| Basis of Presentation and Summary of Significant Accounting Policies | 1. Basis of Presentation and Summary of Significant Accounting Policies Description of Business and Basis of Presentation Corcept Therapeutics Incorporated was incorporated in the State of Delaware in May 1998, and our headquarters are located in Menlo Park, California. We are a pharmaceutical company engaged in the discovery, development and commercialization of medications that treat severe metabolic, oncologic and psychiatric disorders by modulating the effect of the stress hormone cortisol. In 2012, the United States Food and Drug Administration (“FDA”) approved our first product, Korlym ® . Basis of Presentation We have prepared the June 30, 2018 balance sheet and statements of comprehensive income and cash flows for the three and six months ended June 30, 2018 and 2017 in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results to expect for the remainder of 2018 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K. The December 31, 2017 balance sheet was derived from audited financial statements at that date. Principles of Consolidation Our financial statements include the financial position and results of operations of Corcept Therapeutics UK Limited, our wholly owned subsidiary, which we incorporated in the United Kingdom in March 2017. This entity has entered into no material financial transactions and has no assets or liabilities. 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. Actual results could differ materially from those estimates. We reevaluate our estimates and assumptions each quarter, including those related to revenue recognition, recognition and measurement of income tax assets and liabilities, inventory, allowances for doubtful accounts and other accrued liabilities, including our bonus accrual, clinical trial accruals and stock-based compensation . Fair Value Measurements We value financial instruments using assumptions we believe third-party market participants would use. When choosing which assumptions to rely upon when determining the value of a financial instrument, we look first for quoted prices in active markets for identical instruments (“Level 1 inputs”). If no Level 1 inputs are available, we consider (i) quoted prices in non-active markets for identical instruments; (ii) active markets for similar instruments; (iii) inputs other than quoted prices for the instrument; and (iv) inputs that are not directly observable, but that are corroborated by observable data (“Level 2 inputs”). In the absence of Level 2 inputs, we rely on unobservable inputs, such as our estimates of the assumptions market participants would use in pricing the instrument (“Level 3 inputs”) . Cash and Cash Equivalents and Marketable Securities We consider highly liquid investments purchased with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents are valued using Level 1 inputs, which approximate our cost. We invest a portion of our funds in marketable securities, primarily U.S. Treasury securities, commercial paper, corporate notes, asset-backed securities and repurchase agreements. We classify our marketable securities as available-for-sale securities and report them at fair value as “cash equivalents” or “marketable securities” on our balance sheet, with related unrealized gains and losses included in stockholders' equity. Realized gains and losses and permanent declines in value are included in “interest and other income (expense)” on our statement of comprehensive income. Concentration of Credit Risk We are subject to credit risk from our cash equivalents and marketable securities. We limit our investments to U.S. Treasury obligations and high-grade corporate debt, asset-backed securities and repurchase agreements with less than a 36-month maturity at the time of purchase. These investments are diversified and do not expose us to concentrations of credit risk. Inventory and Cost of Sales Regulatory approval of product candidates is uncertain. Because product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained, we record the cost of manufacturing our product candidates as research and development expenses at the time such costs are incurred. We capitalize to inventory manufacturing costs related to Korlym. We value inventory at the lower of cost or net realizable value and determine the cost of inventory we sell using the specific identification method, which approximates a first-in, first-out basis. We write down inventory that has become obsolete or has a cost basis in excess of its expected net realizable value. Any expired inventory is destroyed and the related costs are recognized as cost of sales in the statement of comprehensive income in that period. Cost of sales includes the cost of manufacturing Korlym, including materials, third-party manufacturing costs and indirect personnel and other overhead costs, based on the number of Korlym tablets for which we recognize revenue, as well as costs of stability testing, logistics and distribution. We classify inventory we do not expect to consume within 12 months of the balance sheet date as strategic