Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2018	Feb. 19, 2019	Jun. 30, 2018
Document and Entity Information
Entity Registrant Name	IMMUNOGEN INC
Entity Central Index Key	0000855654
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 1,425,536,472
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		149,409,825
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY

CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2018	Dec. 31, 2017
ASSETS
Cash and cash equivalents	$ 262,252,000	$ 267,107,000
Accounts receivable	1,701,000	2,649,000
Unbilled revenue	617,000	2,580,000
Contract asset	500,000
Non-cash royalty receivable	9,249,000
Inventory	0	1,038,000
Prepaid and other current assets	4,462,000	2,967,000
Total current assets	278,781,000	276,341,000
Property and equipment, net of accumulated depreciation	12,891,000	14,538,000
Other assets	3,709,000	3,797,000
Total assets	295,381,000	294,676,000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable	11,365,000	8,562,000
Accrued compensation	11,796,000	11,473,000
Other accrued liabilities	20,465,000	15,767,000
Current portion of deferred lease incentive	837,000	784,000
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $753 and $772, respectively	25,880,000	17,779,000
Current portion of deferred revenue	317,000	1,405,000
Total current liabilities	70,660,000	55,770,000
Deferred lease incentive, net of current portion	4,675,000	5,129,000
Deferred revenue, net of current portion	80,485,000	93,752,000
Convertible 4.5% senior notes, net of deferred financing costs of $36 and $50, respectively	2,064,000	2,050,000
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $1,536 and $2,373, respectively	122,345,000	151,634,000
Other long-term liabilities	4,180,000	4,236,000
Total liabilities	284,409,000	312,571,000
Commitments and contingencies (Note J)
Shareholders' deficit:
Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding
Common stock, $0.01 par value; authorized 200,000 shares; issued and outstanding 149,400 and 132,526 shares as of December 31, 2018 and December 31, 2017, respectively	1,494,000	1,325,000
Additional paid-in capital	1,192,813,000	1,009,362,000
Accumulated deficit	(1,183,335,000)	(1,028,582,000)
Total shareholders' equity (deficit)	10,972,000	(17,895,000)
Total liabilities and shareholders' equity (deficit)	$ 295,381,000	$ 294,676,000

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
CONSOLIDATED BALANCE SHEETS
Current portion of deferred financing costs for the liability related to the sale of future royalties	$ 753	$ 772
Interest rate (as a percent)	4.50%
Non-current deferred financing costs	$ 36	50
Noncurrent portion of deferred financing costs for the liability related to the sale of future royalties	$ 1,536	$ 2,373
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized shares	5,000	5,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	200,000	200,000
Common stock, issued shares	149,400	132,526
Common stock, outstanding shares	149,400	132,526

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2016
Revenues:
Total revenues	$ 21,506	$ 53,446	$ 115,447	$ 60,002
Operating Expenses:
Research and development	66,566	174,456	139,739	148,077
General and administrative	17,995	36,746	33,911	36,916
Restructuring charge	4,431	3,693	779
Total operating expenses	88,992	214,895	174,429	184,993
Loss from operations	(67,486)	(161,449)	(58,982)	(124,991)
Investment income, net	259	4,227	1,146	325
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes	(8,665)	(10,631)	(13,682)	(20,130)
Interest expense on convertible senior notes	(2,249)	(95)	(3,040)	(138)
Non-cash debt conversion expense			(22,915)
Other (expense) income, net	(742)	(895)	1,461	117
Net loss	$ (78,883)	$ (168,843)	$ (96,012)	$ (144,817)
Basic and diluted net loss per common share (in dollar per share)	$ (0.91)	$ (1.21)	$ (0.98)	$ (1.67)
Basic and diluted weighted average common shares outstanding (in shares)	87,102	139,946	98,068	86,976
Total comprehensive loss	$ (78,883)	$ (168,843)	$ (96,012)	$ (144,817)
License and milestone fees
Revenues:
Total revenues	5,152	15,280	79,469	26,915
Royalty revenue
Revenues:
Total revenues				195
Non-cash royalty revenue related to the sale of future royalties
Revenues:
Total revenues	12,894	32,154	28,142	25,299
Research and development support
Revenues:
Total revenues	2,781	1,377	3,482	4,014
Clinical materials revenue
Revenues:
Total revenues	$ 679	$ 4,635	$ 4,354	$ 3,579

