| 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 with 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 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, 2016, which is contained in the
Company’s Annual Report on Form 10-K
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 actual 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 revenue,
stock-based compensation, accrued clinical expenses, warrant
liabilities, 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, prepaid expenses, other current assets, other assets,
accounts payable, accrued interest payable, accrued liabilities,
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, prepaid expenses, other current assets,
other assets, accounts payable, accrued liabilities, 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 and unobservable inputs and is as
follows:
Level 1—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.
The following tables present the fair value of the Company’s
financial assets and liabilities measured at fair value on a
recurring basis using the above input categories (in
thousands):
As of September 30,
2017
Description Level 1 Level 2 Level 3 Fair Value
Cash equivalents:
Money market funds $ 18,554 $
— $
— $ 18,554
Commercial paper
— 2,994
— 2,994
Total cash equivalents 18,554 2,994
— 21,548
Marketable securities:
Commercial paper
— 44,750
— 44,750
Corporate debt securities
— 22,359
— 22,359
Asset-backed securities
— 8,071
— 8,071
U.S. treasury securities
— 3,980
— 3,980
Total short-term investments
— 79,160
— 79,160
Total assets measured at fair value $ 18,554 $ 82,154 $
— $ 100,708
Warrant liability $
— $
— $ 5,862 $ 5,862
Total liabilities measured at fair value $
— $
— $ 5,862 $ 5,862
As of
December 31, 2016
Description Level 1 Level 2 Level 3 Fair Value
Cash equivalents:
Money market funds $ 9,456 $
— $
— $ 9,456
Commercial paper
— 599
— 599
Corporate debt securities
— 500
— 500
Total cash equivalents 9,456 1,099
— 10,555
Marketable securities:
Commercial paper
— 4,295
— 4,295
Corporate debt securities
— 2,204
— 2,204
Total short-term investments
— 6,499
— 6,499
Total assets measured at fair value $ 9,456 $ 7,598 $
— $ 17,054
Warrant liability $
— $
— $ 1,145 $ 1,145
Total liabilities measured at fair value $
— $
— $ 1,145 $ 1,145
The Company estimates the fair value of its corporate debt, asset
backed securities, and U.S. treasury 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
accounted for as liabilities. During the quarter, the Company
changed its valuation technique and began to value its warrant
liability using a Black-Scholes option pricing model, the inputs
for which include: exercise price of the warrants, market price of
the underlying common shares, dividend yield, expected term,
volatility, and a risk-free interest rate. Changes to any of these
inputs can have a significant impact on the estimated fair value of
the warrants.
Historically, the Company used a binomial option pricing model to
value its warrant liabilities. The inputs for the binomial model
are similar to the Black-Scholes model but also incorporate other
more complex inputs which, in the Company’s case, have
previously included the expected timing, probability and valuation
impact of certain potential strategic events. Management concluded
that no potential strategic events were expected to occur that
could significantly impact the warrant liabilities valuation prior
to their expiration (beginning in late 2018 and ending in early
2019).
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
Nine
Months Ended September
2017 2016
Balance, beginning of period $ 1,145 $ 1,220
Issuance of financial instrument
—
—
Change in fair value 4,996 (43 )
Settlement of financial instrument (279 )
—
Balance, end of period $ 5,862 $ 1,177
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with a maturity
at the date of purchase of 90 days or less to be cash equivalents.
Cash and cash equivalents consist of deposits with commercial banks
in checking, interest-bearing, demand money market accounts, and
corporate debt securities.
The Company invests excess cash in marketable securities with high
credit ratings, which are classified in Level 2 of the fair
value hierarchy. These securities consist primarily of corporate
debt, commercial paper, asset-backed securities, and U.S. treasury
securities and are classified as “available-for-sale.”
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 and comprehensive loss. 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.