inventory, a noncurrent asset. Debt Obligation Under our Financing Agreement with Biopharma, we made payments each quarter equal to 20 percent of our Korlym sales in the quarter. Accounting for the Financing Agreement required us to estimate the amount of each future quarterly payment and the accretion of interest expense. We extinguished our obligations under the Financing Agreement in July 2017. No further payments are due. Revenue We sell Korlym directly to patients through a single specialty pharmacy. We also sell Korlym to a specialty distributor (“SD”), for which we recognize revenue at the time the SD receives Korlym. SD sales were less than one percent of our net revenue in each of the three and six months ended June 30, 2018. To determine our revenue from the sale of Korlym, we (i) identify our contract with each customer; (ii) identify the obligations of Corcept and the customer under the contract; (iii) determine the contracted transaction price; (iv) allocate the transaction price to the contract’s performance obligations, which in our case consists of delivering Korlym to the customer; and (v) recognize revenue once Korlym has been delivered, provided we deem it probable that we will collect the payment due to us. Confirmation of coverage by private or government insurance or by a third-party charity is a prerequisite for selling Korlym to a patient . We donate cash to charities that help patients with financial need pay for the treatment of Cushing’s syndrome. We do not include payments from these charities in revenue. We provide Korlym at no cost to patients without insurance who do not qualify for charitable support. To determine net product revenue, we deduct from sales the cost of our patient co-pay assistance program and our estimates of (a) government chargebacks and rebates, (b) discounts provided to our SD for prompt payment and (c) reserves for expected Korlym returns. We record these estimates at the time we recognize revenue and update them as new information becomes available . Our estimates take into account our understanding, based on our experience, of the range of possible outcomes. If results differ from our estimates, we adjust our estimates, causing a change to our net product revenue and earnings. We report any such changes in the period they become known, even if they concern transactions occurring in prior periods. Government Rebates: Korlym is eligible for purchase by, or qualifies for reimbursement from, Medicaid and other government programs that are eligible for rebates on the price they pay for Korlym. To determine the appropriate amount to reserve against these rebates, we identify Korlym sold to patients covered by government-funded programs, apply the applicable government discount to these sales, then estimate, based on our experience, the portion of total rebates we expect will be claimed. We then (i) deduct this reserve from revenue in the period to which the rebates relate and (ii) include in accrued expenses on our consolidated balance sheet a current liability of equal amount . Chargebacks . Although we sell Korlym to the SD at full price, some of the government entities to which the SD sells receive a discount. The SD recovers such discounts by reducing its payment to us (this reduction is called a “chargeback”). Chargebacks sometimes relate to Korlym sold to SD in prior periods. We deduct from our revenue in each period chargebacks claimed by the SD for Korlym we sold to the SD that period. We also create a reserve for chargebacks we estimate the SD will claim in future periods against Korlym it purchased in the current period but has not yet resold. We determine the amount of this reserve based on our experience with SD chargebacks and our understanding of the SD’s customer base and business practices. We then (i) deduct this reserve from revenue and (ii) include in accrued expenses on our consolidated balance sheet a current liability of equal amount. Patient Assistance Program: It is our policy that no patient be denied Korlym due to inability to pay. We provide financial assistance to eligible patients whose insurance policies have high deductibles or co-payments and deduct the amount of such assistance from gross revenue . We determine the assistance we provide each patient by applying our program guidelines to that patient’s financial position and their insurance policy’s co-payment and deductible requirements for the purchase of Korlym . Sales Returns : Federal law prohibits the return of Korlym sold to patients. Sales to our SD are subject to return. We deduct the amount of Korlym we estimate the SD will return from each period’s gross revenue. We base our estimates on quantitative and qualitative information including, but not limited to, historical return rates, the amount of Korlym held by the SD and projected demand. If we cannot reasonably estimate returns with respect to a particular sale, we defer recognition of revenue until we can make a reasonable estimate. To date, returns have been insignificant. The following table summarizes activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2018.
