| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed financial statements are
unaudited. These unaudited interim financial statements have been
prepared in accordance U.S. GAAP (“GAAP”) and following
the requirements of the United States Securities and Exchange
Commission (“SEC”) for interim reporting. As permitted
under those rules, certain footnotes or other financial information
that are normally required by GAAP can be condensed or omitted. In
management’s opinion, the unaudited interim condensed
financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which
include only normal recurring adjustments, necessary for the fair
presentation of the Company’s financial position and its
results of operations and comprehensive loss and its cash flows for
the periods presented. These statements do not include all
disclosures required by GAAP and should be read in conjunction with
the Company’s financial statements and accompanying notes for
the fiscal year ended December 31, 2015, which is contained in
the Company’s Annual Report on Form 10-K as filed with the
SEC on March 29, 2016. The results for the three and six
months ended June 30, 2016, are not necessarily indicative of
results to be expected for the year or for any other period.
Use of Estimates
The condensed financial statements have been prepared in accordance
with GAAP, which requires management to make estimates and
assumptions that affect the amounts and disclosures reported in the
condensed financial statements and accompanying notes. Management
bases its estimates on historical experience and on assumptions
believed to be reasonable under the circumstances. The estimation
process often may yield a range of potentially reasonable estimates
of the ultimate future outcomes, and management must select an
amount that falls within that range of reasonable estimates. Actual
results could differ materially from those estimates. The Company
believes significant judgment is involved in estimating stock-based
compensation, accrued clinical expenses, and equity instrument
valuations.
Fair Value of Financial Instruments
The Company’s financial instruments during the periods
reported consist of cash and cash equivalents, marketable
securities, accrued interest receivable, prepaid expenses, accounts
payable, accrued interest payable, accrued expenses, the facility
loan, and warrant liabilities. Fair value estimates of these
instruments are made at a specific point in time, based on relevant
market information. These estimates may be subjective in nature and
involve uncertainties and matters of significant judgment. The
carrying amounts of financial instruments such as cash and cash
equivalents, accrued interest receivable, prepaid expenses,
accounts payable, accrued expenses, and accrued interest payable
approximate the related fair values due to the short maturities of
these instruments. Based on prevailing borrowing rates available to
the Company for loans with similar terms, the Company believes the
fair value of the Facility Loan, considering level 2 inputs,
approximates its carrying value.
Fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants at the
measurement date. Assets and liabilities that are measured at fair
value are reported using a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. This hierarchy
maximizes the use of observable inputs and maximizes the use of
unobservable inputs and is as follows:
Level 1—Inputs which include quoted prices in active markets
for identical assets or liabilities that the Company has the
ability to access at the measurement date.
Level 2—Inputs other than quoted prices in active markets
that are observable for the asset or liability, either directly or
indirectly.
Level 3—Inputs that are significant to the fair value
measurement and are unobservable (i.e. supported by little market
activity), which requires the reporting entity to develop its own
valuation techniques and assumptions.
As of June 30,
2016
(In thousands)
Description Level 1 Level 2 Level 3 Fair Value
Cash equivalents:
Money market funds $ 11,384 $
— $
— $ 11,384
Commercial paper
— 899
— 899
Short-term investments:
Commercial paper
— 7,969
— 7,969
Corporate debt and asset backed securities
— 8,736
— 8,736
Total assets measured at fair value $ 11,384 $ 17,604 $
— $ 28,988
Warrant liability $
— $
— $ 1,259 $ 1,259
Total liabilities measured at fair value $
— $
— $ 1,259 $ 1,259
As of December
31, 2015
(In thousands)
Description Level 1 Level 2 Level 3 Fair Value
Cash equivalents:
Money market funds $ 6,942 $
— $
— $ 6,942
Short-term investments:
Commercial paper
— 5,992
— 5,992
Government debt securities
— 1,507
— 1,507
Corporate debt and asset backed securities
— 26,275
— 26,275
Total assets measured at fair value $ 6,942 $ 33,774 $
— $ 40,716
Warrant liability $
— $
— $ 1,220 $ 1,220
Total liabilities measured at fair value $
— $
— $ 1,220 $ 1,220
The Company estimates the fair value of its corporate debt,
government debt, money market funds, commercial paper, and asset
backed securities by taking into consideration valuations obtained
from third-party pricing services. The pricing services utilize
industry standard valuation models, including both income and
market-based approaches, for which all significant inputs are
observable, either directly or indirectly, to estimate fair value.
