| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with U.S. generally accepted accounting principles,
or GAAP, for interim financial information, the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP
for complete financial statements and should be read in conjunction
with the Company’s audited financial statements and notes
thereto included in its Annual Report on Form 10-K for the year
ended December 31, 2014. In the opinion of the Company’s
management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of its financial
position, operating results and cash flows for the periods
presented have been included. Operating results for the three and
six months ended June 30, 2015, are not necessarily indicative
of the results that may be expected for the full year, for any
other interim period or for any future year.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the amounts of assets, liabilities, revenues and expenses reported
in the financial statements and accompanying notes. Actual results
could differ from these estimates.
Fair Value Measurement
The Company follows Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and
Disclosures Compensation – Stock
Compensation
The valuation techniques required by ASC 820 may be based on either
observable or unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, and unobservable
inputs reflect the Company’s market assumptions. These inputs
are classified into the following hierarchy:
Level 1 Inputs
Level 2 Inputs
Level 3 Inputs
The following tables present the Company’s investments in
marketable securities (including, if applicable, those classified
on the Company’s balance sheet as cash equivalents) that are
measured at fair value on a recurring basis as of June 30,
2015, and December 31, 2014, respectively:
June 30, 2015 Quoted Prices in Other Unobservable (Level 3)
(in thousands)
U.S. Treasury and U.S. or state government agency-backed
securities $ 7,810 $
— $
—
Corporate debt securities
— 13,870
—
Municipal bonds
— 647
—
Accrued interest 77
—
—
Total investments in marketable securities $ 7,887 $ 14,517 $
—
December 31, 2014 Quoted Prices in Other Unobservable (Level 3)
(in thousands)
U.S. Treasury and U.S. or state government agency-backed
securities $ 22,685 $
— $
—
Corporate debt securities
— 30,372
—
Municipal bonds
— 1,075
—
Accrued interest 241
—
—
Total investments in marketable securities $ 22,926 $ 31,447 $
—
Corporate debt securities and municipal bonds are valued based on
various observable inputs such as benchmark yields, reported
trades, broker/dealer quotes, benchmark securities and bids.
Investments in Marketable Securities
Consistent with its investment policy, the Company invests its cash
allocated to fund its short-term liquidity requirements with
prominent financial institutions in bank depository accounts and
institutional money market funds and the Company invests the
remainder of its cash in corporate debt securities and municipal
bonds rated at least A quality or equivalent, U.S. Treasury notes
and bonds and U.S. and state government agency-backed
securities.
The Company determines the appropriate classification of marketable
securities at the time of purchase and reevaluates its
classification as of each balance sheet date. All marketable
securities owned during the six months ended June 30, 2015 and
June 30, 2014, were classified as available-for-sale. The cost
of securities sold is based on the specific identification method.
Investments in marketable securities are recorded as of each
balance sheet date at fair value, with unrealized gains and, to the
extent deemed temporary, unrealized losses included in
stockholders’ equity. Interest and dividend income on
investments in marketable securities, accretion of discounts and
amortization of premiums and realized gains and losses are included
in interest income in the statement of comprehensive income
(loss).
An investment in marketable securities is considered to be impaired
when a decline in fair value below its cost basis is determined to
be other than temporary. The Company evaluates whether a decline in
fair value of an investment in marketable securities below its cost
basis is other than temporary using available evidence. In the
event that the cost basis of the investment exceeds its fair value,
the Company evaluates, among other factors, the amount and duration
of the period that the fair value is less than the cost basis, the
financial health of and business outlook for the issuer, including
industry and sector performance, and operational and financing cash
flow factors, overall market conditions and trends, the
Company’s intent to sell the investment and whether it is
more likely than not the Company would be required to sell the
investment before its anticipated recovery. If a decline in fair
value is determined to be other than temporary, the Company records
an impairment charge in the statement of comprehensive income
(loss) and establishes a new cost basis in the investment.
Revenue Recognition
The Company uses the revenue recognition guidance established by
ASC Topic 605, Revenue Recognition Multiple Element Arrangements,
Non-refundable upfront fees, which may include, for example, an
initial payment upon effectiveness of the contractual relationship,
payment representing a common stock purchase premium or payment to
secure a right for a future license, are recorded as deferred
revenue and recognized into revenue as license fees and milestones
from collaborations on a straight-line basis over the estimated
period of the Company’s substantive performance obligations.
If the Company does not have substantive performance obligations,
it recognizes non-refundable upfront fees into revenue through the
date the deliverable is satisfied.
Revenue for non-refundable payments based on the achievement of
milestone events under collaboration agreements is recognized in
accordance with ASC 605, Subtopic 28, Milestone Method
Research and development costs that are reimbursable under
collaboration agreements are recorded in accordance with ASC 605,
Subtopic 45, Principal Agent
Considerations
Grant payments received prior to the Company’s performance of
work required by the terms of the award are recorded as deferred
revenue and recognized as grant revenue as the Company performs the
work and incurs qualifying costs. Service revenue is earned and
recognized as research or development is performed and related
expenses are incurred.
