9. Related-Party Transactions

Upon the Company’s IPO, Celgene’s ownership of the Company’s outstanding equity interest decreased to less than 10%. As a result, starting October 1, 2018, the Company ceased to reflect balances and transactions associated with Celgene as a related party in its financial statements. As of December 31, 2017, Celgene owned 15.4% of the Company’s outstanding equity interest. Transactions with Celgene, as of December 31, 2018 and 2017, respectively, are described in Note 5.    

Related party transactions with Merck, which owned 11.9% and 0% of the Company’s outstanding equity interest as of December 31, 2018 and 2017, respectively, are described in Note 5.

Three directors of the Company have performed consulting services for the Company, which consulting services were terminated prior to the Company’s IPO in September 2018.  

Subsequent to his appointment to the Company’s Board of Directors, the Company paid to one of the directors $40,000, $60,000 and $60,000 during the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, such director was granted options to purchase 9,805 shares of the Company’s common stock from 2009 to 2015, at the then-current fair values of the common stock ranging from $4.36 to $11.98 per share, related to his consulting services, which vest ratably over four years. As of December 31, 2018, all of such shares were vested.

There were $0.2 million, $0.5 million and $0.7 million in transaction advisory fees during the years ended December 31, 2018, 2017 and 2016, respectively, earned and subsequently paid to a firm of which such director is a managing executive, related to the Celgene agreements. Additional payments, based on a single digit percentage of any future payments, will be made to such transaction advisory firm upon receipt of future payments under the 2017 Celgene Agreement (see Note 5).  

In June 2018, the Company made an addendum to the consulting agreement with such director, pursuant to which the Company agreed to pay such director a one-time success fee of $0.4 million within 30 days of the execution of a definitive collaboration agreement with a third-party pharmaceutical company. Following the execution of the 2018 Merck Agreement in July 2018, the Company paid such director $0.4 million. The Company terminated the consulting agreement and side letter with such director prior to the Company’s IPO in September 2018.

The Company paid to the second director $20,000, $30,000 and $30,000 during the years ended December 31, 2018, 2017 and 2016, respectively.  Additionally, such director was granted an option to purchase 3,269 shares of the Company’s common stock in September 2015 at the then-current fair value of the common stock, related to his consulting services, which vest ratably over four years.

The Company paid to the third director $20,000, $25,000 and $0 during the years ended December 31, 2018, 2017 and 2016, respectively.

On August 30, 2010, the Company received a promissory note with recourse from its chief executive officer, which was used to purchase common stock. The principal amount of the note was approximately $0.2 million, which accrued interest at 0.53%, compounding semiannually. The note could have been prepaid without penalty and was due on August 30, 2019. As of December 31, 2017, the outstanding balance was $0.2 million and the note and related interest receivable were recorded as a component of stockholders’ deficit. The promissory note, including accrued interest, was paid in full by the chief executive officer in August 2018.

Investment in SutroVax, Inc. (“SutroVax”)

In December 2013, the Company and Johnson & Johnson Innovation, through the Johnson & Johnson Development Corporation, provided initial co-funding for a new company, SutroVax. SutroVax leverages the Company’s proprietary integrated cell-free protein synthesis platform, XpressCF™, to develop novel vaccines for a broad range of disease targets. The Company had $49,000 and $34,000 in receivables due from SutroVax as of December 31, 2018 and 2017, respectively, which were included in accounts receivable on the condensed balance sheet.

As of December 31, 2018 and 2017, the Company held a 5.6% and 7.8% common stock ownership interest in SutroVax, respectively, on a fully-diluted basis, with a carrying value of $0. The Company’s investment in SutroVax was accounted for under the cost method as of both December 31, 2018 and 2017.

SutroVax qualifies as a variable interest entity. However, the Company maintains only shared power to direct the activities that most significantly impact the performance of SutroVax. Therefore, the Company is not considered the primary beneficiary and consolidation is not required.

See Note 5, SutroVax, Inc. Supply Agreement for discussion of the supply arrangement entered into with SutroVax in May 2018 and related revenue recognized for the year ended December 31, 2018.

In May 2018, the Company entered into amendments to the license agreement with SutroVax, which primarily clarified, under certain limited future circumstances SutroVax’s ability to manufacture extract pursuant to the license agreement. The Company received a warrant for the purchase of 100,000 shares of SutroVax preferred stock which was valued at $0.1 million. The value of the warrants received has been recognized as other revenue-related parties during the year ended December 31, 2018 as there are no remaining deliverables under the license agreement.