Organization and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting Policies |
Nature of Operations |
XenoPort, Inc., or the Company, was incorporated in the state of Delaware on May 19, 1999. The Company is a biopharmaceutical company focused on developing and commercializing a portfolio of internally discovered product candidates for the potential treatment of neurological and other disorders. The Company is currently commercializing HORIZANT® (gabapentin enacarbil) Extended-Release Tablets in the United States and developing its novel fumaric acid ester product candidate, XP23829, as a potential treatment for psoriasis and potentially for relapsing forms of multiple sclerosis, or MS. The Company’s other product candidates are: XP21279 and arbaclofen placarbil, or AP, which is licensed to Indivior PLC (formerly Reckitt Benckiser Pharmaceuticals, Inc.) Effective June 2014, the Company granted to Indivior exclusive, world-wide rights to develop and commercialize pharmaceutical products containing AP and other prodrugs of baclofen or R-baclofen, or collectively, the AP Products, for all indications, subject to the Company’s right of first negotiation with Indivior to collaborate to develop and commercialize AP Products for non-addiction indications (See Note 2 for more information). XP21279 is a potential treatment for patients with advanced idiopathic Parkinson’s disease. The Company may develop it further, to the extent that its resources permit, or it may enter into collaboration, partnership, licensing and other similar forms of revenue-generating transactions with third-party business partners for such development. HORIZANT and the Company’s product candidates are prodrugs that are typically created by modifying the chemical structure of currently marketed drugs, referred to as parent drugs, and are designed to correct limitations in the oral absorption, distribution and/or metabolism of the parent drug. HORIZANT and each of the Company’s product candidates are orally-available, patented molecules that address potential markets with clear unmet medical needs. The Company’s facilities are located in Santa Clara, California. |
On November 8, 2012, the Company reached an agreement with Glaxo Group Limited, or GSK, to terminate the Amended and Restated Development and Commercialization Agreement dated November 7, 2010, between the Company and GSK regarding HORIZANT and resolved all ongoing litigation between the parties. Under the terms of the November 2012 termination and transition agreement, during a transition period that ended on April 30, 2013, GSK continued to exclusively commercialize, promote, manufacture and distribute HORIZANT in the United States. The Company was not eligible to receive any milestone payments from GSK and did not receive any revenue or incur any losses from GSK’s sales of HORIZANT during the transition period. GSK continued to fully fund the costs associated with the management and conduct of required post-marketing clinical studies initiated by GSK prior to the date of the termination and transition agreement. In addition, GSK provided to the Company inventory of gabapentin enacarbil in GSK’s possession that was not required for use by GSK in the manufacture of HORIZANT and related manufacturing property and equipment. In exchange for such inventory, the Company will make annual payments to GSK of $1,000,000 for six years beginning in 2016, which was recorded at its present value as “Other noncurrent liability” on the Company’s balance sheet for the periods ended December 31, 2014 and 2013 and is being accreted at an effective interest rate of 17.5% to its contractual value over the payment period. On May 1, 2013, the Company completed the acquisition of the HORIZANT business in accordance with the termination and transition agreement and assumed all responsibilities and associated rights for the further development, manufacturing and commercialization of HORIZANT in the United States on that date. GSK was responsible for the commercial manufacture and supply of HORIZANT during the transition period. The Company did not assume any liabilities of GSK’s HORIZANT business as of the acquisition date. |
Basis of Preparation |
The Company’s financial statements are prepared in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or the Codification, which is the single source of authoritative U.S. generally accepted accounting principles, or GAAP. |
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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 from these estimates. |
Fair Value of Financial Instruments |
The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents and short-term investments, restricted investments, accounts receivables and accounts payables, approximate their fair value due to their short-term maturities. The Company accounts for the fair value of its financial instruments in accordance with the provisions of the Fair Value Measurement topic of the Codification. |
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company applies the market approach valuation technique for fair value measurements on a recurring basis and attempts to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. All of the Company’s cash equivalents and short-term investments are measured using inputs classified at Level 1 or Level 2 within the fair value hierarchy. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. |
Cash Equivalents and Short-Term Investments |
The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents, which primarily consist of money market funds, U.S. government-sponsored agencies and corporate debt securities. |
