AKAO 2017 Annual Report

123 Through December 31, 2017, the Company had compensated Ionis $7.0 million in connection with the first three milestones under the license for the first aminoglycoside product candidate. For the years ended December 31, 2017, December 31, 2016 and December 31, 2015 the milestone payments and the cost recorded as research and development expense were zero. 6. Revenue Contracts Certain of the Company’s drug discovery and development activities are performed under contracts with the Gates Foundation and U.S. government agencies. Management has determined that the Company is the principal participant in the following contract arrangements, and, accordingly, the Company records amounts earned under the arrangements as revenue. Costs incurred under revenue contracts are recorded as operating expenses in the Company' consolidated statements of operations. Bill & Melinda Gates Foundation In May 2017, the Company entered into an agreement with the Gates Foundation to discover drug candidates against gram-negative bacterial pathogens intended to prevent neonatal sepsis (the “Grant Agreement”). The Gates Foundation awarded the Company up to approximately $10.5 million in grant funding (“Grant Funds”) over a three- year research term. Approximately $3.2 million of funding was received in May 2017 (the “Advance Funds”) of which $2.1 million was recorded as deferred revenue as of December 31, 2017. The Advance Funds are replenished by the Gates Foundation each calendar year, or sooner, following the Company’s submission of a progress report, including expenses incurred for the research activities. Under certain conditions, as described in the Grant Agreement, the Gates Foundation may terminate the Grant Agreement and the Company is obligated to return to the Gates Foundation any unused portion of the Advance Funds. The Company recorded contract revenue of $1.1 million under this agreement for the year ended December 31, 2017. The Company did not record any contract revenue from the Gates Foundation during 2016. BARDA In August 2010, the Company was awarded a contract with BARDA for the development, manufacturing, nonclinical and clinical evaluation of, and regulatory filings for, plazomicin as a countermeasure for disease caused by antibiotic-resistant pathogens and biothreats. The original contract included committed funding of $27.6 million for the first two years of the contract and subsequent options exercisable by BARDA to provide additional funding. In September 2012, BARDA exercised an additional $15.8 million contract option ("Option 1"), which increased the total contract committed funding to $43.4 million through March 2014. In April 2013, the Company was awarded an additional $60.4 million under the contract to support its Phase 3 clinical trial of plazomicin ("Option 2") to increase the total committed funding under this contract to $103.8 million. In May 2016, the Company was awarded an additional $20.0 million ("Option 3") under the contract to support its Phase 3 EPIC trial of plazomicin. In April 2017, BARDA modified Option 1 to allow for an additional $0.5 million of contract funding. This brings the total committed funding under this contract to $124.3 million, of which a total of $124.3 million has been recorded as revenue through December 31, 2017. During the years ended December 31, 2017, 2016, and 2015, the Company recognized revenue of $7.7 million, $39.5 million and $17.6 million, respectively, under this agreement, of which zero and $11.7 million were included in contracts receivable at December 31, 2017 and 2016, respectively. In September 2017, the Company was awarded the C-Scape Contract (“C-Scape Contract”) from BARDA to support the development of C-Scape. The C-Scape Contract includes a base period with committed funding of $12.0 million and subsequent option periods that, if exercised, would bring the total value of the award to $18.0 million. For the year ended December 31, 2017, the Company recorded revenue of $1.0 million with $11.0 million remaining available. As of December 31, 2017, $1.0 million was included in contracts receivable. DTRA In November 2012, DTRA, a division of the U.S. Department of Defense, terminated for convenience a contract with the Company that provided funding for the Company's LpxC inhibitor program. In connection with the termination, the Company sought payment from DTRA for additional expenses the Company has incurred. Effective April 30, 2015, the Company reached a settlement of its claim with DTRA. The net settlement of $7,122,000 was