These inputs include reported trades of and broker/dealer quotes on
the same or similar securities, issuer credit spreads; benchmark
securities; prepayment/default projections based on historical
data; and other observable inputs.
There were no transfers between Level 1 and Level 2 during the
periods presented.
The Company holds a Level 3 liability associated with common stock
warrants that were issued in connection with the Company’s
financings completed in September and October 2013, January
2014, and August 2015. The warrants are classified as liabilities
and recorded at fair value using a binomial lattice option-pricing
model, the inputs for which include the exercise price of the
warrants, market price of the underlying common shares, expected
term, volatility, the risk-free rate, and the expected changes in
stock price that follow announcements of the Company’s
clinical trial results and other strategic initiatives. Changes to
any of the inputs to the valuation model used by the Company can
have a significant impact to the estimated fair value of the
warrants.
The following table sets forth an activity summary which includes
the changes in the fair value of the Company’s Level 3
financial instruments (in thousands):
For the Six Months Ended June 30,
2016 2015
Balance, beginning of period $ 1,220 $ 13,596
Issuance of financial instrument
—
—
Change in fair value 39 (9,902 )
Settlement of financial instrument
— (1,513 )
Balance, end of period $ 1,259 $ 2,181
Cash, Cash Equivalents, and Marketable Securities
The Company considers all highly liquid investments with a
remaining maturity of 90 days or less at the time of purchase to be
cash equivalents. Cash and cash equivalents consist primarily of
deposits with commercial banks in checking, interest-bearing, and
demand money market accounts.
The Company invests excess cash in marketable securities with high
credit ratings. These securities consist primarily of corporate
debt and asset-backed securities and are classified as
“available-for-sale.” Management may liquidate any of
these investments in order to meet the Company’s liquidity
needs in the next year. Accordingly, any investments with
contractual maturities greater than one year from the balance sheet
date are classified as short-term in the condensed balance
sheets.
Realized gains and losses from the sale of marketable securities,
if any, are calculated using the specific identification method.
Realized gains and losses and declines in value judged to be
other-than-temporary are included in interest income or expense in
the statements of operations. Unrealized holding gains and losses
are reported in accumulated other comprehensive loss, in the
balance sheets. To date, the Company has not recorded any
impairment charges on its marketable securities related to
other-than-temporary declines in market value. In determining
whether a decline in market value is other-than-temporary, various
factors are considered, including the cause, duration of time and
severity of the impairment, any adverse changes in the
investees’ financial condition, and the Company’s
intent and ability to hold the security for a period of time
sufficient to allow for an anticipated recovery in market
value.
Marketable securities in the condensed balance sheets, all of which
are classified as available-for-sale, consisted of the following
(in thousands):
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
As of June 30, 2016:
Corporate debt securities $ 12,797 $
— $ (4 ) $ 12,793
Asset-backed securities 3,913
— (1 ) 3,912
$ 16,710 $
— $ (5 ) $ 16,705
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
As of December 31, 2015:
Government debt securities $ 1,509 $
— $ (2 ) $ 1,507
Corporate debt securities 27,663
— $ (17 ) 27,646
Asset-backed securities 4,623
— (2 ) 4,621
$ 33,795 $
— $ (21 ) $ 33,774
At June 30, 2016, and December 31, 2015, the remaining
contractual maturities of the Company’s government and
corporate debt securities was less than one year and asset backed
securities was between two and five years. Realized gains and
losses were immaterial for all periods presented. None of these
investments has been in a continuous unrealized loss position for
more than 12 months as of June 30, 2016, or December 31,
2015.
