Revenue recognition The Company's revenue recognition policy is consistent with the requirements of FASB ASC 606, Revenue. The Company has analyzed its revenue transactions pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition from ASC 605 to ASC 606. The Company's revenues are recognized when control of the promised services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions: i. identify the contract with a customer; ii. identify the performance obligations in the contract; iii. determine the transaction price; iv. allocate the transaction price to performance obligations in the contract; and v. recognize revenue as the performance obligation is satisfied. Revenue sources consist of commercial revenues, deferred revenue, multi-element collaboration agreements and government grants and contracts. 1) Commercial revenues The Company enters into fixed fee commercial development contracts that are associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under these contracts is generally recognized upon delivery or as the development is performed. 2) Deferred revenue The Company received and will receive certain revenue in advance of services delivered. This revenue is deferred and only recognized when services have been performed in terms of master services agreements entered into with customers, together with their associated Statements of Work. 3) Multi-element collaboration agreements The Company has entered into multiple-element collaboration contracts with customers and has determined that the different revenue generating elements embodied in these contracts are separable and there is sufficient evidence of the fair value of each element to account for these contract elements separately. These contracts elements include: i. Upfront payments The Company receives upfront revenue payments, generally upon entering into a collaboration agreement, these revenues are recognized over the expected initial contract timeline as outlined in the collaboration agreement. ii. FTE based research payments The Company receives ongoing revenue for FTE based time spent on the collaboration projects, this revenue is recognized as the services are rendered. iii. Development milestones Revenue contingent upon the achievement of certain agreed upon development milestones is recognized in the period that the development milestone is achieved. The achievement of a development milestone is when the Company's collaboration partner agrees that the requirements stipulated in the agreement have been met. iv. Sales based events Revenue based on the achievement of certain calendar year net sales is recognized in the period that the sales achieved by the Company's collaboration partner reach the thresholds as laid out in the agreement. v. Royalties earned Royalties are earned at varying percentages of net product sales for certain periods as defined in the Company's collaboration agreements, these royalties are recognized as revenue in the period in which a royalty report is received from the Company's collaboration partners. 4) Government grants and contracts The Company generally uses the cost-to-cost measure of progress for all its government contracts, unless it believes another measure will produce a more reliable result. The Company believes that the cost-to-cost measure is the best and most reliable performance indicator of progress on its government contracts as all its contract estimates are based on costs that it expects to incur in performing its government contracts and it has not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the government contract. Revenues, including estimated fees or profits are recorded as costs are incurred. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.