| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements, in conformity with GAAP,
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. These estimates include useful lives for property and
equipment and related depreciation calculations, accruals for
clinical trial expenses, assumptions for valuing options and
warrants, and income taxes. Actual results could differ from these
estimates.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or
less at the time of purchase are classified as cash
equivalents.
Restricted Cash
The Company classifies transfers to or from the restricted cash
balance in the statement of cash flows based on the nature of the
restriction. At June 30, 2017, the Company had no restricted
cash.
Property and Equipment
The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated
useful lives of the respective assets. Machinery and equipment
includes external costs incurred for validation of the equipment.
The Company does not capitalize internal validation expense.
Computer equipment and software includes capitalized computer
software. All the Company’s capitalized software is
purchased; the Company has no internally-developed computer
software. Leasehold improvements are amortized over the shorter of
the term of the lease or useful life of the improvement.
Convertible Instruments
The Company accounts for hybrid contracts that feature conversion
options in accordance with generally accepted accounting principles
in the United States. ASC 815, Derivatives and Hedging
Activities, or ASC 815, requires companies to bifurcate
conversion options from their host instruments and account for them
as free standing derivative financial instruments according to
certain criteria. The criteria include circumstances in which
(a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the
economic characteristics and risks of the host contract,
(b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at
fair value under otherwise applicable generally accepted accounting
principles with changes in fair value reported in earnings as they
occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative
instrument.
The Company accounts for convertible instruments (when it has
determined that the embedded conversion options should be
bifurcated from their host instruments) in accordance with ASC
815. Under ASC 815, a portion of the proceeds received upon
the issuance of the hybrid contract is allocated to the fair value
of the derivative. The derivative is subsequently marked to market
at each reporting date based on current fair value, with the
changes in fair value reported in results of operations.
Warrants Issued in Connection with Financings
The Company generally accounts for warrants issued in connection
with financings as a component of equity, unless there is a
possibility that the Company may have to settle the warrants in
cash. For warrants issued with the deemed possibility of a cash
settlement, the Company records the fair value of the issued
warrants as a liability at each reporting date and records changes
in the estimated fair value as a non-cash gain or loss in the
condensed consolidated statements of operations. The fair values of
warrants have been determined using the Black Scholes Merton Option
Pricing valuation model, or the Black-Scholes Model. The
Black-Scholes Model provides for assumptions regarding volatility,
call and put features and risk-free interest rates within the total
period to maturity. These values are subject to a significant
degree of judgment on the part of the Company.
Accounting for Costs Associated with Exit or Disposal
Activities
The Company recognizes a liability for the cost associated with an
exit or disposal activity that is measured initially at its fair
value in the period in which the liability is incurred.
Costs to terminate an operating lease or other contracts are
(a) costs to terminate the contract before the end of its term
or (b) costs that will continue to be incurred under the
contract for its remaining term without economic benefit to the
entity. In periods subsequent to initial measurement, changes to
the liability are measured using the credit-adjusted risk-free rate
that was used to measure the liability initially.
Revenue Recognition
Beginning January 1, 2017, the Company has followed the
provisions of ASC Topic 606, Revenue from Contracts with
Customers
The Company’s contract revenues consist of revenues from
grants, collaboration agreements and feasibility studies. License
and collaboration revenue is primarily generated through agreements
with strategic partners for the development and commercialization
of our product candidates. The terms of the agreement typically
include non-refundable upfront fees, funding of research and
development activities, payments based upon achievement of
milestones and royalties on net product sales. The Company has both
fixed and variable consideration. Non-refundable upfront fees and
funding of research and development activities are considered
fixed, while milestone payments are identified as variable
consideration.
In determining the appropriate amount of revenue to be recognized
as it fulfills its obligations under its agreements, the Company
performs the following steps: (i) identification of the
promised goods or services in the contract; (ii) determination
of whether the promised goods or services are performance
obligations including whether they are distinct in the context of
the contract; (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 selling prices; and
(v) recognition of revenue when (or as) the Company satisfies
each performance obligation.
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 Topic 606. The Company’s performance
obligations include license rights, development services, and
services associated with regulatory submission and approval
processes. 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. If the Company cannot reasonably
estimate when its performance obligations either are completed or
become inconsequential, then revenue recognition is deferred until
the Company can reasonably make such estimates. Revenue is then
recognized over the remaining estimated period of performance using
the cumulative catch-up method.
As part of the accounting for these arrangements, the Company must
develop assumptions that require judgment to determine the
stand-alone selling price for each performance obligation
identified in the contract. The Company uses key assumptions
to determine the stand-alone selling price, which may include
forecasted revenues, development timelines, reimbursement rates for
personnel costs, discount rates and probabilities of technical
and regulatory success.