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Jun. 30, 2015	$ 866	$ 743,108	$ (708,870)	$ 35,104
Balance (in shares) at Jun. 30, 2015	86,579
Increase (Decrease) in Shareholders' (Deficit) Equity
Net loss			(144,817)	(144,817)
Stock options exercised	$ 5	5,156		5,161
Stock options exercised (in shares)	555
Restricted stock award	$ 1	(1)
Restricted stock award (in shares)	75
Stock option and restricted stock compensation expense		21,868		21,868
Directors' deferred share unit compensation		380		380
Balance at Jun. 30, 2016	$ 872	770,511	(853,687)	(82,304)
Balance (in shares) at Jun. 30, 2016	87,209
Increase (Decrease) in Shareholders' (Deficit) Equity
Net loss			(78,883)	(78,883)
Restricted stock award - net of forfeitures	$ 1			1
Restricted stock award - net of forfeitures (in shares)	92
Stock option and restricted stock compensation expense		8,121		8,121
Directors' deferred share unit compensation		215		215
Balance at Dec. 31, 2016	$ 873	778,847	(932,570)	(152,850)
Balance (in shares) at Dec. 31, 2016	87,301
Increase (Decrease) in Shareholders' (Deficit) Equity
Net loss			(96,012)	(96,012)
Stock options exercised	$ 1	649		650
Stock options exercised (in shares)	191
Restricted stock award - net of forfeitures	$ 21	(21)
Restricted stock award - net of forfeitures (in shares)	2,146
Conversion of debt	$ 262	117,067		117,329
Conversion of debt (in shares)	26,160
Issuance of common stock	$ 167	101,496		101,663
Issuance of common stock (in shares)	16,675
Stock option and restricted stock compensation expense		11,119		11,119
Directors' deferred share units converted	$ 1	(1)
Directors' deferred share units converted (in shares)	53
Directors' deferred share unit compensation		206		206
Balance at Dec. 31, 2017	$ 1,325	1,009,362	(1,028,582)	$ (17,895)
Balance (in shares) at Dec. 31, 2017	132,526			132,526
Increase (Decrease) in Shareholders' (Deficit) Equity
Net loss			(168,843)	$ (168,843)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	$ 9	4,292		4,301
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan (in shares)	946
Issuance of common stock	$ 158	162,354		162,512
Issuance of common stock (in shares)	15,755
Stock option and restricted stock compensation expense		16,445		16,445
Directors' deferred share units converted	$ 2	(1)		1
Directors' deferred share units converted (in shares)	173
Directors' deferred share unit compensation		361		361
Balance at Dec. 31, 2018	$ 1,494	$ 1,192,813	(1,183,335)	$ 10,972
Balance (in shares) at Dec. 31, 2018	149,400			149,400
Increase (Decrease) in Shareholders' (Deficit) Equity
Transition adjustment for ASC 606			$ 14,090	$ 14,090

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net loss	$ (78,883)	$ (168,843)	$ (96,012)	$ (144,817)
Adjustments to reconcile net loss to net cash used for operating activities:
Non-cash royalty revenue related to sale of future royalties	(12,894)	(32,154)	(28,142)	(25,299)
Non-cash interest expense on liability related to sale of future royalties and convertible senior notes	8,665	10,631	13,682	20,130
Non-cash debt conversion expense			22,915
Depreciation and amortization	3,074	7,411	5,963	5,327
Loss (gain) on sale/disposal of fixed assets and impairment charges	1,130	115	239	(21)
Stock and deferred share unit compensation	8,337	16,807	11,325	22,248
Deferred rent	88	(95)	91	161
Change in operating assets and liabilities:
Accounts receivable	(1,143)	948	(623)	4,205
Unbilled revenue	(5,369)	1,963	4,198	(695)
Inventory	(1,285)	1,038	1,154	2,028
Contract asset		(500)
Prepaid and other current assets	(505)	(1,495)	2,419	(706)
Other assets	405	88	(777)	(2,456)
Accounts payable	(3,247)	2,667	771	2,649
Accrued compensation	(3,778)	323	4,527	2,378
Other accrued liabilities	960	3,839	4,375	(1,434)
Deferred revenue	747	(9,165)	61,540	(8,318)
Proceeds from landlord for tenant improvements	42			144
Net cash (used) provided by operating activities	(83,656)	(166,422)	7,645	(124,476)
Cash flows from investing activities:
Purchases of property and equipment	(1,406)	(5,246)	(1,116)	(10,376)
Net cash used for investing activities	(1,406)	(5,246)	(1,116)	(10,376)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans		4,301	650	5,161
Proceeds from common stock issuance, net of $395 and $222 of transaction costs, respectively		162,512	101,663
Fees for debt conversion			(1,699)
Proceeds from issuance of convertible 4.5% notes, net of $3,392 of transaction costs				96,608
Net cash provided by financing activities		166,813	100,614	101,769
Net change in cash and cash equivalents	(85,062)	(4,855)	107,143	(33,083)
Cash and cash equivalents, beginning of period	245,026	267,107	159,964	278,109
Cash and cash equivalents, end of period	$ 159,964	262,252	267,107	$ 245,026
Supplemental disclosure:
Cash paid during the year for interest		$ 95	$ 4,685