The following tables summarize amortized cost, unrealized gain and
loss, and fair value (in thousands):
Gross Gross
Amortized
Unrealized
Unrealized
Estimated
Cost Gains Losses Fair Value
As of September 30, 2017:
Commercial paper 44,750
—
— 44,750
Corporate debt securities 22,369
— (10 ) 22,359
Asset-backed securities 8,074
— (3 ) 8,071
U.S. treasury securities 3,980
—
— 3,980
$ 79,173 $
— $ (13 ) $ 79,160
Gross Gross
Amortized
Unrealized
Unrealized
Estimated
Cost Gains Losses Fair Value
As of December 31, 2016:
Commercial paper 4,295
—
— 4,295
Corporate debt securities 2,205
— (1 ) 2,204
$ 6,500 $
— $ (1 ) $ 6,499
Concentration of Credit Risk
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 sheets. 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
Company is exposed to credit risk in the event of a default by the
financial institutions holding its cash, cash equivalents and
marketable securities and issuers of investments to the extent
recorded on the balance sheets.
Certain materials and key components that the Company utilizes in
its operations are obtained through single suppliers. Since the
suppliers of key components and materials must be named in a new
drug application (NDA) filed with the U.S. Food and Drug
Administration (FDA) for a product, significant delays can occur if
the qualification of a new supplier is required. If delivery of
material from the Company’s suppliers were interrupted for
any reason, the Company may be unable to supply any of its product
candidates for clinical trials.
Revenue Recognition
The Company recognizes revenue when (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred or services
have been rendered, (iii) the price is fixed or determinable,
and (iv) collectability is reasonably assured. Payments
received in advance of work performed are recorded as deferred
revenue and recognized when earned.
Collaboration and license agreements may include non-refundable
If the Company determines that multiple deliverables in an
arrangement exist, the consideration is allocated to one or more
units of accounting based upon the relative-selling-price of each
element in an arrangement. The relative-selling-price used for
each deliverable is based on vendor-specific objective evidence, if
available, third-party evidence if vendor-specific objective
evidence is not available, or estimated selling price if neither
vendor-specific or third-party evidence is available. The
Company identifies deliverables at the inception of the
arrangement. Each deliverable is accounted for as a separate unit
of accounting if both of the following criteria are met:
(1) the delivered item or items have value to the customer on
a standalone basis and (2) for an arrangement that includes a
general right of return relative to the delivered items, delivery
or performance of the undelivered items is considered probable and
substantially in the Company’s control. Non-refundable
The Company recognizes payments that are contingent upon
achievement of a substantive milestone in their entirety in the
period in which the milestone is achieved. Milestones are
defined as events that can only be achieved based on the
Company’s performance and there is substantive uncertainty
about whether the event will be achieved at the inception of the
arrangement. Events that are contingent only on the passage of
time or only on counterparty performance are not considered
milestones subject to this guidance. Further, the amounts
received must relate solely to prior performance, be reasonable
relative to all of the deliverables and payment terms within the
agreement and commensurate with the Company’s performance to
achieve the milestone after commencement of the agreement. Any
contingent payment that becomes payable upon achievement of events
that are not considered substantive milestones are allocated to the
units of accounting previously identified at the inception of an
arrangement when the contingent payment is received and revenue is
recognized based on the revenue recognition criteria for each unit
of accounting.
Common Stock Warrant Liability
The Company’s outstanding common stock warrants issued in
connection with certain equity and debt financings that occurred in
2013 through 2015 are classified as liabilities in the accompanying
condensed balance sheets because of certain contractual terms that
preclude equity classification. The warrants are recorded at fair
value using a Black-Scholes option-pricing model. The warrants are
re-measured
Stock-Based Compensation
Employee and director stock-based compensation is measured at fair
value on the grant date of the award. Compensation cost is
recognized as expense on a straight-line basis over the vesting
period for options and on an accelerated basis for stock options
with performance conditions. For stock options with performance
conditions, the Company evaluates the probability of achieving
performance conditions at each reporting date. The Company begins
to recognize the expense when it is deemed probable that the
performance conditions will be met. The Company uses the
Black-Scholes option pricing model to determine the fair value of
stock option awards. The determination of fair value for
stock-based awards using an option-pricing model requires
management to make certain assumptions regarding subjective input
variables such as expected term, dividends, volatility and
risk-free interest rate. The Company is also required to make
estimates as to the probability of achieving the specific
performance criteria. If actual results are not consistent with the
Company’s assumptions and judgments used in making these
estimates, the Company may be required to increase or decrease
compensation expense, which could be material to the
Company’s results of operations.
