4D Molecular Therapeutics, Inc. Revenue Disclosure

Revenue Recognition

The Company determines revenue recognition for arrangements within the scope of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) by performing the following five steps: (i) assessment whether a contract with a customer exists; (ii) determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated standalone selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company’s revenue is primarily derived through its license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses to the Company’s technology, (ii) research and development services, and (iii) supplies of clinical and commercial materials. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. Significant judgment is required to determine whether the individual promised goods or services are distinct. Items are considered distinct if the customer can benefit from them on their own, or together with other readily available resources, and if they are separately identifiable from other items in the contract.

Payments to the Company under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, cost-sharing and other forms of research funding, milestone and other contingent payments to the Company for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.

The Company recognizes as revenue sales-based royalties and milestone payments at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.

Other variable amounts, such as cost-sharing and development and regulatory milestones, are included in the transaction price to the extent it is probable a significant reversal of cumulative revenue recognized will not occur when the associated uncertainties are resolved. The Company uses the most likely or expected value amount methods as appropriate to estimate variable consideration.

At the end of each reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

The Company allocates the total transaction price to each performance obligation based on the estimated standalone selling prices. Variable consideration is allocated to the specific performance obligations if it is triggered by the Company’s performance or the outcomes from such performance, and if such allocation meets the allocation objective of recognizing revenue in amounts of consideration to which the Company expects to be entitled in exchange for transferring its promised goods or services to the customer.

The Company recognizes revenue when, or as, the performance obligation is satisfied. Performance obligations recognized at a point in time, such as distinct licenses to the Company’s intellectual property, are recognized when control transfers, including commencement of the license term. Performance obligations recognized over time, such as research and development services, are recognized using an appropriate measure of progress, such as total cost incurred.

The Company records accounts receivable when the Company’s right to consideration is unconditional, i.e. if only passage of time is required before payment is due. Amounts collected or included in accounts receivable but not yet recognized in revenue are recorded as deferred revenues. Amounts recognized in revenue but not included in accounts receivable are recorded as contract assets.

Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. Changes in these estimates can have a material effect on revenue recognized.