Nature of Business and Plan of Operations	12 Months Ended
Nature of Business and Plan of Operations	Dec. 31, 2018
Nature of Business and Plan of Operations
Nature of Business and Plan of Operations	A. Nature of Business and Plan of Operations ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development of antibody‑drug conjugates, or ADCs. The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of approximately $168.8 million during the year ended December 31, 2018, and has an accumulated deficit of approximately $1.2 billion as of December 31, 2018. The Company has primarily funded these losses through payments received from its collaborations and equity and convertible debt financings. To date, the Company has no product revenue and management expects operating losses to continue for the foreseeable future. At December 31, 2018, the Company had $262.3 million of cash and cash equivalents on hand. The Company anticipates that its current capital resources and the $65.2 million raised from the sale of its residual rights to Kadcyla royalties in January 2019 (see Note F) will enable it to meet its operational expenses and capital expenditures for more than twelve months after these financial statements are issued. The Company may raise additional funds through equity or debt financings or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate revenues from collaborators on terms acceptable to the Company or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition and require the Company to defer or limit some or all of its research, development and/or clinical projects. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, complexities associated with managing collaboration arrangements, third‑party reimbursements, and compliance with governmental regulations. In June 2016, the Company’s Board of Directors approved a change in the Company’s fiscal year from a fiscal year ending on the last day of June of each year to a calendar fiscal year ending on the last day of December of each year, effective January 1, 2017. Accordingly, in addition to financial statements as of and for the years ended December 31, 2018 and 2017, these financial statements contain six-month transitional financial statements as of and for the period ending December 31, 2016.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

B. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited, ImmunoGen (Bermuda) Ltd., ImmunoGen BioPharma (Ireland) Limited, and Hurricane, LLC. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S.) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events

The Company has evaluated all events or transactions that occurred after December 31, 2018 up through the date the Company issued these financial statements. In January 2019, the Company sold its residual rights to receive royalty payments on commercial sales of Kadcyla to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for $65.2 million, net of fees.

On March 1, 2019, the Company announced that FORWARD I did not meet its PFS primary endpoint in either the entire study population or in the pre-specified subset of patients with high-FRα expression. The Company plans to conduct a full review of the FORWARD I data to determine potential next steps with mirvetuximab as a single agent, and assess its ongoing FORWARD II combination studies as a separate path forward to support a registration in ovarian cancer.

The Company did not have any other material recognizable or unrecognizable subsequent events.

Adoption of ASC Topic 606, Revenue from Contracts with Customers

The Company adopted Accounting Standards Codification Topic or ASC, 606 – Revenue from Contracts with Customers, (ASC 606) on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance, while the reported results prior to 2018 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as "legacy GAAP" or the "previous guidance."

Financial Statement Impact of Adopting ASC 606

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of December 31, 2017, was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018:

IMMUNOGEN, INC.

ADJUSTED CONSOLIDATED BALANCE SHEET

In thousands, except per share amounts


			Adjustments		Balance at
	December 31,		Due to		January 1,
	2017		ASC 606		2018
ASSETS
Cash and cash equivalents	$	267,107	$	—	$	267,107
Accounts receivable		2,649		—		2,649
Unbilled revenue		2,580		—		2,580
Non-cash royalty receivable		—		8,900		8,900
Inventory		1,038		—		1,038
Prepaid and other current assets		2,967		—		2,967
Total current assets		276,341		8,900		285,241
Property and equipment, net of accumulated depreciation		14,538		—		14,538
Other assets		3,797		—		3,797
Total assets	$	294,676	$	8,900	$	303,576
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	8,562	$	—	$	8,562
Accrued compensation		11,473		—		11,473
Other accrued liabilities		15,767		—		15,767
Current portion of deferred lease incentive		784		—		784
Current portion of liability related to the sale of future royalties, net		17,779		—		17,779
Current portion of deferred revenue		1,405		41		1,446
Total current liabilities		55,770		41		55,811
Deferred lease incentive, net of current portion		5,129		—		5,129
Deferred revenue, net of current portion		93,752		(5,231)		88,521
Convertible 4.5% senior notes, net		2,050		—		2,050
Liability related to the sale of future royalties, net		151,634		—		151,634
Other long-term liabilities		4,236		—		4,236
Total liabilities		312,571		(5,190)		307,381
Shareholders’ deficit:
Preferred stock		—		—		—
Common stock		1,325		—		1,325
Additional paid-in capital		1,009,362		—		1,009,362
Accumulated deficit		(1,028,582)		14,090		(1,014,492)
Total shareholders’ deficit		(17,895)		14,090		(3,805)
Total liabilities and shareholders’ deficit	$	294,676	$	8,900	$	303,576

Under the previous guidance, the Company deferred revenue pertaining to the transfer of certain exclusive commercialization and development licenses, and to account for these agreements under the legacy GAAP, the Company identified the deliverables included within the agreements and evaluated which deliverables represented separate units of accounting based on whether certain criteria were met, including whether the delivered element had stand-alone value to the collaborator. The consideration received was allocated among the separate units of accounting, and the applicable revenue recognition criteria were applied to each of the separate units. Under ASC 606, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is distinct from other performance obligations, is transferred to the customer and the customer is able to use and benefit from the license.