Management determines the appropriate classification of securities at the time of purchase. All investments have been designated as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company has classified all investments as short-term, even though the stated maturity may be one year or more beyond the current balance sheet date. Available-for-sale securities are carried at estimated fair value with unrealized gains and losses reported as a component of other comprehensive loss in the statements of comprehensive loss. |
The cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities, if any, are recorded in interest income and expense. The cost of securities sold is based on the specific-identification method. Interest and dividends are included in interest income. |
Restricted Investments |
Under a facilities operating lease agreement, the Company is required to secure a letter of credit with cash or securities. At December 31, 2014 and 2013, the Company recorded $1,500,000 of restricted investments related to the letter of credit (see Note 7 for more information). The $1,500,000 was classified as restricted investments in the accompanying balance sheets at both December 31, 2014 and 2013. |
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In connection with the Company’s license to use radioactive materials in its research facilities, it must maintain a $225,000 letter of credit with the Radiological Health Branch of the State of California. This requirement has been fulfilled through certificates of deposit with a financial institution. The fair value of the secured amount of $225,000 was classified as restricted investments in the accompanying balance sheets at both December 31, 2014 and 2013. |
Segment Information |
The Company operates in one operating segment, which is the development and commercialization of product candidates for the potential treatment of neurological and other disorders, and has operations solely in the United States. To date, all of the Company’s revenues from product sales are related to sales of HORIZANT in the United States. The Company also has recognized upfront and milestone payments and royalty revenue from its partnership with Astellas Pharma Inc. and recognized upfront and additional payments from its partnership with Indivior (see Note 2 for more information on these arrangements). |
Concentrations of Risk |
The Company invests cash that is not being used for operational purposes. This exposes the Company to credit risk in the event of default by the institutions holding the cash and cash equivalents and available-for-sale securities to the extent of the amounts on its balance sheets. The credit risk is mitigated by the Company’s investment policy, which allows for the purchase of low risk debt securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. The maturities of these securities are maintained at no longer than 16 months. The Company believes its established guidelines for investment of its excess cash enhances safety and liquidity through its policies on diversification and investment maturity. |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and available-for-sale investment securities in high-credit quality debt securities issued by the U.S. government, U.S. government-sponsored enterprises and highly rated banks and corporations. The carrying amounts of cash equivalents and available-for-sale investment securities are stated at fair value. |
The Company is subject to credit risk from its accounts receivable related to product sales. The Company’s trade accounts receivable arises from product sales in the United States. Three wholesale distributors represented 41%, 28% and 26%, respectively, of product sales for the year ended December 31, 2014. These three customers individually comprised 48%, 26% and 22%, respectively, of accounts receivable as of December 31, 2014. Three wholesale distributors represented 47%, 33% and 16%, respectively, of product sales for the year ended December 31, 2013. These three customers individually comprised 45%, 29% and 22%, respectively, of product sales related to accounts receivable as of December 31, 2013. To date, the Company has not experienced any losses with respect to the collection of its accounts receivable and believes that its accounts receivable are collectible. |
The Company relies on a single third-party contract manufacturer organization to manufacture HORIZANT. |
Property and Equipment |
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets, which is generally five to ten years for the Company’s laboratory equipment, furniture and fixtures and manufacturing property and equipment and generally three years for the Company’s computer equipment and software. Leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter. |
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Revenue Recognition |
Product Sales |
The Company began selling HORIZANT to wholesalers in May 2013 following the return of the Company’s commercial rights from GSK. The Company recognizes revenue from HORIZANT product sales when there is persuasive evidence that an arrangement exists, delivery to the customer has occurred, the price is fixed or determinable and collectability is reasonably assured. Revenue from product sales is recorded net of estimated allowances for customer incentives such as cash discounts for prompt payment, distributor fees, expected returns, as appropriate (which are based on an analysis of historical return rates and deductions of HORIZANT, since its commercial launch by GSK in the second quarter of 2011), government rebates such as Medicaid reimbursements and patient assistance programs. Calculating certain of these items involves estimates and judgments based on contractual terms, historical utilization rates data for HORIZANT and new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates, the Company’s expectations regarding future utilization rates for these programs and channel inventory data. If future actual results vary from the Company’s estimates, the Company may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. |