Chargebacks
Government Rebates
Total
(in thousands)
Balance at December 31, 2017:
$
927
$
7,961
$
8,888
Provision related to current period sales
1,421
14,280
15,701
Provision related to prior period sales
—
181
181
Credit or payments made during the period
(1,691
)
(10,987
)
(12,678
)
Balance at June 30, 2018:
$
657
$
11,435
$
12,092
Research and Development Research and development expenses include the direct cost of discovery research, pre-clinical studies, clinical trials, manufacturing development, submissions to regulatory agencies and related overhead costs. We expense nonrefundable payments and the cost of technologies and materials used in research and development as we incur them. We base our accruals for research, preclinical activities and clinical trials on our estimates of work completed, milestones achieved, patient enrollment and past experience with similar contracts. Our estimates include assessments of information from third-party contract research organizations and the status of our own clinical trials and other development and administrative activities . Segment Reporting We determine our operating segments based on the way we organize our business, make decisions and assess performance. We have only one operating segment, which is the discovery, development and commercialization of pharmaceutical products. Stock-Based Compensation We account for stock-based compensation under the fair value method, based on the value of the award at the grant date. To date, our stock-based compensation has consisted entirely of option grants, which we value using the Black-Scholes model. We recognize stock-based compensation expense over the requisite vesting period, net of estimated forfeitures . If actual forfeitures differ from our estimates, we adjust stock-based compensation expense accordingly. We recognize the expense of options granted to non-employees based on their fair value at the time of vesting . Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which changes the way companies recognize revenue. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition and creates a new Topic 606, “Revenue from Contracts with Customers.” We conducted our analysis using the “portfolio of contracts” approach, which permits us to analyze as a group all contracts with similar characteristics. We have two customer groups: patients covered by insurance and the SD. We evaluated the contracts with customers governing our sales and reviewed the related disclosures, policies and controls, which we updated as necessary. Because some of our customer contracts are subject to rebates, chargebacks, discounts, co-pay assistance or other deductions (known as “variable consideration”) that affect the price of each transaction We estimated the amount of variable consideration using either the most likely amount or expected value method, as applicable. Topic 606 requires us to estimate the net price of each Korlym sale, including any variable consideration, and recognize the estimated amount as revenue at the time we deliver Korlym to the customer. On January 1, 2018, we adopted Topic 606 using the modified retrospective approach. Adoption of this standard had no impact on our financial statements. In January 2016, the FASB issued Accounting Standards Update No. 2016-01 “Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities.” This update changes accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it clarifies guidance regarding recognition of deferred tax assets that result from unrealized losses on available-for-sale debt securities. We adopted this standard on January 1, 2018. It had no impact on our financial statements. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) . In May 2017, the FASB issued ASU No. 2017-09, Stock Compensation (Topic 718): “Scope of Modification Accounting,” which changes the accounting for modifications to the terms and conditions of share-based payment awards. We adopted this standard on January 1, 2018. It did not have a material impact on our financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which requires lease transactions with terms longer than 12 months to be recognized on the balance sheet as “lease liabilities” and “right-of-use assets.” We plan to adopt this new standard using the modified retrospective approach on January 1, 2019. While we are continuing to assess the potential impact of the standard, we believe the most significant impact will relate to our accounting for lease agreements for our leased office spaces. We expect that adoption will increase our “lease liabilities” and “right-of-use assets” equally . In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326), In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The standard allows companies to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the “Act”). An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the Act’s change in US federal tax rate for all items accounted for in other comprehensive income. These entities can also elect to reclassify other stranded effects that relate to the Act but do not directly relate to the change in the federal rate. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. We plan to adopt this standard on January 1, 2019. Although we have not concluded our evaluation, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from nonemployees. This standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2018. We plan to adopt this new standard on January 1, 2019. Although we have not concluded our evaluation, we do not expect its adoption to have a material impact on our consolidated financial statements. |
