by Strategic Collaborator: |  | 2020 |  | 2019 |  | 2018 (1)
Merck |  | $ | 26,076 |  |  | $ | 36,608 |  |  | $ | 66,082 |
AstraZeneca |  | 32,624 |  |  | 5,233 |  |  | 45,993 |
Vertex |  | 15,505 |  |  | 6,195 |  |  | 10,437 |
Other |  | 413 |  |  | — |  |  | — |
Total collaboration revenue |  | $ | 74,618 |  |  | $ | 48,036 |  |  | $ | 122,512 |
________ (1) Under ASC 605 The following table presents changes in the balances of our receivables and contract liabilities related to our strategic collaboration agreements during the year ended December 31, 2020 (in thousands):
|  | December 31, 2019 |  | Additions |  | Deductions |  | December 31, 2020
Contract Assets: |  |  |  |  |  |  |  |
Accounts receivable |  | $ | 1,972 |  |  | $ | 120,821 |  |  | $ | (117,249) |  |  | $ | 5,544 |
Contract Liabilities: |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 199,528 |  |  | $ | 121,882 |  |  | $ | (81,228) |  |  | $ | 240,182 |
During the year ended December 31, 2020, we recognized the following revenue as a result of the change in the contract liability balances related to our collaboration agreements (in thousands):
Revenue recognized in the period from: |  |  | Year Ended December 31, 2020
Amounts included in contract liabilities at the beginning of the period (1) |  |  | $ | 72,863 |
Performance obligations satisfied (or partially satisfied) in previous reporting periods (2) |  |  | 8,366 |
______________ (1) We first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability. (2) Related to changes in estimated costs for our future performance obligations and estimated variable considerations. As of December 31, 2020, the aggregated amount of the transaction price allocated to performance obligations under our collaboration agreements that are unsatisfied or partially unsatisfied was $327.7 million. AstraZeneca – Strategic Alliances in Cardiovascular and Oncology 2013 Option Agreement and Services and Collaboration Agreement In March 2013, we entered into an Option Agreement, the AZ Option Agreement, and a related Services and Collaboration Agreement, the AZ Services Agreement, with AstraZeneca, which were amended and restated in June 2018. We refer to these agreements in the forms that existed prior to the 2018 amendment and restatement as the 2013 AZ Agreements. Under the 2013 AZ Agreements, we granted AstraZeneca certain exclusive rights and licenses, and options to obtain exclusive rights to develop and commercialize potential therapeutic mRNA medicines directed at certain targets for the treatment of cardiovascular and cardiometabolic diseases and cancer, and agreed to provide related services to AstraZeneca. Pursuant to the 2013 AZ Agreements, AstraZeneca was responsible for all research, development and commercialization activities, while we provided specified research and manufacturing services during a research and evaluation period, as described below, to further AstraZeneca’s activities pursuant to an agreed upon services plan. Under the 2013 AZ Agreements, AstraZeneca could have requested we provide additional services, at AstraZeneca’s expense. Subject to customary “back-up” supply rights granted to AstraZeneca, we exclusively manufactured (or had manufactured) mRNA for all research, development and commercialization purposes under the 2013 AZ Agreements until, on a product-by-product basis, the expiration of the time period for which we are entitled to receive earn-out payments with respect to such product pursuant to the 2013 AZ Agreements. As of the effective date of the 2013 AZ Agreements, AstraZeneca acquired forty options that it may exercise to obtain exclusive rights to clinically develop and commercialize identified development candidates (and related back-up candidates) directed to specified targets that arise during the research and evaluation period. During the research and evaluation period for research candidates under the 2013 AZ Agreements, AstraZeneca could have elected to designate a limited number of research candidates as development candidates in order to continue preclinical development on such development candidates (and related back-up candidates). From such pool of development candidates designated by AstraZeneca, during a specified option exercise period, AstraZeneca could have then exercised one of its options to obtain exclusive rights to clinically develop and commercialize an identified development candidate (and related back-up candidates). If AstraZeneca did not exercise one of its options to acquire exclusive rights to clinically develop and commercialize a particular development candidate during the defined option exercise period for such development candidate, AstraZeneca’s rights to exercise an option and other rights granted under the 2013 AZ Agreements with respect to such development candidate (and related back-up candidates) would terminate, all rights to exploit such development candidate (and related back-up candidates) would be returned to us and all data and results generated by AstraZeneca with respect to such development candidate (and related back-up candidates) would be either assigned or licensed to us. Upon the earlier of termination of the 2013 AZ Agreements for any reason and a specified anniversary of the effective date of the 2013 AZ Agreements, all exercised options, and the right to exercise any and all options if not previously exercised by AstraZeneca, would automatically terminate. On a target-by-target basis, we and AstraZeneca agreed to certain defined exclusivity obligations under the 2013 AZ Agreements with respect to the research, development and commercialization of mRNA medicines for such target. As of the effective date of the 2013 AZ Agreements, AstraZeneca made upfront cash payments to us totaling $240.0 million. Under the 2013 AZ Agreements, we were entitled to receive payments that are not related to any specific program of up to $180.0 million in the aggregate for the achievement of three technical milestones relating to toxicity, delivery, and competition criteria. We achieved the toxicity and competition milestones in the year ended December 31, 2015. The delivery milestone has expired. Under the 2013 AZ Agreements, AstraZeneca was obligated to pay us a $10.0 million option exercise fee with respect to each development candidate (and related back-up candidates) for which it exercised an option. In addition, upon AstraZeneca’s exercise of each option, we were eligible to receive certain payments contingent upon the achievement of specified clinical, regulatory, and commercial events. For any product candidate optioned by AstraZeneca, we were eligible to receive, per product candidate, up to $100.0 million in payments for achievement of development milestones, up to $100.0 million payments for achievement of regulatory milestones, and up to $200.0 million payments for achievement of commercial milestones. Additionally, under the 2013 AZ Agreements, we were entitled to receive, on a product-by-product basis, earn-out payments on worldwide net sales of products ranging from a high-single digit percentage to 12%, subject to certain reductions, with an aggregate minimum floor. We received from AstraZeneca under the 2013 AZ Agreements an option exercise payment of $10.0 million (the 2016 VEGF Exercise) in the year ended December 31, 2016, and a clinical milestone payment of $30.0 million with respect to AstraZeneca’s VEGF-A product (AZD8601) during the year ended December 31, 2018, that is currently being developed in a Phase 2 clinical trial. Unless earlier terminated, the 2013 AZ Agreements would have continued until the expiration of AstraZeneca’s earn-out and contingent option exercise payment obligations for optioned product candidates. Either party had the right to terminate the 2013 AZ Agreements upon the other party’s material breach, either in its entirety or in certain circumstances, with respect to relevant candidates, subject to a defined materiality threshold and specified notice and cure provisions. If AstraZeneca had the right to terminate the 2013 AZ Agreements for our material breach, then AstraZeneca could have elected, in lieu of terminating the 2013 AZ Agreements, in their entirety or with respect to such candidates, to have the 2013 AZ Agreements remain in effect, subject to reductions in certain payments we were eligible to receive and certain adjustments to AstraZeneca’s obligations under the 2013 AZ Agreements. AstraZeneca had the right to terminate the 2013 AZ Agreements in full, without cause, upon 90-days’ prior notice to us. 2016 Strategic Alliance with AstraZeneca – IL-12 In January 2016, we entered into a new Strategic Drug Development Collaboration and License Agreement, which we refer to as the 2016 AZ Agreement, with AstraZeneca to discover, develop and commercialize potential mRNA medicines for the treatment of a range of cancers. Under the terms of the 2016 AZ Agreement, we and AstraZeneca have agreed to work together on an immuno-oncology program focused on the intratumoral delivery of a potential mRNA medicine to make the IL-12 protein. The 2016 AZ Agreement initially included research activities with respect to a second discovery program. During a limited period of time, each party had an opportunity to propose additional discovery programs to be conducted under the 2016 AZ Agreement. We are responsible for conducting and funding all discovery and preclinical development activities under the 2016 AZ Agreement in accordance with an agreed upon discovery program plan for the IL-12 program and any other discovery program the parties agree to conduct under the 2016 AZ Agreement. For the IL-12 program and any other discovery program the parties agree to conduct under the 2016 AZ Agreement, during a defined election period that commenced as of the effective date of the 2016 AZ Agreement (for the IL-12 program) and otherwise will commence on initiation of any such new discovery program, AstraZeneca may elect to participate in the clinical development of a development candidate arising under the 2016 AZ Agreement from such program. If AstraZeneca so elects (as it has for the IL-12 program), AstraZeneca will lead clinical development activities worldwide and we will be responsible for certain activities, including being solely responsible for manufacturing activities, all in accordance with an agreed upon development plan. AstraZeneca will be responsible