Equity awards granted to non-employees
Net Loss Per Common Share
Basic net loss per share of common stock is based on the weighted
average number of shares of common stock outstanding 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
common stock 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 common stock
warrants and the presumed exercise of such securities are dilutive
to net loss per share for the period, adjustments to net loss used
in the calculation are required to remove the change in fair value
of the common stock warrant liability 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, incentive awards and warrants were excluded from the
calculation of diluted net loss per share because their effects
were antidilutive. The Company’s computation of basic and
diluted net loss per share is as follows (in thousands, except
share and per share amounts):
Three Months
Ended Nine Months
Ended
September 30, September 30,
2017 2016 2017 2016
Numerator:
Net loss allocated to common stock-basic $ (8,234 ) $ (5,879 ) $ (22,514 ) $ (19,719 )
Adjustments for revaluation of warrants
—
—
—
—
Net loss allocated to common stock-diluted $ (8,234 ) $ (5,879 ) $ (22,514 ) $ (19,719 )
Denominator:
Weighted average number of common stock shares
outstanding—basic 40,035,690 23,447,003 31,848,536 23,447,003
Weighted average number of common stock shares
outstanding—diluted 40,035,690 23,447,003 31,848,536 23,447,003
Net loss per share—basic: $ (0.21 ) $ (0.25 ) $ (0.71 ) $ (0.84 )
Net loss per share—diluted: $ (0.21 ) $ (0.25 ) $ (0.71 ) $ (0.84 )
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
Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Warrants for common stock 1,604 1,667 1,604 1,667
Common stock options 3,788 2,422 3,788 2,422
Performace-based stock options 305 327 305 327
Incentive awards 226 241 226 241
5,923 4,657 5,923 4,657
Recent Accounting Pronouncements
Accounting Standards Update 2014-09
In May 2014, the FASB issued Accounting Standards Update
2014-09, Revenue from
Contracts with Customers and related amendments 2014-09: No. 2016-08, No. 2016-10, No. 2016-12,
The new revenue standard permits two methods of adoption:
retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of
initial application (the modified retrospective method). The
Company plans to adopt the new revenue standard in the first
quarter of 2018 using the modified retrospective method.
While the Company has not completed an assessment of the impact of
adoption, the adoption of this guidance may have a material effect
on the Company’s financial statements. At the end of 2016,
the Company entered into a license agreement. Before executing this
agreement, the Company had no revenues for the last two years. The
consideration that the Company is eligible to receive under this
agreement includes an upfront payment, milestone payments, and
royalties. This license agreement is unique and will need to be
assessed separately under the five-step process under the new
standard. The Company is currently analyzing this agreement to
determine the differences in the accounting treatment under the new
revenue standard compared to that of the current accounting
treatment. The new revenue standard differs from the current
accounting standard in many respects, such as in the accounting for
variable consideration, including milestone payments and royalties.
The Company expects that its evaluation of the accounting for this
agreement under the new revenue standard could identify material
changes from that of the current accounting treatment and it will
also impact its condensed financial statement disclosures.
Additionally, the Company will continue to monitor industry
activities and any additional guidance provided by regulators,
standards setters, or the accounting profession and adjust its
assessment and implementation plans accordingly.
Accounting Standards Update 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842).
Accounting Standards Update 2016-09
In March 2016, the FASB issued ASU No. 2016-09, Improvements
to Employee Share-Based Payment Accounting 2016-09). 2016-09 paid-in
Accounting Standards Update 2017-09
In May 2017, FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718)- Scope of
Modification Accounting 2017-09
Accounting Standards Update 2017-11
In July 2017, the FASB issued ASU No.
2017-11, Earnings Per Share Distinguishing Liabilities from Equity Derivatives and Hedging 2017-11): Non-controlling |
