3. Collaboration Agreements

Gilead

In June 2019, the Company entered into a global strategic collaboration agreement with Gilead, which was amended in August 2019 (the Gilead Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with cancer and other challenging diseases using the Company’s DELigase platform to identify novel agents that utilize E3 ligases to induce degradation of five specified drug targets. Under the Gilead Agreement, Gilead has the option to license drug candidates directed to up to five targets resulting from the collaboration and is responsible for the clinical development and commercialization of drug candidates resulting from the collaboration. The Company retains the option to co-develop and co-promote, under a profit share structure, up to two drug candidates in the United States under certain conditions and subject to certain limitations. The collaboration excludes the Company’s current internal protein degradation programs for which the Company retains all rights, and also excludes the Company’s future internal programs, provided that the Company has distinguished future programs as excluded from the scope of the collaboration. In August 2019 and September 2022, the Company entered into a first amendment and a second amendment, respectively, to the collaboration agreement with Gilead to clarify certain language of the Gilead Agreement. These amendments had no impact on revenue recognition.

Upon signing the Gilead Agreement, Gilead paid the Company an upfront payment of $45.0 million plus $3.0 million in additional fees. In addition, from the signing of the Gilead Agreement to August 31, 2022, the Company has received payments of $32.0 million for research milestones and additional payments. Additionally, the Company recognized a research milestone in August 2022 and anticipates a payment of $2.5 million in the fourth fiscal quarter of 2022. As of August 31, 2022, the Company is eligible to receive up to approximately $2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones. In addition, the Company is eligible to receive tiered royalties from mid-single digit to low tens percentages on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales in the United States of any products for which the Company exercises its option to co-develop and co-promote, for which the Company and Gilead share profits and losses evenly.

The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company determined that the transaction price at the inception of the Gilead Agreement consisted of the upfront payment of $45.0 million and $3.0 million in additional fees. Upon the achievement of research milestones and additional fees related to target reservations, $34.5 million in variable consideration, which includes $2.5 million added during the three months ended August 31, 2022, was added to the transaction price, and a cumulative effect was recorded as revenue in the period the transaction price increased. The transaction price is recognized as collaboration revenue using the cost-based input method over the estimated contract term of five years.

For the three and nine months ended August 31, 2022, the Company recognized collaboration revenue related to the Gilead Agreement of $7.2 million and $19.5 million, respectively, of which $5.6 million and $14.3 million, respectively, was included in deferred revenue as of November 30, 2021, and $0.6 million and $4.1 million, respectively, was related to activities satisfied in previous periods. For the three and nine months ended August 31, 2021, the Company recognized collaboration revenue related to the Gilead Agreement of $6.1 million and $12.5 million, respectively, of which $4.0 million and $9.6 million, respectively, was included in deferred revenue as of November 30, 2020, and $1.2 million and $1.9 million, respectively, was related to activities satisfied in previous periods. As of August 31, 2022, deferred revenue related to the Gilead Agreement was $29.1 million, of which $15.9 million was current and includes $2.5 million in contract assets representing the unbilled amount related to the research milestone recognized in August 2022. As of November 30, 2021, deferred revenue related to the Gilead Agreement was $41.1 million, of which $19.9 million was current. Additionally, as of November 30, 2021, $6.0 million was recorded in accounts receivable representing the billed amount related to the research milestones recognized in November 2021.

Sanofi

In December 2019, the Company entered into a strategic collaboration with Genzyme Corporation, a subsidiary of Sanofi, which became effective in January 2020 (as subsequently expanded and amended, the Sanofi Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with challenging diseases in multiple therapeutic areas using the Company’s DELigase platform to identify small molecules designed to induce degradation of three specified initial drug targets. In January 2021, as part of the existing collaboration agreement, Sanofi paid the Company $22.0 million to exercise its option to expand the number of targets in the collaboration agreement from three to a total of five targets. In January 2021, the Company and Sanofi entered into a first amendment to the collaboration agreement to modify the research term on all targets (the First Sanofi Amendment). Over time and subject to certain limitations, Sanofi may elect to replace the drug targets with other reserved targets. In December 2021, the Company and Sanofi entered into a second amendment to extend the substitution deadline on certain targets. Under the Sanofi Agreement, Sanofi has exclusive rights and is responsible for the clinical development, commercialization and manufacture of drug candidates resulting from the collaboration, while the Company retains the option to co-develop, co-promote and co-commercialize up to two targets, subject to certain conditions and limitations. In July 2022, the Company entered into a third amendment to further extend the substitution deadline on certain targets. The extensions of the substitution deadline had no impact on revenue recognition. Also in July 2022, Sanofi elected to replace certain drug targets, and the substitution extended the research term of those targets by one year to 5.25 years and increased overall forecasted costs, which had an immaterial impact on revenue recognition. In August 2022, the Company entered into a fourth amendment to modify the research plan for a certain target, which had no impact on revenue recognition.

Upon signing the Sanofi Agreement, Sanofi paid the Company an upfront payment of $55.0 million. Subsequently, in January 2021, Sanofi paid the Company an additional $22.0 million to exercise its option to expand the number of targets beyond the initial targets included in the collaboration. In addition, from the signing of the Sanofi Agreement to August 31, 2022, the Company has received payments of $3.0 million for research milestones. As of August 31, 2022, the Company is eligible to receive up to approximately $2.5 billion in total additional payments based on certain additional fees, payments and the successful completion of certain research development, regulatory and sales milestones, as well as tiered royalties ranging from mid-single digit to low teen percentages on annual net sales of any commercial products that may result from the collaboration, subject to certain reductions and excluding sales in the United States of any products for which the Company exercises its option to co-develop and co-promote, for which the parties share profits and losses evenly.

The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. At the inception of the Sanofi Agreement, the Company determined that the transaction price consisted of the upfront payment of $55.0 million for three initial drug targets and $22.0 million for two additional targets. Subsequently, upon the achievement of research milestones, $3.0 million in variable consideration was added to the transaction price, and a cumulative effect was recorded as revenue in the period the transaction price increased. Revenue is recognized using the cost-based input method over the research term of 4.25 years, the revised research period that was agreed to in January 2021 in the First Sanofi Amendment for certain targets, and 5.25 years, the revised research period due to the target substitutions in July 2022, for certain other targets.

For the three and nine months ended August 31, 2022, the Company recognized collaboration revenue related to the Sanofi Agreement of $3.6 million and $12.4 million, respectively, of which $3.6 million and $11.8 million, respectively, was included in deferred revenue as of November 30, 2021 and zero and $0.4 million, respectively, was related to activities satisfied in previous periods. For the three and nine months ended August 31, 2021, the Company recognized collaboration revenue related to the Sanofi Agreement of $4.2 million and $9.8 million, respectively, of which $4.0 million and $9.6 million, respectively, was included in deferred revenue as of November 30, 2020. As of August 31, 2022 and November 30, 2021, deferred revenue related to the Sanofi Agreement was $48.8 million, of which $20.5 million was current, and $59.2 million, of which $21.3 million was current, respectively.