Under the previous guidance, milestones that were considered substantive because the Company contributed significant effort to the achievement of such milestones were recognized as revenue upon achievement of the milestone. Under ASC 606, if the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service, the associated milestone value is allocated to that distinct good or service. If a milestone is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method.

Under ASC 606, the Company also evaluates the milestone to determine whether the milestone is probable of being achieved and estimates the amount to be included in the transaction price. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price until the probable threshold is met. The Company determined it was probable that a future $5.0 million milestone for Takeda enrolling a patient in a Phase I trial as of the date of adoption would occur and, accordingly, recorded a reduction to accumulated deficit of $4.6 million related to this previously delivered license as approximately $400,000 was allocated to undelivered rights to future technological improvements. The $5.0 million contract asset recorded for the probable milestone was netted against contract liabilities related to the specific contract.

Prior to the adoption of ASC 606, the Company recognized royalty revenue when it could reliably estimate such amounts and collectability was reasonably assured. As such, the Company generally recognized revenue for sales royalties in the quarter the amounts were reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred. Under ASC 606, if the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). As a result of recognizing royalties for sales in the fourth quarter of fiscal year 2017, the Company recognized a reduction to accumulated deficit of $8.9 million.

The net impact of these changes resulted in a $14.1 million reduction to accumulated deficit, a $5.2 million reduction to deferred revenue and an $8.9 million increase in non-cash royalty receivable.

The adoption of ASC 606 resulted in the acceleration of revenue through December 31, 2017, which in turn reduced the related net deferred tax asset by $3.9 million. As the Company fully reserves its net deferred tax assets, the impact was offset by the valuation allowance.

Impact of ASC 606 Revenue Guidance on Financial Statement Line Items

The following tables compare the reported condensed consolidated balance sheet and statement of operations, as of and for the year ended December 31, 2018, to the pro-forma amounts had the previous guidance been in effect:

IMMUNOGEN, INC.

PRO FORMA CONSOLIDATED BALANCE SHEET

In thousands, except per share amounts


	As of December 31, 2018
			Pro forma as if the
			previous accounting
	As reported		was in effect
ASSETS
Cash and cash equivalents	$	262,252	$	262,252
Accounts receivable		1,701		1,701
Unbilled revenue		617		617
Contract asset		500		—
Non-cash royalty receivable		9,249		—
Inventory		—		—
Prepaid and other current assets		4,462		4,462
Total current assets		278,781		269,032
Property and equipment, net of accumulated depreciation		12,891		12,891
Other assets		3,709		3,709
Total assets	$	295,381	$	285,632
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Accounts payable	$	11,365	$	11,365
Accrued compensation		11,796		11,796
Other accrued liabilities		20,465		20,465
Current portion of deferred lease incentive		837		837
Current portion of liability related to the sale of future royalties, net		25,880		25,880
Current portion of deferred revenue		317		297
Total current liabilities		70,660		70,640
Deferred lease incentive, net of current portion		4,675		4,675
Deferred revenue, net of current portion		80,485		83,710
Convertible 4.5% senior notes, net		2,064		2,064
Liability related to the sale of future royalties, net		122,345		122,345
Other long-term liabilities		4,180		4,180
Total liabilities		284,409		287,614
Shareholders’ equity (deficit):
Preferred stock		—		—
Common stock		1,494		1,494
Additional paid-in capital		1,192,813		1,192,813
Accumulated deficit		(1,183,335)		(1,196,289)
Total shareholders’ equity (deficit)		10,972		(1,982)
Total liabilities and shareholders’ equity (deficit)	$	295,381	$	285,632

As a result of adoption of ASC 606, a receivable is recorded for royalties earned during the current quarter rather than one quarter in arrears under the previous guidance. Deferred revenue increased under ASC 606 due to a greater amount of the transaction prices being allocated to the future technological improvement rights under ASC 606.