for funding all Phase 1 clinical development activities (including costs associated with our manufacture of clinical materials in accordance with the development plan), and Phase 2 clinical development activities (including costs associated with our manufacture of clinical materials in accordance with the development plan) up to a defined dollar threshold. We and AstraZeneca will equally share the costs of Phase 2 clinical development activities in excess of such dollar threshold, all Phase 3 clinical development activities and certain other costs of late-stage clinical development activities, unless we elect not to participate in further development and commercialization activities and instead receive tiered royalties, as described below. We and AstraZeneca will co-commercialize products in the U.S. in accordance with an agreed upon commercialization plan and budget, and on a product-by-product basis will equally share the U.S. profits or losses arising from such commercialization. Notwithstanding, on a product-by-product basis, prior to a specified stage of development of a given product, we have the right to elect not to participate in the further development and commercialization activities for such product. If we make such election, instead of participating in the U.S. profits and losses share with respect to such product, we are obligated to discuss future financial terms with AstraZeneca. If we are unable to agree on future financial terms within a short, defined period of time, we are entitled to receive tiered royalties at default rates set forth in the 2016 AZ Agreement, ranging from percentages in the mid-single digits to 20% on worldwide net sales of products, subject to certain reductions with an aggregate minimum floor. AstraZeneca has sole and exclusive responsibility for all ex-U.S. commercialization efforts. Unless we have elected to not to participate in further development (in which case royalties on ex-U.S. net sales will be at the default rates as described above, unless otherwise agreed by the parties), we are entitled to tiered royalties at rates ranging from 10% to 30% on ex-U.S. net sales of the products, subject to certain reductions with an aggregate minimum floor. Subject to customary “back-up” supply rights granted to AstraZeneca, we exclusively manufacture (or have manufactured) products for all development and commercialization purposes. We and AstraZeneca have agreed to certain defined exclusivity obligations with each other under the 2016 AZ Agreement with respect to the development and commercialization of mRNA medicines for IL-12. Unless earlier terminated, our strategic alliance under the 2016 AZ Agreement will continue on a product-by-product basis (i) until both parties cease developing and commercializing such product without the intention to resume, if we have not elected our right not to participate in further development and commercialization of such product or (ii) on a country-by-country basis, until the end of the applicable royalty term for such product in such country, if we have elected our right not to participate in further development and commercialization of such product. Either party may terminate the 2016 AZ Agreement upon the other party’s material breach, subject to specified notice and cure provisions. Each party may also terminate the 2016 AZ Agreement in the event the other party challenges such party’s patent rights, subject to certain defined exceptions. AstraZeneca has the right to terminate the 2016 AZ Agreement in full or with respect to any program for scientific, technical, regulatory or commercial reasons at any time upon 90 days’ prior written notice to us. On a product-by-product basis, we have the right to terminate the 2016 AZ Agreement in certain cases if AstraZeneca has suspended or is no longer proceeding with the development or commercialization of such product for a period of twelve consecutive months, subject to specified exceptions, including tolling for events outside of AstraZeneca’s control. On a product-by-product basis, if the 2016 AZ Agreement is terminated with respect to a given product, AstraZeneca’s rights in such product will terminate and, to the extent we terminated for AstraZeneca’s breach, patent challenge or cessation of development or AstraZeneca terminated in its discretion, AstraZeneca will grant us reversion licenses and take certain other actions so as to enable us to continue developing and commercializing such product in the oncology field. If we continue developing and commercializing a given product following termination of the 2016 AZ Agreement by AstraZeneca in its discretion with respect to such product, AstraZeneca is entitled to receive a mid-single digit royalty on our worldwide net sales of such product and a high-single digit percentage of the amounts received by us from a third party in consideration of a license to such third party to exploit such product, in each case, until AstraZeneca recovers an amount equal to specified development costs incurred by AstraZeneca under the 2016 AZ Agreement with respect to such product prior to such termination. Such percentages increase by a low to mid-single digit amount to the extent such termination occurs after such product achieves a specified stage of development. 2013 Agreements with AstraZeneca, amended and restated in 2018 In June 2018, we entered into an Amended and Restated Option Agreement and a related Amended and Restated Services and collaboration Agreement with AstraZeneca, or the 2018 A&R Agreements, which amended and restated the 2013 AZ Agreements. Under the 2018 A&R Agreements, we granted AstraZeneca certain exclusive rights and licenses to research, develop and commercialize potential therapeutic mRNA medicines directed at certain targets for the treatment of cardiovascular and cardiometabolic diseases and cancer, and agreed to provide related services to AstraZeneca. The activities to be performed by the parties under the 2018 A&R Agreements are limited to defined biological targets in the cardiovascular and cardiometabolic fields and one defined target in the cancer field. Pursuant to the 2018 A&R Agreements, AstraZeneca is responsible for all research, development and commercialization activities and associated costs, while we provide specified research and manufacturing services during a research and evaluation period, as described below, to further AstraZeneca’s activities conducted pursuant to an agreed upon services plan. During this research and evaluation period, these research services, and manufacturing services in excess of a specified threshold, are provided at AstraZeneca’s expense, and manufacturing services below the specified threshold are provided at no additional expense to AstraZeneca. AstraZeneca may request we provide additional research and manufacturing services, at AstraZeneca’s expense, following the end of the research and evaluation period. Subject to customary “back-up” supply rights granted to AstraZeneca, we exclusively manufacture (or have manufactured) mRNA for all research, development and commercialization purposes under the 2018 A&R Agreements until, on a product-by-product basis, the expiration of the time period for which we are entitled to receive earn-out payments with respect to such product pursuant to the 2018 A&R Agreements. As of the effective date of the 2013 AZ Agreements, and as further reflected in the 2018 A&R Agreements, AstraZeneca acquired forty options that it may exercise to obtain exclusive rights to clinically develop and commercialize identified development candidates (and related back-up candidates) directed to specified targets that arise during the research and evaluation period. During the research and evaluation period for research candidates, AstraZeneca may elect to designate a limited number of research candidates as development candidates in order to continue preclinical development on such development candidates (and related back-up candidates). From such pool of development candidates designated by AstraZeneca, during a specified option exercise period, AstraZeneca may then exercise one of its options to obtain exclusive rights to clinically develop and commercialize an identified development candidate (and related back-up candidates) in certain fields. If AstraZeneca does not exercise one of its options to acquire exclusive rights to clinically develop and commercialize a particular development candidate during the defined option exercise period for such development candidate, AstraZeneca’s rights to exercise an option and other rights granted under the 2018 A&R Agreements with respect to such development candidate (and related back-up candidates) will terminate, all rights to exploit such development candidate (and related back-up candidates) will be returned to us and all data and results generated by AstraZeneca with respect to such development candidate (and related back-up candidates) will be either assigned or licensed to us. Upon the earlier of termination of the 2018 A&R Agreements for any reason and a specified anniversary of the effective date of the 2013 AZ Agreements, all unexercised options, and the right to exercise any and all options if not previously exercised by AstraZeneca, will automatically terminate. On a target-by-target basis, we and AstraZeneca have agreed to certain defined exclusivity obligations under the 2018 A&R Agreements with respect to the research, development and commercialization of mRNA medicines for such target in certain fields. In addition, we and AstraZeneca have agreed to certain defined exclusivity obligations with respect to the research, development and commercialization of mRNA medicines coding for the same polypeptide as any development candidate being developed under the 2018 A&R Agreements. Unless earlier terminated, the 2018 A&R Agreements will continue until the expiration of AstraZeneca’s earn-out and contingent option exercise payment obligations for optioned product candidates. Either party may terminate the 2018 A&R Agreements upon the other party’s material breach, either in its entirety or in certain circumstances, with respect to relevant candidates, subject to a defined materiality threshold and specified notice and cure provisions. If AstraZeneca has the right to terminate the 2018 A&R Agreements for our material breach, then AstraZeneca may elect, in lieu of terminating the 