Items Deducted from Gross Product Sales |
Prompt Pay Discount |
The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. Based on the Company’s and GSK’s commercialization experience, the Company expects customers to continue to comply with the prompt payment terms to earn the cash discount as the Company is selling HORIZANT to the same customers under similar prompt payment terms and conditions. The Company estimates cash discounts for prompt payment based on contractual terms, GSK’s historical customer utilization rates and the Company’s historical customer utilization rates. The Company accounts for cash discounts by reducing accounts receivable by the full amount and recognizing the discount as a reduction of revenue in the same period the related revenue is recognized. |
Distributor Fees |
Under the Company’s inventory management agreements with significant wholesalers, the Company pays the wholesalers a fee primarily for distribution services as well as the maintenance of inventory levels. These distributor fees are based on a contractually determined fixed percentage of sales. The Company accrues the contractual amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized. |
Product Returns |
The Company does not provide its customers with a general right of product return, but permits returns if the product is damaged or defective when received by the customer, or if the product has or is nearly expired. HORIZANT tablets currently have a shelf-life of 36 months from the date of manufacture. The Company will accept returns for products that will expire within six months or that have expired up to one year after their expiration dates. The Company obtained actual return history classified by the reasons for returns from GSK since GSK’s product launch in 2011, which provides a basis to reasonably estimate the Company’s future product returns. The Company estimates returns taking into consideration Company-specific adjustments to GSK’s returns history, the Company’s returns history, the shelf life of product, shipment and prescription trends and estimated distribution channel inventory levels. |
Government Rebates and Chargebacks |
The Company participates in a number of government rebate programs, such as the Medicaid Drug Rebate Program that provides assistance to eligible low-income patients based on each individual state’s guidelines regarding eligibility and services, Public Health Services or 340b programs, and the Medicare Part D Coverage Gap Discount Program, which provides rebates on prescriptions that fall within the “donut hole” coverage gap; and the Department of Veterans Affairs that offers discounts to authorized users of HORIZANT. HORIZANT is also listed on the Federal Supply Schedule, or FSS, of the General Services Administration which provides a discount to the Department of Defense, Department of Veterans Affairs, and TriCare. The Company estimates reductions to the Company’s revenues for government rebate programs based on product pricing, current rebates, GSK’s historical utilization rates, the Company’s actual utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates, the Company’s expectations regarding future rebates for these programs and estimated levels of inventory in the distribution channel. |
Patient Assistance |
The Company offers a co-pay card program to assist commercially insured patients with the cost of their HORIZANT related co-payments. Participating retail pharmacies get reimbursed by the Company for the amount of the co-pay assistance provided to eligible patients. The Company estimates and accrues the cost of the co-pay program based on historical redemption activity for this program. The Company reimburses the participating pharmacies approximately one month after the prescriptions subject to co-pay assistance are filled. |
Multiple-Element Arrangements |
Revenue arrangements are accounted for in accordance with the provisions of the Revenue Recognition-Multiple-Element Arrangements topic of the Codification. |
In evaluating arrangements with multiple elements, the Company considers whether components of the arrangement represent separate units of accounting based upon whether certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. This evaluation requires subjective determinations and requires management to make judgments about the fair value of individual elements and whether such elements are separable from other aspects of the contractual relationship. The consideration received in such arrangements is allocated among the separate units of accounting based on the relative selling price method under which the selling price for each deliverable is determined using vendor-specific objective evidence of selling price, if it exists; otherwise, third-party evidence of selling price. If vendor-specific objective evidence and third-party evidence of selling price are not available for a deliverable, the Company will use its best estimate of the selling price for that deliverable when applying the relative selling price method. The applicable revenue recognition criteria are applied to each of the separate units. |
Revenues from multiple deliverables combined as a single unit of accounting are deferred and recognized over the period during which the Company remains obligated to perform services. The specific methodology for the recognition of the revenue (e.g., straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given agreement. |