IMMUNOGEN, INC.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

In thousands, except per share amounts


	Year ended
	December 31, 2018
			Pro forma as if the
			previous accounting
	As reported		was in effect
Revenues:
License and milestone fees	$	15,280	$	16,765
Non-cash royalty revenue related to the sale of future royalties		32,154		31,805
Research and development support		1,377		1,377
Clinical materials revenue		4,635		4,635
Total revenues		53,446		54,582
Operating Expenses:
Research and development		174,456		174,456
General and administrative		36,746		36,746
Restructuring charge		3,693		3,693
Total operating expenses		214,895		214,895
Loss from operations		(161,449)		(160,313)
Investment income, net		4,227		4,227
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes		(10,631)		(10,631)
Interest expense on convertible senior notes		(95)		(95)
Other (expense) income, net		(895)		(895)
Net loss	$	(168,843)	$	(167,707)
Basic and diluted net loss per common share	$	(1.21)	$	(1.20)

Under the previous guidance, non-cash royalty revenue would have been lower than the amount recorded for the year ended December 31, 2018, due to higher Kadcyla sales in the fourth quarter of 2018 versus 2017 (because under the previous guidance, the Company recorded the royalties one quarter in arrears as previously described). License and milestone fee revenue for the year ended December 31, 2018 would have been higher due to a $5.0 million milestone that would have been included as license and milestone fee revenue in 2018 under the legacy accounting, however, due to its probability of occurring at the time of transition to ASC 606, it was recognized as part of the transition adjustment. Partially offsetting this change, less license and milestone fee revenue would have been recognized under the previous guidance related to a partner foregoing its remaining rights under a right-to-test agreement upon expiration in March 2018, as well as partners terminating their rights under certain development and commercialization licenses during the year. A greater amount of the transaction price was allocated to the expired and terminated material rights under ASC 606 than under the previous guidance.

The adoption of ASC 606 had no aggregate impact on the Company’s cash flows from operations. The aforementioned impact resulted in offsetting shifts in cash flows through net losses and working capital accounts.

Revenue Recognition

The Company enters into licensing and development agreements with collaborators for the development of

ADCs. The terms of these agreements contain multiple deliverables/performance obligations which may include (i) licenses, or options to obtain licenses, to the Company’s ADC technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents, and (v) prior to the decommission of the Company’s Norwood facility in 2018, the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones, and royalties on product sales.

Prior to 2018, the Company identified the deliverables included within the agreement and evaluated which deliverables represented separate units of accounting based on whether certain criteria are met, including whether the delivered element had stand‑alone value to the collaborator in accordance with ASC 605. The consideration received was allocated among the separate units of accounting, and the applicable revenue recognition criteria were applied to each of the separate units.

In 2018, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services in accordance with ASC 606. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.

As part of the accounting for the arrangement, the Company must develop assumptions that require judgment to determine the selling price for each deliverable under ASC 605 and performance obligation under ASC 606 that were identified in the contract, which is discussed in further detail below.

At December 31, 2018, the Company had the following material types of agreements with the parties identified below:

Development and commercialization licenses, which provide the party with the right to use the Company’s ADC technology and/or certain other intellectual property to develop and commercialize anticancer compounds to a specified antigen target:

Bayer (one exclusive single-target license)

Biotest (one exclusive single-target license)

CytomX (one exclusive single-target license)

Debiopharm (one exclusive single-compound license)

Fusion Pharmaceuticals (one exclusive single-target license)

Novartis (five exclusive single-target licenses)

Oxford BioTherapeutics/Menarini (one exclusive single target license sublicensed from Amgen)

Roche, through its Genentech unit (five exclusive single-target licenses)

Sanofi (five fully-paid, exclusive single-target licenses)

Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one exclusive single-target license)

Collaboration and option agreement for a defined period of time to secure development and commercialization licenses to develop and commercialize specified anticancer compounds on established terms:

Jazz Pharmaceuticals

Collaboration and license agreement to co-develop and co-commercialize a specified anticancer compound on established terms:

MacroGenics

There are no performance, cancellation, termination, or refund provisions in any of the arrangements that contain material financial consequences to the Company.

Development and Commercialization Licenses

The obligations under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include obligations related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

Generally, development and commercialization licenses contain non‑refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) prior to the decommissioning of the Company’s Norwood facility in 2018, at the collaborator’s request, manufacture and provide preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones, and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. In the case of Sanofi, its licenses are fully-paid and no further milestones or royalties will be received. In the case of Debiopharm, no royalties will be received. The Company may provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research or, achieve milestones or become liable for royalty payments.

In determining the units of accounting under ASC 605, management evaluated whether the license had stand‑alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace. If the Company concluded that the license had stand‑alone value and therefore accounted for as a separate unit of accounting, the Company then determined the estimated selling prices of the license and all other units of accounting.

In determining the performance obligations under ASC 606, management evaluates whether the license is distinct, and has significant standalone functionality, from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace and whether technological improvements are required for the continued functionality of the license. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

The Company determined that the estimated selling price under ASC 605 and the stand-alone selling price under ASC 606 to be consistent. The estimates the selling prices of the license and all other deliverables under ASC 605 and performance obligations under ASC 606 are based on market conditions, similar arrangements entered into by third parties, and entity‑specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similar services.