2018 A&R Agreements, in their entirety or with respect to such candidates, to have the 2018 A&R Agreements remain in effect, subject to reductions in certain payments we are eligible to receive and certain adjustments to AstraZeneca’s obligations under the 2018 A&R Agreements. AstraZeneca may terminate the 2018 A&R Agreements in full, without cause, upon 90 days’ prior notice to us. Accounting Treatment Combined 2018 AZ Agreements The 2013 Agreements, as amended by the 2018 A&R Agreements, and the 2016 AZ Agreement, referred to as the Combined 2018 AZ Agreements, are treated as a single agreement for accounting purposes as these agreements were negotiated in contemplation of each other. The Combined 2018 AZ Agreements represent a transaction with a customer and therefore is accounted for in accordance with ASC 606. We identified the following performance obligations in the Combined 2018 AZ Agreements: (i) a combined performance obligation that includes a research license, research and development pool services, and manufacturing obligations related to the 2013 AZ Agreements, as amended by the 2018 A&R Agreements, collectively referred to as the Combined 2018 AZ Agreement Performance Obligation, (ii) preclinical development services for IL-12, (iii) preclinical development services for an oncology development target, (iv) a combined performance obligation for a development and commercialization license and manufacturing obligations for IL-12, and (v) a material right to receive development and commercialization rights and manufacturing services for an oncology development target. We concluded that the research license is not distinct from the research and development pool services or the manufacturing obligations related to the 2018 A&R Agreements, as AstraZeneca cannot fully exploit the value of the research license without receipt of such services and supply. Our services and supply involve specialized expertise, particularly as it relates to mRNA technology that is not available in the marketplace. Any supply requested by AstraZeneca in excess of the minimum quantities specified in the agreement are considered customer options and treated as separate contracts for accounting purposes. Further, we concluded that AstraZeneca cannot exploit the value of the development and commercialization license for IL-12 without receipt of supply as the development and commercialization license does not convey to AstraZeneca the right to manufacture and therefore combined the development and commercialization license and the manufacturing obligations for IL-12 into one performance obligation. The following table summarizes the composition of the total transaction price for the periods presented (in thousands):
|  | Transaction Price
|  | December 31,
Combined 2018 AZ Agreements: |  | 2020 |  | 2019
Upfront payments |  | $ | 240,000 |  |  | $ | 240,000 |
Sublicense reimbursement |  | 1,000 |  |  | 1,000 |
Toxicity milestone payment |  | 60,000 |  |  | 60,000 |
Competition milestone payment |  | 60,000 |  |  | 60,000 |
Estimated reimbursement for IL-12 manufacturing obligations |  | 35,830 |  |  | 40,782 |
Total |  | $ | 396,830 |  |  | $ | 401,782 |
We utilize the most likely amount method to determine the amount of reimbursement for IL-12 manufacturing obligations to be received. We determined that any sales-based royalties related to IL-12 will be recognized when the related sales occur as they were determined to relate predominately to the license granted and therefore have been excluded from the transaction price. In addition, we are eligible to receive future milestones and royalties on future commercial sales for optioned product candidates under the 2018 A&R Agreements and future royalties under the 2016 Agreement; however, these amounts are not considered variable consideration under the Combined 2018 Agreements as we are only eligible to receive such amounts if AstraZeneca exercises its options (including certain options that are deemed to be material rights). We have concluded that the exercise of an optioned product candidate represents a separate transaction under ASC 606. We re-evaluate the transaction price at the end of each reporting period. There was a $5.0 million d ecrease to the transaction price during the year ended December 31, 2020, resulting from a change in estimate of variable consideration. The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. We developed the estimated standalone selling price for the licenses included in the Combined 2018 AZ Agreement Performance Obligation and the combined performance obligation for a development and commercialization license and manufacturing obligations for IL-12 primarily based on the probability-weighted present value of expected future cash flows associated with each license related to each specific program. In developing such estimate, we also considered applicable market conditions and relevant entity-specific factors, including those factors contemplated in negotiating the agreement, probability of success and the time needed to commercialize a product candidate pursuant to the associated license. We developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the performance obligation, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated costs, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts. The estimated standalone selling price of the material right to receive development and commercialization rights and manufacturing services for an oncology development target was developed by estimating the amount of discount that AstraZeneca would receive when exercising the option and adjusting such amount by the likelihood that the option will be exercised. The following table summarizes the allocation of the total transaction price to the identified performance obligations under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
Combined 2018 AZ Agreements: |  | December 31, 2020
Combined 2018 AZ Agreement performance obligation |  | $ | 293,223 |
Preclinical development service - IL-12 |  | 8,133 |
Preclinical development service - oncology development target |  | 8,133 |
Development and commercialization license and manufacturing obligation |  | 85,750 |
Material right to receive development and commercialization rights |  | 1,591 |
Total |  | $ | 396,830 |
Remaining unsatisfied performance obligation |  | $ | 87,225 |
As of December 31, 2020, $77.5 million of the remaining performance obligations that are unsatisfied is expected to be recognized as revenue through December 31, 2029 and $9.7 million is expected to be recognized as revenue at the earlier of expiration or modification of the Combined 2018 AZ Agreement. We measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for the Combined 2018 AZ Agreement Performance Obligation and the preclinical development services for IL-12 and the other oncology target performance obligations. We recognize revenue related to the amounts allocated to the combined performance obligation for a development and commercialization license and manufacturing obligations for IL-12 based on the point in time upon which control of supply is transferred to AstraZeneca for each delivery of the associated supply. We recognize revenue for the Combined 2018 AZ Agreement Performance Obligation by determining the proportion of effort incurred as a percentage of total effort we expect to expend. This ratio is applied to the transaction price allocated to this combined performance obligation. We also estimate the development plan, including expected demand from AstraZeneca, and the associated costs for this combined performance obligation, as we will satisfy this combined performance obligation as the manufacturing services are performed. Management has applied significant judgment in the process of developing our budget estimates. Any changes to these estimates will be recognized in the period in which they change as a cumulative catch up. The following table summarizes the revenue recognized for the periods presented (in thousands):
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Combined AZ Agreements |  | $ | 18,371 |  |  | $ | 4,650 |  |  | $ | 45,393 |
The revenue recognized for the year ended December 31, 2020 includes the amortization of deferred revenue due to the satisfaction of our performance obligation during the period, including a cumulative catch-up adjustment of $12.5 million due to changes in estimated costs for our future performance obligations. The following table summarizes the balances of deferred revenue at period end, which is classified as current or non-current in the consolidated balance sheets based on the period the services are expected to be performed or control of the supply is expected to be transferred (in thousands):
|  | December 31,
|  | 2020 |  | 2019
Combined AZ Agreements |  | $ | 57,192 |  |  | $ | 73,669 |
2016 VEGF Exercise We concluded that the 2016 VEGF Exercise should be treated as a separate transaction for accounting purposes, represents a transaction with a customer and therefore is accounted for in accordance with ASC 606. We identified one performance obligation in this arrangement which is comprised of the exclusive license to develop and commercialize VEGF and the manufacturing of clinical supply. We concluded that the VEGF license is not distinct from the manufacturing obligations because AstraZeneca cannot fully exploit the value of the license without receipt of such supply. This is due to limitations inherent in the licenses conveyed wherein AstraZeneca does not have the contractual right to manufacture during the term of the agreement. The following table summarizes the composition of the total transaction price for the periods presented (in thousands):
|  | Transaction Price
|  | December 31,
2016 VEGF Exercise: |  | 2020 |  | 2019
Option exercise fee |  | $ | 10,000 |  |  | $ | 10,000 |
Milestone payment |  | 30,000 |  |  | 30,000 |
Sublicense reimbursement |  | 2,250 |  |  | 2,250 |
Estimated reimbursement for clinical supply |  | 18,062 |  |  | 15,621 |
Total |  | $ | 60,312 |  |  | $ | 57,871 |
