Revenue recognition
The Company generates revenue from research collaborations and government grants.
Revenue is recognized when it is probable that future economic benefits will flow to the Company and these benefits can be measured reliably. Further, revenue recognition requires that all significant risks and rewards of ownership of the goods included in the transaction have been transferred to the buyer or when the related services are performed and specific criteria have been met for each of the Company’s activities as described below.
Collaboration and alliance agreements with the Company’s commercial partners for research and development activities typically contain license fees, non-refundable upfront access fees, research and development service fees and milestone payments. Deferred income represents amounts received prior to revenue being earned.
Collaborations
Upfront fees
Non-refundable upfront fees for access to prior research results and databases are recognized when earned, if the Company has no continuing performance obligations and all conditions and obligations are fulfilled (after the delivery of the required information). If the Company has continuing performance obligations towards the client (continuing involvement), the upfront fee received is deferred and recognized over the estimated period of involvement or based on the costs incurred under the related project. Periodically the Company reassesses the estimated time and cost to complete the project phase and adjusts the period over which the revenue is deferred accordingly.
Research and development service fees
Research and development service fees are recognized as revenue over the life of the research agreement as the required services are provided and costs are incurred. These services are usually in the form of a defined number of full-time equivalents of employees (FTE) at a specified rate per FTE.
Commercial collaborations resulting in a reimbursement of research and development costs are recognized as revenue as the related costs are incurred. The corresponding research and development expenses are included in research and development expenses in the financial statements.
Milestone payments
Revenue associated with performance milestones is recognized based upon the achievement of the milestone event if the event is substantive, objectively determinable and represents an important point in the development life cycle of the product candidate.
License fees and royalties
License fees are recognized when the Company has fulfilled all conditions and obligations. The license fee will not be recognized if the amount cannot be reasonably estimated and if the payment is doubtful. As the Company has a continuing involvement during the license period, license fees are recognized evenly over the term of the agreement.
Royalty revenues are recognized when the Company can reliably estimate such amounts and collectability is reasonably assured. As such, the Company generally recognizes royalty revenues in the period in which the licensees are reporting the royalties to the Company through royalty reports. Under this accounting policy, the royalty revenues the Company reports are not based upon the Company’s estimates and such royalty revenues are typically reported in the same period in which the Company receives payment from its licensees.
Government grants
Because it carries out research and development activities, the Company benefits from various grants and research and development incentives from certain governmental agencies. These grants and research and development incentives generally aim to partly reimburse approved expenditures incurred in research and development efforts of the Company.
The Company recognizes a government grant only when there is reasonable assurance that the Company will comply with the conditions attached to the grant and the grant will be received. As such, a receivable is recognized in the statement of financial position and measured in accordance with the related accounting policy mentioned below.
Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs which the grants are intended to compensate. As a result, grants relating to costs that are recognized as intangible assets or property, plant and equipment (grants related to assets or investment grants) are deducted from the carrying amount of the related assets and recognized in the profit or loss statement consistently with the amortization or depreciation expense of the related assets. Grants that intend to compensate costs are released as income when the subsidized costs are incurred, which is the case for grants relating to research and development costs.
Government grants that become receivable as compensation for expenses or losses already incurred are recognized in profit or loss of the period in which they become receivable.
The portion of grants not yet released as income is presented as deferred income in the statement of financial position. In the statement of comprehensive income, government grants are presented as grant income.
Research and development incentives receivables
Non-current research and development incentives receivables are discounted over the period until maturity date according to the appropriate discount rates.