Restricted Cash
The Company is required to maintain compensating cash balances with
financial institutions that provide the Company with its corporate
credit cards. As of June 30, 2016, and December 31, 2015,
cash restricted under these arrangements was $170,000. This amount
is presented in other assets on the accompanying condensed balance
sheets.
Concentration of Credit Risk
Cash, cash equivalents, and marketable securities consist of
financial instruments that potentially subject the Company to a
concentration of credit risk to the extent of the fair value
recorded in the balance sheet. The Company invests cash that is not
required for immediate operating needs primarily in highly liquid
instruments that bear minimal risk. The Company has established
guidelines relating to the quality, diversification, and maturities
of securities to enable the Company to manage its credit risk. The
counterparties to the agreements relating to the Company’s
investments consist of financial institutions of high credit
standing.
Common Stock Warrant Liability
Warrants issued to common stock holders and lenders by the Company
in conjunction with financings from 2013 through 2015 are
classified as liabilities in the accompanying condensed balance
sheets, as the terms for redemption of the underlying security are
outside the Company’s control. The warrants are recorded at
fair value and are re-measured at each financial reporting period
until the warrants are exercised or expire and immediately before
exercise, with any changes in fair value being recognized as a
component of other income (expense), net in the accompanying
condensed statements of operations and comprehensive loss.
Research and Development Expenses
Research and development expenses consist of costs incurred in
identifying, developing, and testing product candidates. These
expenses consist primarily of costs for research and development
personnel (including related stock-based compensation); contract
research organizations and other third parties that assist in
managing, monitoring, and analyzing clinical trials; investigator
and site fees; laboratory services; consultants; contract
manufacturing services; non-clinical studies, including materials;
and allocated expenses, such as depreciation of assets, and
facilities and information technology that support research and
development activities. Research and development costs are expensed
as incurred, including expenses that may or may not be reimbursed
under research and development funding arrangements.
The expenses related to clinical trials are based upon estimates of
the services received and efforts expended pursuant to contracts
with multiple research institutions and clinical research
organizations (CROs) that conduct and manage clinical trials on
behalf of the Company. Expenses related to clinical trials are
accrued based upon the level of activity incurred under each
contract as indicated by such factors as progress made against
specified milestones or targets in each period, patient enrollment
levels, and other trial activities as reported by CROs.
Accordingly, the Company’s clinical trial accrual is
dependent upon the timely and accurate reporting of expenses by
clinical research organizations and other third-party
vendors. Payments made to third parties under these clinical
trial arrangements in advance of the receipt of the related
services are recorded as prepaid assets, depending on the terms of
the agreement, until the services are rendered.
Stock-Based Compensation
Employee and director stock-based compensation is measured at the
grant date, based on the fair-value of the awards, and the portion
that is ultimately expected to vest is recognized as an expense
over the related vesting periods, net of estimated forfeitures. The
Company calculates the fair-value of option grants and incentive
awards using the Black-Scholes model and recognizes expense using
the straight-line attribution method.
Equity awards granted to non-employees are valued using the
Black-Scholes option pricing model to determine the fair value of
such instruments. The fair value of equity awards granted to
non-employees are re-measured throughout the related vesting period
and amortized to expense over that period.
Net Loss Per Common Share
Basic net loss per share of common stock is calculated as the
weighted average number of shares of common stock outstanding
equivalents during the period. Diluted net loss per share of common
stock is calculated as the weighted average number of shares of
common stock outstanding adjusted to include the assumed exercises
of stock options and warrants, if dilutive.
The calculation of diluted loss per share also requires that, to
the extent the average market price of the underlying shares for
the reporting period exceeds the exercise price of the warrants and
the presumed exercise of such securities are dilutive to earnings
(loss) per share for the period, adjustments to net income or net
loss used in the calculation are required to remove the change in
fair value of the warrants for the period. Likewise, adjustments to
the denominator are required to reflect the related dilutive
shares.