The Company allocates the total transaction price to each
performance obligation based on the estimated relative standalone
selling prices of the promised goods or service underlying each
performance obligation. Estimated selling prices for license rights
are calculated using an income approach model and include the
following key assumptions: the development timeline, revenue
forecast, commercialization expenses, discount rate and
probabilities of technical and regulatory success. To estimate
selling prices for development services, regulatory submission
services, and product supply, the Company uses a cost plus margin
approach.
Licenses of intellectual property:
Milestone payments
Royalties:
The Company has optional additional items in contracts, which are
considered marketing offers and are accounted for as separate
contracts when the customer elects such options. Arrangements that
include a promise for future supply of drug substance or drug
product for either clinical development or commercial supply at the
customer’s discretion are generally considered as options.
The Company assesses if these options provide a material right to
the licensee and if so, they are accounted for as separate
performance obligations. If the Company is entitled to additional
payments when the customer exercises these options, any additional
payments are recorded in license, collaboration and other revenues
when the customer obtains control of the goods, which is upon
delivery.
Research and Development
Research and development expenses consist of costs incurred for
company-sponsored, collaborative and contracted research and
development activities. These costs include direct and
research-related overhead expenses. Research and development
expenses that are reimbursed under collaborative and government
grants approximate the revenue recognized under such agreements.
The Company expenses research and development costs as such costs
are incurred.
The Company is eligible under the AusIndustry research and
development tax incentive program to obtain a cash amount from the
Australian Taxation Office. The tax incentive is available to the
Company on the basis of specific criteria with which the Company
must comply. Specifically, the Company must have revenue of less
than AUD $20.0 million and cannot be controlled by income tax
exempt entities. These research and development tax incentives
are recognized as contra research and development expense when the
right to receive has been attained and funds are considered to be
collectible. The tax incentive is denominated in Australian dollars
and, therefore, the related receivable is re-measured into U.S.
dollars as of each reporting date.
The Company recognizes the funds related to its Australian research
and development tax incentives that are not subject to refund
provisions as a reduction of research and development expense. The
amounts are determined on a cost reimbursement basis and the
incentive is related to the Company’s research and
development expenditures and is refundable regardless of whether
any Australian tax is owed. These Australian research and
development tax incentives are recognized when there is reasonable
assurance that the incentive will be received, the relevant
expenditure has been incurred and the amount of the consideration
can be reliably measured. During the three and six months ended
June 30, 2017, the Company offset its research and development
costs by $0.9 million through the recognition of tax incentive
credits.
Stock-Based Compensation
The Company accounts for share-based payment arrangements in
accordance with ASC 718, Compensation-Stock Compensation Equity-Equity Based Payments to Non-Employees
Income Taxes
The Company makes certain estimates and judgments in determining
income tax expense for consolidated financial statement purposes.
These estimates and judgments occur in the calculation of certain
tax assets and liabilities, which arise from differences in the
timing of recognition of revenue and expense for tax and financial
statement purposes. As part of the process of preparing the
financial statements, the Company is required to estimate income
taxes in each of the jurisdictions in which it operates. This
process involves the Company estimating its current tax exposure
under the most recent tax laws and assessing temporary differences
resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and
liabilities which are included in the Company’s condensed
consolidated balance sheets.
The Company assesses the likelihood that it will be able to recover
its deferred tax assets. The Company considers all available
evidence, both positive and negative, including the historical
levels of income and losses, expectations and risks associated with
estimates of future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for a valuation
allowance. If the Company does not consider it more likely than not
that it will recover its deferred tax assets, the Company records a
valuation allowance against the deferred tax assets that it
estimates will not ultimately be recoverable. At June 30,
2017, and December 31, 2016 the Company believed that the
amount of its deferred income taxes would not be ultimately
recovered. Accordingly, the Company recorded a full valuation
allowance for deferred tax assets. However, should there be a
change in the Company’s ability to recover its deferred tax
assets the Company would recognize a benefit to its tax provision
in the period in which it determines that it is more likely than
not that it will recover its deferred tax assets.
Net Income/(Loss) Per Common Share
Basic net income/(loss) per common share is computed using the
weighted-average number of shares of common stock outstanding
during the period less the weighted-average number of restricted
shares of common stock subject to repurchase. Diluted net
income/(loss) per common share is based on the weighted average
number of common and common equivalent shares, such as stock
options and unvested restricted stock shares outstanding during the
period. Potentially dilutive securities were included for the three
months ended June 30, 2017 but were excluded in the other
periods presented, because such inclusion of shares would have been
anti-dilutive.
Accounting Changes
In May 2014, the Financial Accounting Standards Board issued ASU
No. 2014-09, Revenue from Contracts with Customers
Effective January 1, 2017, the Company elected to early adopt
the requirements of Topic 606 using the modified retrospective
method, applying the new guidance to the most current period
presented with the cumulative effect of changes reflected in the
opening balance of accumulated deficit. See Note 7 for further
details.
In March 2016, the Financial Accounting Standards Board,
(“FASB”) issued Accounting Standards Update, or ASU
2016-09, Improvements to Employee Share-Based Payment
Accounting
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842) |