Income Taxes
The Company uses the liability method in accounting for income
taxes as required by ASC Topic 740, Income
Taxes,
Net Income or Loss Per Share
The Company computes net income or loss per share in accordance
with ASC Topic 260, Earnings Per Share
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Basic and diluted:
Net loss $ (4,336 ) $ (8,136 ) $ (11,088 ) $ (23,135 )
Weighted average common shares - basic and diluted 33,887,176 33,786,686 33,842,029 33,766,911
Basic and diluted EPS $ (0.13 ) $ (0.24 ) $ (0.33 ) $ (0.69 )
Common share equivalents consist of the incremental common shares
that would be outstanding upon the exercise of stock options,
calculated using the treasury stock method. For the three- and
six-month periods ended June 30, 2015, and June 30, 2014,
the Company excluded all common share equivalents from the
calculation of Diluted EPS because the Company had a net loss in
those periods. As a result, Diluted EPS is identical to Basic EPS
for those periods. If the Company had been in a net income position
for the three months ended June 30, 2015 and June 30,
2014, 3,046,993 and 4,785,391 shares, respectively, subject to
outstanding stock options may have been included in the calculation
of common share equivalents using the treasury stock method. If the
Company had been in a net income position for the six months ended
June 30, 2015 and June 30, 2014 3,420,839 and 4,873,288
shares, respectively, subject to outstanding stock options may have
been included in the calculation of common share equivalents using
the treasury stock method.
Common Stock and Stock-Based Compensation
During the six months ended June 30, 2015, the Company issued
31,900 shares of common stock upon the exercise of stock options.
The Company issued 75,556 shares of common stock upon the exercise
of stock options during the year ended December 31, 2014.
During the six months ended June 30, 2015, the Company granted
to employees options to purchase an aggregate of 111,025 shares of
common stock, of which 42,588 remain outstanding at June 30,
2015. The remaining stock options have an estimated aggregate fair
value, using the Black-Scholes-Merton formula, of $61,000. The
Company is recording this amount, as adjusted for forfeitures, as
stock-based compensation on a straight line basis over 16 quarters
beginning on the last day of the respective quarters in which the
grants were made. During the three months ended June 30, 2015,
the Company accelerated the vesting of 47,032 stock options and
61,600 stock awards upon the termination of employment of the
respective award recipients resulting in $278,000 of stock-based
compensation expense. During the six months ended June 30,
2015, the Company accelerated the vesting of 142,634 stock options
and 125,050 stock awards upon the termination of employment of the
respective award recipients resulting in $698,000 of stock-based
compensation expense.
Accumulated Other Comprehensive Income or Loss
Accumulated other comprehensive income or loss, as presented in
stockholders’ equity on the Company’s balance sheet,
reflects the cumulative net unrealized gains or losses on
available-for-sale securities for all periods. The table below
reflects changes in accumulated other comprehensive income for the
six months ended June 30, 2015, in thousands.
Accumulated other comprehensive income, January 1, 2015 $ 4
Unrealized loss on available-for-sale securities, net (12 )
Net realized gains on available-for-sale securities reclassified
out of other comprehensive income (2 )
Income taxes 21
Accumulated other comprehensive income, June 30, 2015 $ 11
Long-lived Assets
Property and equipment consists primarily of laboratory equipment,
office furniture and fixtures and leasehold improvements and is
recorded at historical cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Equipment is typically
depreciated over 3 to 5 years, office furniture and fixtures are
typically depreciated over 7 years, and leasehold improvements are
typically amortized over the lesser of the asset life or the lease
term.
The Company capitalizes the costs of intellectual property acquired
or licensed from external sources as intangible assets if, at the
time of acquisition, the intellectual property has reached
technological feasibility. The cost of intellectual property
acquired or licensed from external sources that has not reached
technological feasibility at the time of acquisition or that has no
expected future use is charged to research and development expense
as incurred. The Company records all other charges related to the
filing, prosecution and maintenance of patents to expense as
incurred.
The Company assesses the net realizable value of its long-lived
assets, including capitalized intellectual property, and evaluates
these assets for impairment whenever events or changes in business
circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment charge would be recognized when the
estimated undiscounted future cash flows expected to result from
the use of the asset and its eventual disposition are less than its
carrying amount. An impairment charge, if recognized, would be
based on the excess of the carrying value of the impaired asset
over its estimated fair value. As a result of the decision to
discontinue development of TC-5214, the Company determined during
2014 the carrying value of the related capitalized intellectual
property was not recoverable and, accordingly, recorded an
impairment charge for its full carrying value of $89,000.
For an asset classified as held for sale, the Company considers the
asset impaired when its carrying amount exceeds fair value less its
cost to sell. Fair value is determined in the same manner as an
impaired long-lived asset that is held and used.
The Company entered into the Merger Agreement during the six months
ended June 30, 2015 (see Note 1). In preparing for the planned
closing of the merger, the Company identified property and
equipment that will not be utilized whether or not the Proposed
Merger is completed. As a result, the Company has classified
certain furniture as “assets held for sale” on its
balance sheet as of June 30, 2015, assessed fair value based
on Level 2 inputs and recorded an impairment loss of $134,000 in
its statements of comprehensive income for the three and six months
ended June 30, 2015.
Commitments and Contingencies
Under employment agreements with two former executive officers, the
Company paid severance equal to each former executive’s
respective regular base salary as of their respective termination
date, for twelve months; their respective target bonus for 2015;
and their respective health and life insurance benefits coverage
provided to them as of their respective termination date, for
twelve months. These payments and benefits, which represent an
aggregate amount of $332,000 and $699,000 for the three and six
months ended June 30, 2015, respectively, were recorded as
reduction-in-force expense. In addition, the Company accelerated
the vesting of 47,032 and 114,885, employee stock options,
respectively, and 40,000 and 85,000 stock awards, respectively,
awarded to the former executives, resulting in reduction-in-force
expense of $242,000 and $560,000, respectively, for the three and
six months ended June 30, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update
2014-09, Revenue
from Contracts with Customers |
