effect on net income. Foreign exchange losses, on the other hand, are recorded in the profit and
Revenue includes license fees, milestone
payments as well as revenue from research agreements associated with collaborations with third parties and grants from public institutions
Revenue from non-refundable, upfront license
fees and performance milestones where the Company has continuing involvement is recognized over the estimated performance or agreement
period, depending on the terms of the agreement. The recognition of revenue is prospectively changed for subsequent changes in
the development or agreement period.
For collaboration agreements on product
candidates that are (i) in clinical development, (ii) where the upfront payment reflects a payment for past investments
the Company has made in the development of the product candidate, access to the product candidate, the associated intellectual
property and our knowledge, and, (iii) where there is no further performance commitment, pursuant to guidelines on revenue
recognition, the Company recognizes the fair value of the upfront payment at the time of entering into the collaboration agreement.
For collaboration agreements (i) in clinical development but where conditions (ii) and (iii) are not met, the Company
recognizes revenue from upfront payments under our collaboration agreements pro-rata over the term of the estimated period of performance
under each agreement.
For collaboration agreements, in addition
to receiving upfront payments, the Company is also entitled to milestone and other contingent payments upon achieving pre-defined
Revenue from milestones, if they are non-refundable
and deemed substantive, is recognized upon successful accomplishment of the milestones. To the extent that non-substantive milestones
are achieved and the Company has remaining performance obligations, milestones are deferred and recognized as revenue over the
estimated remaining period of performance.
Grants provide funding for certain types
of expenditures in connection with research and development activities over a contractually-defined period. Revenue related to
grants is recognized in the period during which the related costs are incurred and the related services are rendered, provided
that the applicable performance obligations under the grants have been met.
Research and development expenditures
Given the stage of development of the Company’s
products, all research expenditures are recognized as expenses when incurred.
For external research contracts accrued
expenses are generally estimated based on a rate of completion related to each research project in clinical study. The Company
estimates its accrued expenses as of the balance sheet date in the financial statement based on facts and circumstances known at
Registration costs for patents are part
of the expenditure for research and development projects. Therefore, registration costs for patents are expensed when incurred
as long as the research and development project concerned does not meet the criteria for capitalization.
Total research and development related costs,
inclusive of operating expenses, payroll related expenses, and depreciation were CHF 25.2M in 2016 and
CHF 17.0M in 2015. The increase in 2016 is attributable to continued expansion of research and development activities for both
major development programs, like Crenezumab and new discovery programs.