We are eligible to receive future milestones and royalties on future commercial sales under this arrangement. We utilize the most likely amount method to estimate any development and regulatory milestone payments to be received and the amount of estimated reimbursement for clinical supply. As of December 31, 2020, there were no milestones that had not been achieved included in the transaction price. We considered the stage of development and the risks associated with the remaining development required to achieve each milestone, as well as whether the achievement of the milestone is outside of our or AstraZeneca’s control. The outstanding milestone payments were fully constrained, as a result of the uncertainty whether any of the milestones would be achieved. We determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted and therefore have also been excluded from the transaction price. We re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. When a milestone payment is included in the transaction price in the future, it is recognized as revenue based on the relative completion of the underlying performance obligation. There was a $2.4 million increase to the transaction price during the year ended December 31, 2020, resulting from a change in estimate of variable consideration. The following table summarizes the total transaction price allocated to the single performance obligation under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
|  | December 31, 2020
2016 VEGF Exercise combined performance obligation |  | 60,312 |
Remaining unsatisfied performance obligation |  | 41,877 |
As of December 31, 2020, the remaining performance obligations that are unsatisfied is expected to be recognized as revenue through December 31, 2025. We recognize revenue related to the amount of the transaction price allocated to the VEGF Exercise performance obligation based on the point in time upon which control of supply is transferred to AstraZeneca for each delivery of the associated supply. The following table summarizes the revenue recognized for the periods presented (in thousands):
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
2016 VEGF Exercise |  | $ | 14,253 |  |  | $ | 583 |  |  | $ | — |
The revenue recognized for the year ended December 31, 2020 includes the amortization of deferred revenue due to the satisfaction of our performance obligation during the period, offset by a cumulative catch-up adjustment of $0.4 million due to changes in estimated costs for our future performance obligations. The following table summarizes the balances of deferred revenue at period end, which is classified as current or non-current in the consolidated balance sheets based on the period the services are expected to be performed or control of the supply is expected to be transferred (in thousands):
|  | December 31,
|  | 2020 |  | 2019
2016 VEGF Exercise |  | $ | 29,335 |  |  | $ | 41,266 |
Merck – Strategic Alliances in Infectious Diseases and Cancer Vaccines 2015 Strategic Alliance with Merck – Infectious Disease In January 2015, we entered into a Master Collaboration and License Agreement with Merck, which was amended in January 2016, June 2016, and May 2019, and which we refer to, as amended, as the 2015 Merck Agreement. Pursuant to the 2015 Merck Agreement, we and Merck agreed to research, develop, and commercialize potential mRNA medicines for the prevention of infections by RSV. The 2015 Merck Agreement was terminated on October 7, 2020, by mutual agreement, and the right to pursue the continued development and commercialization of product candidates and products, including RSV, reverted to us. As a part of the May 2019 amendment of the 2015 Merck Agreement, we and Merck agreed to conclude the collaboration as it relates to development of potential mRNA medicines for other viruses, including mRNA-1278 for the prevention of varicella zoster virus (VZV) infection. Pursuant to the 2015 Merck Agreement, Merck was primarily responsible for research, development, and commercialization activities and associated costs of such research and commercialization. We were responsible for designing and, at Merck's cost, manufacturing all mRNA constructs for preclinical and Phase 1 and Phase 2 clinical development purposes, and we were responsible for certain costs associated with the conduct of a Phase 1 clinical trial for a RSV vaccine product candidate (mRNA-1172). We and Merck agreed to certain defined exclusivity obligations during the term of the 2015 Merck Agreement with respect to mRNA investigational medicines against RSV. As part of the May 2019 amendment of the 2015 Merck Agreement, we and Merck agreed to certain exceptions to the existing exclusivity obligations, pursuant to which we will no longer be restricted from researching, developing, and commercializing an mRNA investigational medicine for the prevention of a specific set of respiratory infections, including RSV, for the pediatric population. Under the terms of the 2015 Merck Agreement, we received a $50.0 million upfront payment. We were eligible to receive, on a product-by-product basis, additional milestone payments upon the achievement of certain development, regulatory, and commercial milestone events, as well as royalties on Merck’s net sales of products at rates ranging from the mid-single digits to low teens, subject to certain reductions, with an aggregate minimum floor. During the term of the agreement, we received from Merck a clinical milestone payment of $5.0 million with respect to the initiation of a Phase 1 clinical trial for a Merck RSV vaccine product candidate. Concurrent with entering into the 2015 Merck Agreement, Merck made a $50.0 million equity investment in us, and concurrent with amending the 2015 Merck Agreement in January 2016, we received an upfront payment of $10.0 million from Merck. Accounting Treatment We determined that all aspects of amended 2015 Merck Agreement represent a transaction with a customer and therefore the amended 2015 Merck Agreement is accounted for in accordance with ASC 606. The four-year research period was complete as of December 31, 2018 and we recognized the total transaction price of $65.0 million (the $60.0 million in aggregate upfront payments and a $5.0 million payment pertaining to achievement of a development milestone) in full as we concluded there were no unsatisfied performance obligations pertaining to the amended 2015 Merck Agreement. Additionally, we concluded the following customer options were marketing offers as such options did not provide any discounts or other rights that would be considered a material right in the arrangement: (i) research services during the three-year period following the initial four-year research period during which Merck could continue to preclinically and clinically develop product candidates and (ii) clinical mRNA supply for Phase 1 and Phase 2 and/or non-cGMP mRNA supply beyond the initial four-year research period. Therefore, such options would be accounted for as a separate contract if exercised by the customer. After completion of the initial four-year research period, and as part of the May 2019 amendment of the 2015 Merck Agreement, Merck elected to establish a new RSV vaccine product candidate and elected to conduct a Phase 1 clinical trial. We are responsible for certain costs associated with the conduct of the Phase 1 clinical trial. We determined that our obligation under the May 2019 amendment to reimburse Merck for certain costs associated with the RSV vaccine Phase 1 clinical trial represents consideration payable to a customer and is accounted for as a reduction of the transaction price. The consideration amount is determined based on the most likely method and recorded as contra-revenue as costs are incurred. The one-time payment upon election by Merck to continue developing RSV is fully constrained as it is contingent upon completion of the RSV Phase 1 clinical trial and upon decisions to be made by Merck to continue development thereafter. The following table summarizes the composition of the total transaction price for the periods presented (in thousands):
|  | Transaction Price
|  | December 31,
2015 Merck Agreement: |  | 2020 |  | 2019
Upfront payments |  | $ | 60,000 |  |  | $ | 60,000 |
Development milestones |  | 5,000 |  |  | 5,000 |
Reduction of reimbursements paid to Merck |  | (12,353) |  |  | (5,265) |
Total |  | $ | 52,647 |  |  | $ | 59,735 |
We utilize the most likely amount method to estimate any development and regulatory milestone payments to be received. As of December 31, 2020, there were no milestones that had not been achieved included in the transaction price. We considered the stage of development and the risks associated with the remaining development required to achieve each milestone, as well as whether the achievement of the milestone is outside of our or Merck’s control. The outstanding milestone payments were fully constrained, as a result of the uncertainty whether any of the milestones would be achieved. We re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. For the year ended December 31, 2020, there was a $7.1 million deduction to the transaction price related to reimbursements paid to Merck for RSV vaccine Phase I clinical trial costs. The following table summarizes the total transaction price allocated to the combined performance obligation under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
|  | December 31, 2020
2015 Merck Agreement |  | $ | 52,647 |
Remaining unsatisfied performance obligation |  | $ | — |
The following table summarizes the revenue and contra-revenue recognized for the periods presented (in thousands):
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Contra-revenue under the May 2019 Amendment |  | $ | (7,088) |  |  | $ | (5,265) |  |  | $ | — |
Collaboration revenue under the 2015 Merck Agreement |  | 62 |  |  | 492 |  |  | 24,582 |
Total contra-revenue |  | $ | (7,026) |  |  | $ | (4,773) |  |  | $ | 24,582 |