The Company recognizes revenue related to research services under ASC 605 and ASC 606 as the services are performed. The Company performs research activities, including developing antibody specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The Company also develops conjugation processes for materials for later stage testing and commercialization for certain collaborators. The Company is compensated at negotiated rates that are consistent with what other third parties would charge and may receive milestone payments for developing these processes which are also recorded as a component of research and development support revenue. The Company may also produce research material for potential collaborators under material transfer agreements. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue.

The Company may also provide cytotoxic agents to its collaborators and previously produced preclinical and clinical materials (drug substance) at negotiated prices generally consistent with what other third parties would charge. The Company recognizes revenue on cytotoxic agents and, previously, on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and control has transferred under ASC 606 to the collaborator, while ASC 605 required title and risk of loss to transfer. The majority of the Company’s costs to produce these preclinical and clinical materials were fixed and then allocated to each batch based on the number of batches produced during the period. Therefore, the Company’s costs to produce these materials were significantly affected by the number of batches produced during the period. The volume of preclinical and clinical materials the Company produced was directly related to the scale and scope of preclinical activities and the number of clinical trials the Company and its collaborators were preparing for or currently had underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period such trials last. Accordingly, the volume of preclinical and clinical materials produced, and therefore the Company’s per‑batch costs to manufacture these preclinical and clinical materials, varied significantly from period to period, which affected the margins recognized on such product sales.

The Company recognizes revenue related to the rights to future technological improvements under ASC 605 and ASC 606 over the estimated term of the applicable license.

The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration, or FDA, or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.

Under ASC 605, at the inception of each agreement that includes milestone payments, the Company evaluated whether each milestone was substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation included an assessment of whether (a) the consideration was commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration related solely to past performance and (c) the consideration was reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluated factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration was reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. Non‑refundable development and regulatory milestones that were expected to be achieved as a result of the Company’s efforts during the period of substantial involvement were considered substantive and were recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria under ASC 605 were met. Milestones that were not considered substantive because the Company did not contribute effort to the achievement of such milestones were generally achieved after the period of substantial involvement and were recognized as revenue upon achievement of the milestone, as there were no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria under ASC 605 were met.

Under ASC 606, at the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. In addition, the Company evaluates the milestone to determine whether the milestone is considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated; otherwise, such amounts are considered constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development or regulatory milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

For development and commercialization license agreements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue under ASC 606 at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint. Under the Company’s development and commercialization license agreements, except for the Sanofi and Debiopharm licenses, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under the development and commercialization agreements, the Company receives royalty reports and payments from its licensees approximately one quarter in arrears. The Company estimates the amount of royalty revenue to be recognized based on historical and forecasted sales and/or sales information from its licensees if available. Under ASC 605, royalty revenue was recognized when it could reliably estimate such amounts and collectability was reasonably assured. As such, the Company generally recognized revenue for sales royalties in the quarter the amounts were reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred.

Collaboration and Option Agreements/Right-to-Test Agreements

The Company’s right-to-test agreements provide collaborators the right to test the Company’s ADC technology for a defined period of time through a research, or right‑to‑test, license. Under both right-to-test agreements and collaboration and option agreements, collaborators may (a) take options, for a defined period of time, to specified targets and (b) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon the opt-in to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), (iii) at the collaborator’s request, after providing research services at negotiated prices which are generally consistent with what other third parties would charge, or (iv) some combination of all of these fees.

The accounting for collaboration and option agreements and right-to-test agreements under ASC 605 and ASC 606 is dependent on the nature of the options granted to the collaborative partner.

Under ASC 605, options are considered substantive if, at the inception of the agreement, the Company is at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options. The exercise price for non-substantive options are included in the initial consideration. In determining the units of accounting for substantive options, management evaluates whether the options have stand‑alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances. If the Company concludes that an option has stand‑alone value and therefore will be accounted for as a separate unit of accounting, it then determines the estimated selling prices of the option and all other units of accounting based on an option pricing model using the following inputs; a) estimated fair value of each program, b) the amount the partner would pay to exercise the option to obtain the license, c) volatility during the expected term of the option and d) risk free interest rate. A risk adjusted discounted cash flow model is then used to estimate the fair value of the option with volatility determined using the stock prices of comparable companies. The cash flow is discounted at a rate representing the Company’s estimate of its cost of capital at the time.

Under ASC 606, options are considered distinct performance obligations if they provide a collaborator with a material right. Factors that are considered in evaluating whether options convey a material right include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the fair value of the licenses, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options. As of December 31, 2018, all right-to-test agreements have expired.

If the Company concludes that an option provides the customer a material right, and therefore is a separate performance obligation, the Company then determines the estimated selling prices of the option and all other units of accounting using the following inputs: a) estimated fair value of each program, b) the amount the partner would pay to exercise the option to obtain the license and c) probability of exercise.

The Company does not control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone functionality and is distinct from the undelivered elements.