In all periods presented, the Company’s outstanding stock
options and incentive awards were excluded from the calculation of
net loss per share because the effect would be antidilutive.
The Company’s computation of net loss per share is as follows
(in thousands, except share and per share amounts):
Three Months
Ended Six Months
Ended
June 30, June 30,
2016 2015 2016 2015
Numerator:
Net loss allocated to common stock-basic $ (6,992 ) $ (1,357 ) $ (13,840 ) $ (3,685 )
Adjustments for revaluation of warrants
—
—
— (9,902 )
Net loss allocated to common stock-diluted $ (6,992 ) $ (1,357 ) $ (13,840 ) $ (13,587 )
Denominator:
Weighted average number of common stock shares outstanding —
basic 23,447,003 15,258,363 23,447,003 15,179,404
Dilutive Securities:
Common stock warrants
—
—
— 248,428
Weighted average number of common stock shares outstanding —
diluted 23,447,003 15,258,363 23,447,003 15,427,832
Net loss per share—basic: $ (0.30 ) $ (0.09 ) $ (0.59 ) $ (0.24 )
Net loss per share—diluted: $ (0.30 ) $ (0.09 ) $ (0.59 ) $ (0.88 )
The following table shows the total outstanding common stock
equivalents considered anti-dilutive and therefore excluded from
the computation of diluted net loss per share (in thousands).
Three Months Ended
Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Warrants for common stock 1,667 1,553 1,667
—
Common stock options 2,415 1,794 2,415 1,794
Incentive awards 243 245 243 245
4,325 3,592 4,325 2,039
Recent Accounting Pronouncements
Accounting Standards Update 2014-15
In August 2014, the FASB issued guidance codified in ASC 205,
Presentation of Financial Statements — Going Concern.
Accounting Standards Update 2014-15 requires an entity’s
management to evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the
entity’s ability to continue as a going concern and if those
conditions exist, to make the required disclosures. Early adoption
will be permitted. The standard is effective for annual periods
ending after December 15, 2016, and for annual and interim
periods thereafter. The Company does not expect that the adoption
of this standard will have a significant impact on its condensed
financial statements.
Accounting Standards Update 2015-03
In April 2015, the FASB issued ASU No. 2015-03,
Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs, which requires
debt issuance costs related to a recognized debt liability to be
presented in the balance sheet as a direct deduction from the
corresponding debt liability rather than as an asset. The Company
adopted this ASU with retrospective application in the first
quarter of 2016. As the Company does not have any debt issuance
costs recorded as assets, the adoption of this standard did not
have any impact on its condensed financial statements.
Accounting Standards Update 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842). The ASU requires management to recognize lease assets
and lease liabilities by lessees for most leases. The ASU is
effective for the annual periods beginning after December 15,
2018 and interim periods therein on a modified retrospective basis.
The Company is currently evaluating the impact this guidance will
have on its condensed financial statements.
Accounting Standards Update 2016-09
In March 2016, the FASB issued ASU
No. 2016-09, Improvements to Employee Share-Based Payment
Accounting, which amends ASC Topic 718, Compensation –
Stock Compensation. The ASU includes provisions intended to
simplify various aspects related to how share-based payments are
accounted for and presented in the financial statements. The ASU
will be effective for the Company for the annual periods beginning
after December 15, 2016 and interim periods within those
annual periods on a modified retrospective basis. The Company is
currently evaluating the impact this guidance will have on its
condensed financial statements.
Accounting Standards Update 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments – Credit Losses (Topic 326), which introduces an
approach based on expected losses to estimate credit losses on
certain types of financial instruments. It also modifies the
impairment model for available–for-sale debt securities and
provides for a simplified accounting model for purchased financial
assets with deterioration since their origination. The ASU is
effective for the annual periods beginning after December 15,
2019 including interim periods within those annual periods. The
Company is currently evaluating the impact this guidance will have
on its condensed financial statements. |