Contra-revenue recognized was related to consideration payable to Merck under the May 2019 Amendment of the 2015 Merck Agreement. Collaboration revenue recognized was pursuant to separate agreements with Merck related to the exercise of customer options to purchase clinical mRNA supply to further develop a product candidate after the initial four-year research period. Clinical mRNA supply was recognized as collaboration revenue at a point in time upon which control of supply was transferred to Merck for each delivery of the associated supply. We had no deferred revenue as of December 31, 2020 or December 31, 2019 from the amended 2015 Merck Agreement as all performance obligations under the amended 2015 Merck Agreement were completed as of December 31, 2018. On October 7, 2020, the 2015 Master Collaboration and License Agreement between us and Merck related to our collaboration on RSV was terminated by mutual agreement. Merck will complete the Phase 1 study and transition the program to Moderna. The termination did not have an impact to our consolidated financial statements as of and for the year ended December 31, 2020. 2016 Cancer Vaccine Strategic Alliance-Personalized mRNA Cancer Vaccines In June 2016, we entered into a personalized mRNA cancer vaccines (PCV) Collaboration and License Agreement with Merck, which we refer to as the PCV Agreement, to develop and commercialize PCVs for individual patients using our mRNA vaccine and formulation technology. Under the strategic alliance, we identify genetic mutations present in a particular patient’s tumor cells, synthesize mRNA for these mutations, encapsulate the mRNA in one of our proprietary LNPs and administer to each patient a unique mRNA cancer vaccine designed to specifically activate the patient’s immune system against her or his own cancer cells. Pursuant to the PCV Agreement, we are responsible for designing and researching PCVs, providing manufacturing capacity and manufacturing PCVs, and conducting Phase 1 and Phase 2 clinical trials for PCVs, alone and in combination with KEYTRUDA (pembrolizumab), Merck’s anti-PD-1 therapy, all in accordance with an agreed upon development plan and budget and under the oversight of a committee comprised of equal representatives of each party. The parties have entered into a clinical quality agreement with respect to Moderna’s manufacture and supply activities. We received an upfront payment of $200.0 million from Merck. In November 2017, we and Merck announced the achievement of a key milestone for the first-in-human dosing of a PCV (mRNA-4157) as a part of the alliance. The Phase 1 open-label, dose escalation, multicenter clinical trial in the United States (KEYNOTE-603) is designed to assess the safety, tolerability and immunogenicity of mRNA-4157 alone in subjects with resected solid tumors and in combination with KEYTRUDA, in subjects with unresectable solid tumors. Until the expiration of a defined period of time following our completion of Phase 1 and Phase 2 clinical trials for PCVs under the PCV Agreement and delivery of an associated data package to Merck, Merck has the right to elect to participate in future development and commercialization of PCVs by making a $250.0 million participation payment to us. If Merck exercises its election and pays the participation payment, then the parties will equally co-fund subsequent clinical development of PCVs, with Merck primarily responsible for conducting clinical development activities under a jointly agreed development plan and budget. Each party may also conduct additional clinical trials for PCVs that are not included in the jointly agreed development plan and budget, in which case the non-conducting party will reimburse the conducting party for half of the total costs for such trials, plus interest, from its share of future profits resulting from sales of such PCVs, if any. Merck will lead worldwide commercialization of PCVs, subject to Moderna’s option to co-promote PCVs in the United States, and the parties will equally share the profits or losses arising from worldwide commercialization. Until a PCV becomes profitable, we may elect to defer payment of our share of the commercialization and related manufacturing costs and instead reimburse Merck for such costs, plus interest, from our share of future profits resulting from sales of such PCV, if any. Subject to customary “back-up” supply rights granted to Merck, we will manufacture (or have manufactured) PCVs for preclinical and clinical purposes. Manufacture of PCVs for commercial purposes will be determined by the parties in accordance with the terms of the PCV Agreement. Under the PCV Agreement, we grant certain licenses to Merck to perform its collaboration activities. If Merck does not exercise its right to participate in future development and commercialization of PCVs, then Moderna will retain the exclusive right to develop and commercialize PCVs developed during the strategic alliance, subject to Merck’s rights to receive a percentage in the high teens to the low 20s, subject to reductions of our net profits on sales of such PCVs. During a limited period following such non-exercise, Merck has the right to perform clinical studies of such PCVs in combination with KEYTRUDA, for which we agree to use reasonable efforts to supply such PCVs. During such limited period, we also have the right to perform clinical studies of PCVs in combination with KEYTRUDA, for which Merck agrees to use reasonable efforts to supply KEYTRUDA. In addition, following its non-exercise, Merck is also entitled to receive a percentage in the high teens to the low 20s, subject to reductions, of our net profits on sales of certain PCVs first developed by us following such non-exercise and reaching a specified development stage within a defined period of time. We and Merck have agreed to certain defined, limited exclusivity obligations with respect to the development and commercialization of PCVs. 2018 Expansion of the Cancer Vaccine Strategic Alliance-Shared Neoepitope Cancer Vaccines In April 2018, we and Merck agreed to expand our cancer vaccine strategic alliance to include the development and commercialization of our KRAS vaccine development candidate, mRNA-5671 or V941, and potentially other shared neoantigen mRNA cancer vaccines (SAVs). We preclinically developed mRNA-5671 prior to its inclusion in the cancer vaccine strategic alliance and it is comprised of a novel mRNA construct designed by us and encapsulated in one of our proprietary LNPs. The PCV Agreement was amended and restated to include the new SAV strategic alliance (PCV/SAV Agreement). We have granted Merck certain licenses and we and Merck have agreed to certain exclusivity obligations with respect to SAVs and particular SAV programs, which obligations are subject to termination or expiration upon certain triggering events. Under the PCV/SAV Agreement, Merck will be responsible for conducting Phase 1 and Phase 2 clinical trials for mRNA-5671 and for all costs associated with such activities, in accordance with a jointly agreed development plan and budget, and we will be responsible for manufacturing and supplying all mRNA-5671 required to conduct such trials and for all costs and expenses associated with such manufacture and supply. Under the PCV/SAV Agreement, our budgeted commitment for PCV increased to $243.0 million. Until the expiration of a defined period of time following the completion of Phase 1 and Phase 2 clinical trials for mRNA-5671 under the PCV/SAV Agreement and our delivery of an associated data package to Merck, Merck has the right to elect to participate in future development and commercialization of mRNA-5671 by making a participation payment to us. If Merck exercises its participation rights, then the parties will equally co-fund subsequent clinical development of mRNA-5671, with Merck primarily responsible for conducting clinical development activities under a jointly agreed development plan and budget. If Merck declines to participate in future development and commercialization activities following the initial Phase 1 and Phase 2 clinical trials for mRNA-5671, then we will retain the rights to develop and commercialize mRNA-5671. If Merck elects to participate in future development and commercialization of mRNA-5671, Merck may also conduct additional clinical trials for mRNA-5671 that are not included in the jointly agreed development plan and budget, in which case we will reimburse Merck for half of the total development costs for such clinical trials, plus interest, from our share of future profits resulting from sales of mRNA-5671, if any. If Merck does conduct additional clinical trials for mRNA-5671, we will be responsible for manufacturing and supplying all mRNA-5671 required to conduct such trials. Merck will lead worldwide commercialization of mRNA-5671, subject to our option to co-promote mRNA-5671 in the United States, and the parties will equally share the operating profits or losses arising from worldwide commercialization. Until mRNA-5671 becomes profitable, we may elect to defer payment of our share of the commercialization and related manufacturing costs and instead reimburse Merck for such costs, plus interest, from our share of future profits resulting from sales of mRNA-5671, if any. Subject to “back-up” supply rights granted to Merck, we will manufacture (or have manufactured) mRNA-5671 and other SAVs for preclinical and clinical purposes. After Merck exercises its right to participate in future development and commercialization of mRNA-5671 and other SAVs, we will grant the applicable development and commercialization licenses and the parties are obligated to discuss responsibility for future manufacturing, giving consideration to applicable criteria. Pursuant to the PCV/SAV Agreement, for a defined period of time, either party may propose that the parties conduct additional programs for the research and development of SAVs directed to different shared neoantigens. If the parties agree to conduct any such programs, then we will be responsible for conducting and funding preclinical discovery and research activities for such SAVs, and otherwise the programs would be conducted on substantially the same terms as mRNA-5671 program. If we or Merck propose a new SAV program and the other party does not agree to conduct such program, then the PCV/SAV Agreement includes provisions allowing the proposing party to proceed with such development, at the proposing party’s expense. If Merck is the proposing party, we will be responsible for manufacturing and supplying material for such program at Merck’s expense. In such case, the non-proposing party will have the right to opt-in to such SAV program any time before the proposing party commits to performing Good Laboratory Practice (GLP)-toxicity studies. Until the expiration of a defined period of time following our completion of Phase 1 and Phase 2 clinical trials for any SAV program mutually agreed by the parties under the PCV/SAV Agreement and our delivery of an associated data package to Merck, Merck has the right to elect to participate in future development and commercialization