In determining whether a collaboration and option agreement is within the scope of ASC 808, Collaborative Arrangements, management evaluates the level of involvement of both companies in the development and commercialization of the products to determine if both parties are active participants and if both parties are exposed to risks and rewards dependent on the commercial success of the licensed products. If the agreement is determined to be within the scope of ASC 808, the Company will segregate the research and development activities and the related cost sharing arrangement. Payments made by the Company for such activities will be recorded as research and development expense and reimbursements received from its partner will be recognized as an offset to research and development expense.

Transaction Price Allocated to Future Performance Obligations

Remaining performance obligations under ASC 606 represent the transaction price of contracts for which work has not been performed (or has been partially performed) and includes unexercised contract options that are considered material rights. As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $80.8 million. The Company expects to recognize revenue on approximately .4%, 1.6%, and 98% of the remaining performance obligations over the next 12 months, 13 to 60 months, and 61 to 120 months, respectively, however it does not control when or if any collaborator will exercise its options for, or terminate existing development and commercialization licenses.

Contract Balances from Contracts with Customers

The following table presents changes in the Company’s contract assets and contract liabilities during the year ended December 31, 2018 (in thousands):


	Balance at								Balance at
	January 1, 2018								End
	(ASC 606 adoption)		Additions		Deductions		Impact of Netting		of Period
Contract asset	$	—	$	500	$	(5,000)	$	5,000	$	500
Contract liabilities	$	89,967	$	730	$	(14,895)	$	5,000	$	80,802

During the year ended December 31, 2018, the Company recognized the following revenues as a result of changes in contract asset and contract liability balances in the respective periods (in thousands):


		Year Ended
		December 31, 2018
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	14,139
Performance obligations satisfied in previous periods	$	1,476

As a result of adoption of ASC 606, a contract asset of $5 million was recorded for a probable milestone which was subsequently earned and paid during the year ended December 31, 2018. During 2018, a milestone from Fusion was deemed probable, and accordingly, a contract asset was created in the amount of $500,000. In December 2018, the Company recorded a $1 million development milestone earned under a sublicense agreement with Oxford BioTherapeutics Ltd. as revenue, which is included in accounts receivable as of December 31, 2018. Also, as a result of Takeda not executing a second license it had available, or extending or expanding its right-to-test agreement, the Company recognized $10.9 million of revenue previously deferred, with a net reduction in deferred revenue of $5.9 million due to contract asset and contract liability netting. In addition, $750,000 of the deferred revenue balance at December 31, 2017 was recognized as revenue during the year ended December 31, 2018 upon completion of the Debiopharm and another collaborator’s performance obligations, $2.1 million of amortization of deferred revenue was recorded related to numerous collaborators’ rights to technological improvements and $335,000 of deferred revenue was recognized upon shipment of clinical materials to a partner and is included in clinical material revenue.

The timing of revenue recognition, billings, and cash collections results in billed receivables, contract assets, and contract liabilities on the consolidated balance sheets. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Financial Instruments and Concentration of Credit Risk

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government‑issued securities and high quality, short‑term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and marketable securities. The Company held no marketable securities as of December 31, 2018 or 2017. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of December 31, 2018 and 2017, the Company held $262.3 million and $267.1 million, respectively, in cash and money market funds consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper which were classified as cash and cash equivalents.

Non-cash Investing Activities

The Company had $715,000 and $482,000 of accrued capital expenditures as of December 31, 2018 and 2017 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.

Fair Value of Financial Instruments

ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the U.S., and expands disclosures about fair value measurements. Fair value is defined under ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of December 31, 2018, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

Fair Value Measurements at December 31, 2018 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Cash equivalents

242,604

—

As of December 31, 2017, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2017 (in thousands):

Fair Value Measurements at December 31, 2017 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Cash equivalents

240,013

—

The fair value of the Company’s cash equivalents is based primarily on quoted prices from active markets.

The carrying amounts reflected in the consolidated balance sheets for accounts receivable, unbilled revenue, prepaid and other current assets, accounts payable, accrued compensation, and other accrued liabilities approximate fair value due to their short‑term nature. The gross carrying amount and estimated fair value of the convertible 4.5% senior notes was $2.1 million and $2.8 million, respectively, as of December 31, 2018 compared to $2.1 million and $3.8 million, respectively, as of December 31, 2017. In the second half of 2017, $97.9 million of convertible debt outstanding was converted to 26,160,187 shares of the Company’s common stock causing the decrease in the gross carrying amount. The estimated fair value per $1,000 note on the debt remaining as of December 31, 2018 decreased compared to December 31, 2017 due primarily to a decrease in the Company’s stock price. The fair value of the Convertible Notes is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in a market which is a Level 2 input for fair value purposes due to the low frequency of trades.

Inventory

Inventory costs relate to clinical trial materials being manufactured for sale to the Company’s collaborators. Inventory is stated at the lower of cost or net realizable value as determined on a first‑in, first‑out (FIFO) basis.

