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assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. In accordance with GAAP, we base our estimates
on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters
that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. While our
significant accounting policies are more fully described in detail in Note 2 to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to
be most critical to the judgments and estimates used in the preparation of our financial statements.
Our revenues are generated primarily through collaborative arrangements which generally contain multiple elements, or deliverables,
including licenses and research and development activities to be performed by us on behalf of the licensee. Payments to us under these arrangements typically include one or more of the following:
(1) nonrefundable, upfront license fees, (2) funding of discovery research efforts on an FTE basis, (3) reimbursement of research, development and intellectual property costs,
(4) milestone payments, and (5) royalties on future product sales.
account for revenue arrangements with multiple deliverables entered into prior to January 1, 2011 in accordance with Accounting Standard Codification, or ASC, Topic 605-25, Revenue Recognition: Multiple-Element
Arrangements. The multiple-deliverable items are divided into separate units of accounting if certain criteria are
met, including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. We allocate the
consideration we receive among the separate units of accounting based on their respective fair value, and apply the applicable revenue recognition criteria to each of the separate units. Where an item
in a revenue arrangement with multiple deliverables does not constitute a separate unit of accounting and for which delivery has not occurred, we defer revenue until the delivery of the item is
January 1, 2011, we adopted, on a prospective basis, ASU 2009-13, Multiple-Deliverable Revenue Arrangements, which amends
ASC 605-25 and also adopted ASU 2010-17, Revenue RecognitionMilestone Method. Our collaborations with BI were entered into prior to the
adoption of this guidance. The BACE Agreement amendment entered into December 2012 was accounted for under ASC 2009-13.
accordance with ASU 2009-13, we will consider whether the deliverables under the arrangement represent separate units of accounting. In determining the units of accounting, we will
evaluate certain criteria, including whether the deliverables have stand-alone value. The consideration received will be allocated to the separate units of accounting using the relative selling price
method, and the applicable revenue recognition criteria will be applied to each of the separate units.
determine the estimated selling price for agreement deliverables using the following hierarchy: (1) vendor-specific objective evidence, or VSOE, (2) third-party
evidence, or TPE or (3) best estimate of selling price if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment and
consideration of various factors, including market conditions, items contemplated during agreement negotiation as well as internally developed net present value models.