of such SAV by making a participation payment to us. Unless earlier terminated, the PCV/SAV Agreement will continue on a program-by-program basis until Merck terminates its participation in such program. Following any such termination, we will retain the exclusive right to develop and commercialize PCVs or SAVs developed as a part of such program, subject to restrictions and certain limited rights retained by Merck. In connection with the amendment of the PCV Agreement to include the development and commercialization of mRNA-5671 and potentially other SAVs, Merck made a contemporaneous equity investment in our Series H redeemable convertible preferred stock, resulting in gross proceeds of $125.0 million, of which $13.0 million was determined to be a premium and recorded to deferred revenue. Accounting Treatment We determined that the PCV/SAV Agreement should be accounted for separately from the amended 2015 Merck Agreement, as the agreements were not negotiated in contemplation of one another and the elements within each of the agreements are not closely interrelated or interdependent on each other. The PCV/SAV Agreement represents a transaction with a customer and therefore is accounted for in accordance with ASC 606. We identified the following performance obligations in the PCV/SAV Agreement: (i) a research license and research and development services, including manufacturing and supply of PCVs, during the proof of concept (POC) term for the PCV program, referred to as the PCV Performance Obligation, and (ii) research license and manufacturing and supply of mRNA-5671 during the POC term for the KRAS program, referred to as the KRAS Performance Obligation. We concluded that the research license is not distinct from the research and development services, including manufacturing and supply of PCVs, during the POC term for the PCV program, as Merck cannot fully exploit the value of the license without receipt of such services and supply. Our services and supply involve specialized expertise, particularly as it relates to mRNA technology that is not available in the marketplace. Therefore, the research license has been combined with the research and development services, including manufacturing and supply of PCVs, during the POC term for the PCV program, into a single performance obligation. Similarly, we concluded that the research license is not distinct from the manufacturing and supply of mRNA-5671 during the POC term for the KRAS program, as Merck cannot fully exploit the value of the license without receipt of such supply which must be provided by us. This is due to limitations inherent in the licenses conveyed wherein Merck does not have the contractual right to manufacture during the POC term. Therefore, the research license has been combined with the manufacturing and supply of mRNA-5671, during the POC term for the KRAS program, into a single performance obligation. Conversely, we concluded that the PCV Performance Obligation and the KRAS Performance Obligation are distinct from each other because Merck can fully exploit the value of each program for its intended purpose without the promises associated with the other program. Additionally, we concluded the following customer options are marketing offers as such options did not provide any discounts or other rights that would be considered a material right in the arrangement: (i) Merck participation election license related to future joint development and commercialization on a program-by-program basis, (ii) manufacturing and supply in support of certain SAV programs and/or the PCV program upon Merck election to not participate in future development and commercialization of that program and (iii) research and development services associated with certain SAV programs. Therefore, such options will be accounted for as a separate contract upon the customer’s election. The following table summarizes the composition of the total transaction price for the periods presented (in thousands):
|  | Transaction Price
|  | December 31,
PCV/SAV Agreement: |  | 2020 |  | 2019
Upfront payment |  | $ | 200,000 |  |  | $ | 200,000 |
Premium associated with the contemporaneous sale of Series H redeemable convertible preferred stock |  | 13,050 |  |  | 13,050 |
Reimbursement for clinical supply |  | 310 |  |  | — |
Total |  | $ | 213,360 |  |  | $ | 213,050 |
We re-evaluate the transaction price at the end of each reporting period. During the year ended December 31, 2020, there was a $0.3 million increase to the transaction price from a reimbursement for clinical supply. The transaction price was allocated to the performance obligations based on the relative estimated standalone selling price of each performance obligation. We developed the estimated standalone selling price for the license included in each of the PCV Performance Obligation and the KRAS Performance Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each license related to each specific program. In developing such estimate, we also considered applicable market conditions and relevant entity-specific factors, including those factors contemplated in negotiating the agreement, probability of success and the time needed to commercialize a product candidate pursuant to the associated license. We developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the PCV Performance Obligation and the KRAS Performance Obligation, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated cost, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts. The following tables summarize the allocation of the total transaction price to the identified performance obligations under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
PCV/SAV Agreement: |  | December 31, 2020
PCV performance obligation |  | $ | 206,356 |
KRAS performance obligation |  | 7,004 |
Total |  | $ | 213,360 |
Remaining unsatisfied performance obligation |  | $ | 51,007 |
As of December 31, 2020, the remaining performance obligations that are unsatisfied is expected to be recognized as revenue through December 31, 2024. We will recognize revenue related to amounts allocated to the PCV Performance Obligation over time as the underlying services are performed using a proportional performance model. We measure proportional performance using an input method based on the costs incurred relative to the total estimated costs of research and development efforts. We recognize revenue related to the amounts allocated to the KRAS Performance Obligation based on the point in time upon which control of supply is transferred to Merck for each delivery of the associated supply. The following table summarizes the revenue recognized for the periods presented (in thousands):
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
PCV/SAV Agreement |  | $ | 33,103 |  |  | $ | 41,382 |  |  | $ | 41,498 |
The revenue recognized during the year ended December 31, 2020 includes the amortization of deferred revenue due to the satisfaction of our performance during the period, offset by a cumulative catch-up adjustment of $3.5 million due to changes in estimated costs for our future performance obligations. The following table summarizes the balances of deferred revenue, which is classified as current or non-current in the condensed consolidated balance sheets based on the period the services are expected to be performed or control of the supply is expected to be transferred for the periods presented (in thousands):
|  | December 31
|  | 2020 |  | 2019
PCV/SAV Agreement |  | $ | 51,007 |  |  | $ | 83,799 |
Vertex – 2016 Strategic Alliance in Cystic Fibrosis In July 2016, we entered into a Strategic Collaboration and License Agreement, with Vertex Pharmaceuticals Incorporated, and Vertex Pharmaceuticals (Europe) Limited, together, Vertex, which we refer to as the Vertex Agreement. The Vertex Agreement, which was amended in July 2019, which we refer to as the 2019 Vertex Amendment, is aimed at the discovery and development of potential mRNA medicines for the treatment of cystic fibrosis (CF) by enabling cells in the lungs of people with CF to produce functional cystic fibrosis transmembrane conductance regulator (CFTR) proteins. Pursuant to the Vertex Agreement, we lead discovery efforts during an initial research period that currently extends until March 2020, leveraging our Platform technology and mRNA delivery expertise along with Vertex’s scientific experience in CF biology and the functional understanding of CFTR. Vertex is responsible for conducting development and commercialization activities for candidates and products that arise from the strategic alliance, including the costs associated with such activities. Subject to customary “back-up” supply rights granted to Vertex, we exclusively manufacture (or have manufactured) mRNA for preclinical, clinical and commercialization purposes. The parties established a joint steering committee to oversee and coordinate activities under the Vertex Agreement. We and Vertex have granted each other certain licenses under the Vertex Agreement. Under the terms of the Vertex Agreement, we received a $20.0 million upfront payment from Vertex. In July 2019, Vertex elected to extend the initial research period by six months by making a $2.0 million payment to us pursuant to the 2019 Vertex Amendment. In March 2020, based on the promising preclinical data generated to date, Vertex extended the conduct of the initial Research Plan through the First Extended Research Term (an additional 18-month term) by making an additional payment to us. Vertex has rights to further extend the research period for two additional one-year periods by making an additional payment to us for each one-year extension. We are eligible to receive up to $55.0 million in payments for achievement of development milestones, up to $220.0 million in payments for achievement of regulatory milestones and potentially could receive an additional $3.0 million milestone payment for achievement of a regulatory milestone for second and each subsequent product under the Vertex Agreement. Vertex will also pay us tiered royalties at rates ranging from the low- to high-teens on worldwide net sales of products arising from the strategic alliance, subject to certain reductions, with an aggregate minimum floor. In connection with the strategic alliance, Vertex also made a $20.0 million equity investment in us. During the term of the Vertex Agreement, we