Payments received in excess of revenues recognized are recorded as deferred revenue until such time as the revenue recognition criteria have been met. |
Collaboration revenue consisted of the recognition of revenues from upfront and milestone payments from the Company’s partnership with Astellas Pharma Inc. and from upfront and additional payments from its license agreement with Indivior. Net revenue from unconsolidated joint operating activities included all revenue that resulted solely from the Company’s terminated collaboration agreement with GSK. The Company accounts for the revenue-related activities of these collaboration agreements as follows: |
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| • | | Up-front, licensing-type payments. Up-front, licensing-type payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, the Company does not consider the license deliverable to be a separate unit of accounting, and the revenue is deferred with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting. | | | | | | | | | |
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| • | | Milestones. Revenue recognition will occur only if the consideration earned from the achievement of a milestone meets all the criteria for the milestone to be considered substantive at the inception of the arrangement, such that it: (i) is commensurate with either the Company’s performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) relates solely to past performance; and (iii) is reasonably relative to all deliverables and payment terms in the arrangement. | | | | | | | | | |
The Company will assess the nature of contingent payments, and appropriate accounting for, these payments on a case-by-case basis in accordance with the provisions of the Revenue Recognition topic of the Codification. |
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| • | | Profit and loss sharing. This represented the Company’s share of the profits and losses from the co-promotion of HORIZANT with GSK under the terminated collaboration with GSK. Amounts were recognized in the period in which the related activities occurred, and their financial statement classification was based on the Company’s assessment that these activities constituted part of the Company’s ongoing central operations. | | | | | | | | | |
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| • | | Product royalties. The Company is entitled to receive royalties on net sales of gabapentin enacarbil (known as REGNITE) in Japan. Astellas initiated sales of REGNITE in Japan in July 2012, and the Company recognizes the associated product royalties when they can be reliably measured and collectability is reasonably assured (generally upon receipt of the royalty payment). | | | | | | | | | |
Cost of Product Sales |
Cost of product sales includes direct and indirect costs to manufacture product sold, including tableting, packaging, storage, shipping and handling costs and inventory write-downs, if any. |
Accounts Receivable |
Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, wholesaler discounts and chargebacks. The need for bad debt allowance is evaluated each reporting period based on the Company’s assessment of the credit worthiness of its customers. |
Inventories |
Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out, or FIFO, basis. Inventories include active pharmaceutical ingredient, or API, and contract manufacturing costs. The Company regularly evaluates the Company’s inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales compared to quantities on hand and the remaining shelf life of HORIZANT. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories. |
Inventories that are not expected to be consumed within 12 months following the balance sheet date are classified as long-term inventories. |
Inventories as of December 31, 2014 and 2013 were summarized as follows (in thousands): |
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| | Year Ended December 31, | | | | | |
| | 2014 | | | 2013 | | | | | |
Raw materials | | $ | 9,273 | | | $ | 10,258 | | | | | |
Work in progress | | | 517 | | | | 76 | | | | | |
Finished goods | | | 766 | | | | 1,113 | | | | | |
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Total inventory | | | 10,556 | | | | 11,447 | | | | | |
Less: Long-term inventories | | | 9,098 | | | | 10,185 | | | | | |
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Total inventory classified as current | | $ | 1,458 | | | $ | 1,262 | | | | | |
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Long-term inventories consisted of gabapentin enacarbil API used for production of HORIZANT. The Company evaluates demand for HORIZANT and expected consumption of the API based on long-term projected sales of HORIZANT. |
Research and Development |
All research and development costs, including those funded by third parties, are expensed as incurred. Research and development costs consisted of salaries, employee benefits, laboratory supplies, costs associated with clinical trials, including amounts paid to clinical research organizations, other professional services and facility costs. |
Clinical Trials |
The Company accrues and expenses the costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial sites. The Company determines the estimates through discussions with internal clinical personnel and external service providers as to progress or stage of completion of trials or services and the agreed upon fee to be paid for such services. Costs of setting up clinical trial sites for participation in the trials are expensed immediately as research and development expenses. Clinical trial site costs related to patient visits are accrued as patients’ progress through the trial and are reduced by any payments made to the clinical trial site. Non-refundable advance payments for research and development goods or services are recognized as expense as the related goods are delivered or the related services are provided in accordance with the provisions of the Research and Development Arrangements topic of the Codification. |