Inventory at December 31, 2018 and 2017 is summarized below (in thousands):


	December 31,		December 31,
	2018		2017
Raw materials	$	—	$	40
Work in process		—		998
Total	$	—	$	1,038

In February 2018, the Company made the decision to implement a new operating model that will rely on external manufacturing and quality testing for drug substance and drug product for its internal development programs, and would discontinue providing such services to its collaborators. The implementation of this new operating model led to the ramp-down and ultimate discontinuation of manufacturing and quality activities at the Company’s Norwood, Massachusetts facility during 2018, and accordingly, there was no inventory on-hand as of December 31, 2018. Raw materials inventory historically consisted entirely of proprietary cell‑killing agents the Company developed as part of its ADC technology.

Work in process inventory at December 31, 2017 consisted of drug substance manufactured for sale to the Company’s collaborators to be used in preclinical and clinical studies. All conjugate was made to order at the request of the collaborators and subject to the terms and conditions of respective supply agreements. Based on historical reprocessing or reimbursement required for drug substance that did not meet specification and the status of conjugate on hand or conjugate shipped to collaborators but not yet released per the terms of the respective supply agreements, no reserve for work in process inventory was determined to be required at December 31, 2017. The Company’s costs to manufacture conjugate on behalf of its partners are greater than the supply prices charged to partners, and therefore costs are capitalized into inventory at the supply prices which represent net realizable value.

Raw materials inventory cost is stated net of a $1.1 million write-down as of December 31, 2017. The write‑down represents the cost of raw materials that the Company considers to be in excess of a twelve‑month supply based on firm, fixed orders and projections from its collaborators as of the respective balance sheet date.

The Company produced preclinical and clinical materials for its collaborators either in anticipation of or in support of preclinical studies and clinical trials, or for process development and analytical purposes. Under the terms of supply agreements with its collaborators, the Company generally received rolling six‑month firm, fixed orders for conjugate that the Company was required to manufacture, and rolling twelve‑month manufacturing projections for the quantity of conjugate the collaborator expected to need in any given twelve‑month period. The amount of clinical material produced was directly related to the number of collaborator anticipated or on‑going clinical trials for which the Company was producing clinical material, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials. Because these elements are difficult to estimate over the course of a trial, substantial differences between collaborators’ actual manufacturing orders and their projections could result in the Company’s usage of raw materials varying significantly from estimated usage at an earlier reporting period. To the extent that a collaborator had provided the Company with a firm, fixed order, the collaborator was required by contract to reimburse the Company the full negotiated price of the conjugate, even if the collaborator subsequently canceled the manufacturing run.

The Company capitalized raw material as inventory upon receipt and accounted for the raw material inventory as follows:

to the extent that the Company had up to twelve months of firm, fixed orders and/or projections from its collaborators, the Company capitalized the value of raw materials that will be used in the production of conjugate subject to these firm, fixed orders and/or projections;

the Company considered more than a twelve month supply of raw materials that was not supported by firm, fixed orders and/or projections from its collaborators to be excess and established a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense; and

the Company also considered any other external factors and information of which it became aware and assessed the impact of such factors or information on the net realizable value of the raw material inventory at each reporting period.

During the year ended December 31, 2017, the six month transition period ended December 31, 2016 and fiscal year 2016, the Company obtained additional amounts of its cell-killing agents DMx from its supplier which yielded more material than would be required by the Company’s collaborators over the next twelve months, and as a result, the Company recorded $403,000, $150,000, and $1.1 million, respectively, of charges to research and development expense related to raw material inventory identified as excess. There were no such excess charges during 2018.

Unbilled Revenue

Unbilled revenue substantially represents research funding earned based on actual resources utilized under the Company’s various collaborator agreements.

Clinical Trial Accruals

Clinical trial expenses are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties. Third party clinical trial expenses include investigator fees, site costs (patient cost), clinical research organization costs, and costs for central laboratory testing and data management. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through cost. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid asset or accrued clinical trial cost. These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance clinical payments for goods or services that will be used or rendered for future R&D activities recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. The Company also records accruals for estimated ongoing clinical research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical clinical accrual estimates made by the Company have not been materially different from the actual costs.

Other Accrued Liabilities

Other accrued liabilities consisted of the following at December 31, 2018 and 2017 (in thousands):


	December 31,		December 31,
	2018		2017
Accrued contract payments	$	6,389	$	4,901
Accrued clinical trial costs		11,087		8,400
Accrued professional services		1,171		723
Accrued employee benefits		651		574
Accrued public reporting charges		164		156
Other current accrued liabilities		1,003		1,013
Total	$	20,465	$

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
CONSOLIDATED STATEMENTS OF CASH FLOWS
Transaction costs	$ 395	$ 222
Interest rate (as a percent)	4.50%