and Vertex have agreed to certain defined exclusivity obligations under the Vertex Agreement with respect to the development and commercialization of certain mRNA medicines. Unless earlier terminated, the Vertex Agreement will continue until the expiration of all royalty terms. Vertex may terminate the Vertex Agreement for convenience upon 90 days’ prior written notice, except if termination relates to a product in a country where Vertex has received marketing approval, which, in such case, Vertex must provide 180 days’ prior written notice. Either party may terminate the Vertex Agreement upon the other party’s material breach, subject to specified notice and cure provisions. Each party may also terminate the Vertex Agreement in the event that the other party challenges the validity or enforceability of such party’s patent rights, subject to certain exceptions, or if the other party becomes insolvent. Accounting Treatment The total transaction price for the Vertex Agreement was determined to be $24.4 million, comprised of the $20.0 million upfront payment and $4.4 million in research and development funding related to the research and development services and supply of non-cGMP mRNA. As of December 31, 2019, all performance obligations under the Vertex Agreement were completed. The 2019 Vertex Amendment represents a contract modification and is accounted for as a separate contract. As of December 31, 2020, all performance obligations under the 2019 Vertex Amendment were completed and the total transaction price of $4.5 million, comprised of the $2.0 million upfront payment and $2.5 million in research and development funding related to the research and development services and supply of non-cGMP mRNA, was fully recognized. The First Extended Research Term represents a contract modification and is accounted for as a separate contract. Pursuant to the 2019 Vertex Amendment, we identified one performance obligation comprised of: (i) a research, development and commercialization license and (ii) research and development services, including manufacturing and supply of non-cGMP mRNA, during the 18-month First Extended Research Term. We concluded that the license is not distinct from the research and development services, including manufacturing and supply of non-cGMP mRNA. Additionally, we concluded that the following customer options are marketing offers as such options did not provide any discounts or other rights that would be considered a material right in the arrangement: (i) Vertex’s rights to extend the extended initial research period and (ii) clinical mRNA supply and/or non-cGMP mRNA supply beyond the extended initial research period. Therefore, such options will be accounted for as a separate contract upon the customer’s election. The following table summarizes the composition of the total transaction price for the First Extended Research Term at December 31, 2020 (in thousands):
|  | Transaction Price
Vertex Agreement - First Extended Research Term: |  | December 31, 2020
Upfront payment |  | $ | 4,000 |
Research and development |  | 39,798 |
Total |  | $ | 43,798 |
We utilize the most likely amount method to determine the amount of research and development funding to be received. As of December 31, 2020, there were no milestones included in the transaction price. We considered the stage of development and the risks associated with the remaining development required to achieve each milestone, as well as whether the achievement of the milestone is outside of our or Vertex’s control. The outstanding milestone payments were fully constrained, as a result of the uncertainty whether any of the milestones would be achieved. We determined that any sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted and therefore have also been excluded from the transaction price. We re-evaluate the tra nsaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. There was a $8.6 million increas e to the transaction price during the year ended December 31, 2020, resulting from a change in the estimate of variable consideration. The following table summarizes the total transaction price allocated to the single performance obligation under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
|  | December 31, 2020
First Extended Research Term transaction price |  | $ | 43,798 |
Remaining unsatisfied performance obligation |  | $ | 30,346 |
As of December 31, 2020 the aggregate amount of transaction price allocated to the remaining performance obligations that are unsatisfied is expected to be recognized as revenue through the fourth quarter of 2021. We recognize revenue related to amounts allocated to the single performance obligation over time as the underlying services are performed using a proportional performance model. We measure proportional performance using an input method based on the costs incurred relative to the total estimated costs of the research and development efforts. The following table summarizes the revenue recognized for the periods presented (in thousands):
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Vertex First Extended Research Term |  | $ | 13,452 |  |  | $ | — |  |  | $ | — |
Vertex Agreement/2019 Amendment |  | 2,053 |  |  | 6,197 |  |  | 10,400 |
Total |  | $ | 15,505 |  |  | $ | 6,197 |  |  | $ | 10,400 |
The revenue recognized during the year ended December 31, 2020, includes the amortization of the deferred revenue due to the satisfaction of our performance during the period, offset by a cumulative catch-up adjustment of $0.2 million due to changes in estimated costs for our future performance obligations. The following table summarizes the balances of deferred revenue, classified as current and non-current in the condensed consolidated balance sheets based on the term of the research period for the periods presented (in thousands):
|  | December 31,
|  | 2020 |  | 2019
Vertex Agreement (1) |  | $ | 2,648 |  |  | $ | 793 |
____________ (1) Balance as of December 31, 2019 represents deferred revenue related to the Vertex 2019 Amendment Vertex —2020 Strategic Alliance in Cystic Fibrosis In September 2020, we entered into a new Strategic Collaboration and License Agreement with Vertex (Vertex 2020 Agreement). The Vertex 2020 Agreement is aimed at the discovery and development of potential medicines to treat CF by delivering gene-editing therapies to lung cells to facilitate production of functional CFTR proteins. The three-year research period of the Vertex 2020 Agreement will initially focus on the identification and optimization of novel LNPs and mRNAs that can deliver gene-editing therapies to cells in the lungs. Following the initial three-year period, Vertex is responsible for conducting development and commercialization activities for candidates and products that arise from the strategic alliance, including the costs associated with such activities. Vertex is also obligated to pay us for research services in connection with our performance of certain activities in accordance with a jointly agreed research plan. Subject to customary “back-up” supply rights granted to Vertex, under the agreement, we are the exclusive manufacturer of related mRNA and LNPs for preclinical, clinical, and commercialization purposes. Under the terms of the Vertex 2020 Agreement, we received a $75.0 million upfront payment from Vertex. We are eligible to receive up to $380.0 million in milestone payments upon the achievement of certain development, regulatory, and commercial milestone events with respect to any products that result from the strategic alliance, and Vertex will also pay us a tiered percentage of its gross profits derived from worldwide net sales of products arising from the strategic alliance. During the term of the Vertex 2020 Agreement, we and Vertex have agreed to certain defined exclusivity obligations with respect to the development and commercialization of certain mRNA medicines. Unless earlier terminated, the Vertex 2020 Agreement will continue until the expiration of all payment obligations. Vertex may terminate the Vertex 2020 Agreement for convenience upon 90 days’ prior written notice, except if termination relates to a product in a country where Vertex has received marketing approval; in such case, Vertex must provide 180 days’ prior written notice. Either party may terminate the Vertex 2020 Agreement upon the other party’s material breach, subject to specified notice and cure provisions. Each party may also terminate the Vertex 2020 Agreement in the event that the other party challenges the validity or enforceability of such party’s patent rights, subject to certain exceptions, or if the other party becomes insolvent. Accounting Treatment We determined that all aspects of the 2020 Vertex Agreement represent a transaction with a customer and therefore should be accounted for in accordance with ASC 606. We also determined that the 2020 Vertex Agreement should be accounted for separately from other Vertex Agreements as the agreements contemplate research on separate research candidates. We identified one performance obligation comprised of: (i) a research, development and commercialization license; and (ii) research and development services, including manufacturing and supply of non-cGMP mRNA, performed as part of the Initial Research Plan and the Additional Research Plan (collectively, the research period). We concluded that the license is not distinct from the research and development services, including manufacturing and supply of non-cGMP mRNA used in the performance of the research services, as Vertex cannot fully exploit the value of the license without receipt of such services and supply. Our services and supply involve specialized expertise, particularly as it relates to mRNA technology that is not available in the marketplace. Therefore, the license has been combined with the research and development services, including manufacturing and supply of non-cGMP supply, into a single performance obligation. Additionally, we concluded the provision of clinical mRNA supply and/or non-cGMP mRNA supply provided to Vertex at their option represents a customer option and is considered a marketing offer as such options did not provide any discounts or other rights that would be considered a material right in the arrangement. Such options will be accounted for as a separate contract upon the customer’s election. The total transaction price was determined