| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The accompanying interim condensed consolidated financial statements are unaudited and comprise the consolidation of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and also reflect reporting requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under SEC rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. GAAP requires management to make informed estimates and assumptions that impact the amounts and disclosures reported in the condensed consolidated 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 and assumptions. The Company believes a high level of judgment is involved in determining and estimating the valuation of stock-based compensation and accrued clinical expenses. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first identified. In management’s opinion, the unaudited interim condensed consolidated 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, 2019, which is contained in the Company’s Annual Report on Form 10-K 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 research and development expenses, other prepaid expenses, other assets, accounts payable, accrued research and development expenses, accrued restructuring, and other accrued 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 research and development expenses, other prepaid expenses, other assets, accounts payable, and accrued expenses approximate the related fair values due to the short maturities of these instruments. 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—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 measured at fair value on a recurring basis using the above input categories (in thousands):
As of September 30, 2020
Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 42,518 $ — $ — $ 42,518
42,518 — — 42,518
Marketable securities:
U.S. and foreign commercial paper — 31,059 — 31,059
U.S. and foreign corporate debt securities — 25,830 — 25,830
Asset-backed securities — 9,605 — 9,605
U.S. treasury securities — 32,002 — 32,002
U.S. agency securities — 15,495 — 15,495
— 113,991 — 113,991
Total assets measured at fair value $ 42,518 $ 113,991 $ — $ 156,509
As of December 31, 2019
Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 18,597 $ — $ — $ 18,597
18,597 — — 18,597
Marketable securities:
U.S. and foreign commercial paper — 51,102 — 51,102
U.S. and foreign corporate debt securities — 56,729 — 56,729
Asset-backed securities — 39,788 — 39,788
U.S. treasury securities — 18,457 — 18,457
— 166,076 — 166,076
Total assets measured at fair value $ 18,597 $ 166,076 $ — $ 184,673
The Company estimates the fair value of its money market funds, corporate debt, asset-backed securities, commercial paper, and U.S. treasury and agency 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. Cash, Cash Equivalents and Marketable Securities The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist 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 that are classified in Level 1 and Level 2 of the fair value hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, and U.S. treasury and agency “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 condensed consolidated statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated 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 of the Company’s available-for-sale
Amortized Gross Gross Estimated
As of September 30, 2020:
Cash equivalents:
Money market funds $ 42,518 $ — $ — $ 42,518
42,518 — — 42,518
Short-term investments:
U.S. and foreign commercial paper 31,059 — — 31,059
U.S. and foreign corporate debt securities 25,773 57 — 25,830
Asset-backed securities 9,600 5 — 9,605
U.S. treasury securities 31,984 18 — 32,002
U.S. agency securities 15,493 2 — 15,49 5
113,909 82 — 113,991
Total marketable securities $ 156,427 $ 82 $ — $ 156,509
Amortized Gross Gross Estimated
As of December 31, 2019:
Cash equivalents:
Money market funds $ 18,597 $ — $ — $ 18,597
18,597 — 18,597
Short-term investments:
U.S. and foreign commercial paper 51,102 — — 51,102
U.S. and foreign corporate debt securities 56,691 38 — 56,729
Asset-backed securities 39,756 33 — 39,789
U.S. treasury securities 18,447 9 — 18,456
165,996 80 166,076
Total marketable securities $ 184,593 $ 80 $ — $ 184,673
Concentrations of 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 on 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 Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated 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 an NDA filed with the 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. Other Risks and Uncertainties In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) COVID-19 COVID-19 COVID-19 COVID-19 Leases The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease right-of-use right-of-use The operating lease right-of-use non-lease non-lease 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 (CRO) 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 - The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred. Restructuring Charges The Company recognizes restructuring charges related to reorganization plans that have been committed to by management and when liabilities have been incurred. In connection with these activities, the Company records restructuring charges at fair value for, a) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, b) one-time management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and c) contract termination costs when a contract is terminated before the end of its term. One-time The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reorganization plan. To the extent the Company’s actual results differ from its estimates and assumptions, the Company may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be material to the consolidated financial statements. Changes in the estimates of the restructuring charges are recorded in the period the change is determined. At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans. 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, net of estimated forfeitures. 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 rate. Due to limited historical stock price data, the Company has estimated volatility considering both the Company’s historical stock price volatility and that of a selected peer group of comparable publicly traded companies. During the second quarter of 2020, the Company determined its historical stock price data was sufficient to exclusively estimate volatility for awards granted during the and thereafter Equity awards granted to non-employees Compensation—Stock Compensation Income Taxes On March 27, 2020, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, an economic stimulus package in response to the COVID-19 COVID-19-related 5-year On June 29, 2020, Governor Newsom signed into law California Assembly Bill 85 (California AB 85), which suspends the usages of NOLs for taxable years 2020, 2021, and 2022 for taxpayers with taxable income of $1.0 million or more and limits the amount of tax that can be offset by business credits to $5.0 million for tax years 2020, 2021, and 2022. The carryover period for NOL deductions and business credit limitation disallowed by this provision will be extended. The Company is still evaluating the impact of these changes in tax law but does not currently expect the provisions of the CARES Act and California AB 85 to have a material effect on the realizability of deferred income tax assets or tax expense as any such impact will be fully offset by the valuation allowance on the Company’s deferred tax assets. 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 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, if dilutive. In all periods presented, the Company’s outstanding stock options were excluded from the calculation of diluted net loss per share because their effects were antidilutive. The following table presents the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator:
Net loss allocated to common stock-basic and diluted $ (11,421 ) $ (26,282 ) $ (35,235 ) $ (73,395 )
Denominator:
Weighted average number of common stock shares outstanding - basic and diluted 68,887,092 68,701,043 68,884,894 66,454,750
Net loss per share - basic and diluted: $ (0.17 ) $ (0.38 ) $ (0.51 ) $ (1.10 )
The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per share (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Common stock options 8,126 7,949 8,126 7,949
Incentive awards 101 127 101 127
Total 8,227 8,076 8,227 8,076
Recently Adopted Accounting Pronouncements ASU 2018-18 In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606 ASU 2018-15 In August 2018, the FASB issued ASU No. 2018-15, Intangibles Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract internal-use ASU 2018-13 In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement Recently Issued Accounting Pronouncements ASU 2016-13 In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments available-for-sale No. 2019-10, ASU 2019-12 In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes step-up |