to be $75.0 million, comprised of the upfront payment. We utilize the most likely amount method to determine the amount of research and development funding to be received associated with the Additional Research Plan. Our funding estimate is based on our experience bringing research candidates to the point of nomination by our collaboration partners, including our experience with Vertex under separate transactions. We have fully constrained such amounts and will not include any expected funding in the transaction price until the scope of such services have been agreed to amongst the parties. We also utilize the most likely amount method to estimate any development and regulatory milestone payments to be received. Further, there were no milestones included in the transaction price. We considered the stage of development and the risks associated with the remaining development required to achieve each milestone, as well as whether the achievement of the milestone is outside of our or Vertex’s control. The outstanding milestone payments were fully constrained, as a result of the uncertainty whether any of the milestones would be achieved. We determined that any sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted, and therefore have also been excluded from the transaction price. For the 2020 Vertex Agreement, the total transaction price was allocated entirely to a single performance obligation. We recognize revenue related to amounts allocated to the single performance obligation over time as the underlying services are performed using a proportional performance model. We measure proportional performance using an input method based on the costs incurred relative to the total estimated costs of the research and development efforts. For the year ended December 31, 2020, we did not recognize any revenue associated with the 2020 Vertex Agreement. As of December 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations that are unsatisfied is $75.0 million, which is expected to be recognized as revenue through the third quarter of 2023. We had deferred revenue of $75.0 million as of December 31, 2020, which is classified as current and non-current in the consolidated balance sheets based on the term of the research period. Chiesi—2020 Collaboration and License Agreement with Chiesi In September 2020, we entered into a Collaboration and License Agreement with Chiesi Farmaceutici S.P.A. (Chiesi), which we refer to as the Chiesi Agreement. The Chiesi Agreement is aimed at the discovery and development of potential mRNA medicines for the treatment of Pulmonary Arterial Hypertension (PAH), a rare disease characterized by high blood pressure in the arteries of the lungs. Pursuant to the Chiesi Agreement, we lead discovery efforts during a four-year research period, leveraging our Platform technology and mRNA delivery expertise along with Chiesi’s scientific experience in PAH biology. Chiesi is responsible for conducting development and commercialization activities for candidates and products that arise from the collaboration, including the costs associated with such activities. Chiesi is also obligated to pay us for our performance of research activities during the research period in accordance with a jointly agreed research plan. Under the agreement, we are the exclusive manufacturer of related candidates and products for preclinical, clinical, and commercialization purposes. Under the terms of the Chiesi Agreement, we are entitled to receive a $25.0 million upfront payment from Chiesi. Chiesi has the right to extend the initial four-year research period by one additional year by making an additional payment to us. We are eligible to receive up to $405.0 million in aggregate milestone payments upon the achievement of certain development, regulatory and commercial milestone events, and Chiesi will also pay us tiered double-digit royalties on worldwide net sales of products arising from the collaboration, subject to certain reductions, with an aggregate minimum floor. During the term of the Chiesi Agreement, we and Chiesi have agreed to certain defined exclusivity with respect to the development and commercialization of certain mRNA medicines. Accounting Treatment We determined that all aspects of the Chiesi Agreement represent a transaction with a customer and therefore should be accounted for in accordance with ASC 606. We identified the following performance obligations in the Chiesi Agreement: (i) a research license and research and development services, including manufacturing and supply during the research period; (ii) a material right for the first product development and commercialization license; and (iii) a material right for the second product development and commercialization license. We concluded that the license is not distinct from the research and development services, including manufacturing and supply of non-cGMP mRNA, during the four-year research period, as Chiesi cannot fully exploit the value of the license without receipt of such services and supply. Our services and supply involve specialized expertise, particularly as it relates to mRNA technology that is not available in the marketplace. Therefore, the license has been combined with the research and development services, including manufacturing and supply of non-cGMP supply, into a single performance obligation. Additionally, we concluded the provision of clinical mRNA supply and/or non-cGMP mRNA supply beyond the four-year research period and the right to extend the research period for one additional year represent customer options and are considered marketing offers as such options did not provide any discounts or other rights that would be considered a material right in the arrangement. Such options will be accounted for as a separate contract upon the customer's election. The following table summarizes the composition of the total transaction price for the periods presented (in thousands):
|  | Transaction Price
Chiesi Agreement: |  | December 31, 2020
Upfront payment |  | $ | 25,000 |
Research and development |  | 17,496 |
Total |  | $ | 42,496 |
We utilize the most likely amount method to determine the amount of research and development funding to be received associated with the research period. We also utilize the most likely amount method to estimate any development and regulatory milestone payments to be received. Further, there were no milestones included in the transaction price. We considered the stage of development and the risks associated with the remaining development required to achieve each milestone, as well as whether the achievement of the milestone is outside of our or Chiesi’s control. The outstanding milestone payments were fully constrained, as a result of the uncertainty whether any of the milestones would be achieved. We determined that any sales-based commercial milestone payments and royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted and therefore have also been excluded from the transaction price. The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. We developed the estimated standalone selling price for the services and manufacturing and supply included in the performance obligation, as applicable, primarily based on the nature of the services to be performed and the goods to be manufactured and estimates of the associated costs, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts. We developed the estimated standalone selling prices for the licenses included in the associated performance obligations based on an analysis of our other transactions with collaboration partners and third party comparable transactions. In developing such estimates, we also considered applicable market conditions and relevant entity-specific factors, including those factors contemplated in negotiating the agreement, probability of success and the time needed to commercialize a product candidate pursuant to the associated license. The estimated standalone selling price of the material rights to receive development and commercialization rights was developed by estimating the amount of discount that Chiesi would receive when exercising the option and adjusting such amount by the likelihood that the option will be exercised. The following table summarizes the allocation of the transaction price to the identified performance obligations under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2020 (in thousands):
|  | Transaction Price
|  | December 31, 2020
Chiesi Agreement transaction price |  | $ | 42,496 |
Remaining unsatisfied performance obligation |  | $ | 42,293 |
We recognize revenue related to amounts allocated to the combined research license and research and development services performance obligation over time as the underlying services are performed using a proportional performance model. We measure proportional performance using an input method based on the costs incurred relative to the total estimated costs of the research and development efforts. We will recognize revenue associated with the material rights as revenue at the earlier of the exercise or expiry of the material rights. For the year ended December 31, 2020, we recognized collaboration revenue of $0.2 million from the Chiesi Agreement. We did not recognize any revenue associated with the Chiesi Agreement for the years ended December 31, 2019 and 2018. As of December 31, 2020, $17.3 million of the remaining performance obligations that are unsatisfied is expected to be recognized as revenue through the third quarter of 2024 and $25.0 million is expected to be recognized as revenue at the earlier of the exercise or expiry of the material rights. We had deferred revenue of $25.0 million as of December 31, 2020, classified as non-current in the consolidated balance sheets based on the term of the research period.

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- Definition The entire disclosure for research, development, and computer software activities, including contracts and arrangements to be performed for others and with federal government. Includes costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility and in-process research and development acquired in a business combination consummated during the period. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 985 -SubTopic 730 -URI http://asc.fasb.org/subtopic&trid=2197926 + Details
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