Nonretirement Postemployment Benefits |
On May 31, 2012, the Company adopted the XenoPort Amended and Restated 2012 Severance Plan, or the 2012 Severance Plan, for the benefit of the Company’s non-executive employees. Under the terms of the 2012 Severance Plan, a non-executive employee terminated by the Company because of elimination of his or her position is eligible to receive continuation of medical insurance under COBRA and specified severance payments based on the employee’s level and years of service with the Company. The Company accounts for employee termination benefits in accordance with the provisions of the Compensation-Nonretirement Postemployment Benefits topic of the Codification and records employee termination liabilities once they are both probable and estimable for severance provided under the Company’s existing severance program. |
On June 14, 2013, the Company implemented a reduction in force that included the elimination of certain non-executive positions as the Company completed certain work projects on its AP development program. As a result, the Company recorded severance benefits charges of $703,000 in 2013, which were included in the “Research and development” line of the “Operating expenses” section of the Company’s statements of comprehensive loss. As of December 31, 2014 and 2013, there were no associated liability balances. |
Stock-Based Compensation |
The Compensation — Stock Compensation topic of the Codification establishes accounting for stock-based awards exchanged for employee services. In accordance with this topic, for stock options, awards and stock purchase rights under the Company’s employee stock purchase plan, or ESPP, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. |
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The effect of recording stock-based compensation under the Compensation — Stock Compensation topic was as follows: |
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| | Year Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
| | (In thousands, except | |
| | per share amounts) | |
Stock-based compensation by type of award: | | | | | | | | | | | | |
Employee stock options and awards | | $ | 8,531 | | | $ | 10,083 | | | $ | 11,956 | |
ESPP | | | 510 | | | | 461 | | | | 325 | |
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Total stock-based compensation | | $ | 9,041 | | | $ | 10,544 | | | $ | 12,281 | |
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Effect on basic and diluted net loss per share | | $ | (0.15 | ) | | $ | (0.22 | ) | | $ | (0.31 | ) |
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The Company’s employee non-cash stock-based compensation was reported as follows: |
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| | Year Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
| | (In thousands) | |
Research and development | | $ | 2,062 | | | $ | 3,059 | | | $ | 4,364 | |
Selling, general and administrative | | | 6,979 | | | | 7,485 | | | | 7,917 | |
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| | $ | 9,041 | | | $ | 10,544 | | | $ | 12,281 | |
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Valuation Assumptions |
The Company estimates the fair value of all of its stock options and stock purchase rights on the date of grant using a Black-Scholes valuation model that requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The Company derived the expected life assumptions using data obtained from similar entities, taking into consideration factors such as industry, stage of life cycle, size and financial leverage. The Company has determined that its historical volatility can be used to derive the expected stock price volatility assumption. The Company expenses the resulting charge using the straight-line attribution method over the vesting period. Restricted stock units are measured at the fair value of the Company’s common stock on the date of grant and expensed over the period of vesting using the straight-line attribution approach. The calculation of the Black-Scholes valuations used the following weighted-average assumptions: |
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| | Year Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
Volatility for options | | | 0.81 | | | | 0.82 | | | | 0.81 | |
Volatility for ESPP | | | 0.55 | | | | 0.59 | | | | 0.65 | |
Weighted-average expected life of options (years) | | | 5.25 | | | | 5.25 | | | | 5.09 | |
Weighted-average expected life of ESPP rights (years) | | | 0.75 | | | | 0.75 | | | | 0.75 | |
Risk-free interest rate for options | | | 1.52-1.77 | % | | | 0.70-1.60 | % | | | 0.62-1.02 | % |
Risk-free interest rate for ESPP rights | | | 0.05-0.17 | % | | | 0.07-0.17 | % | | | 0.07-0.27 | % |
Income Taxes |
Income taxes are accounted for in accordance with the Income Taxes topic of the Codification using the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more-likely-than-not that the deferred tax assets will not be realized. |
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The recognition, derecognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the reporting date. |
As of December 31, 2014, the Company had unrecognized tax benefits and expects no significant changes in unrecognized tax benefits in the next 12 months (see Note 10 for more information). |
The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged to the Company in relation to the underpayment of income taxes. |
Comprehensive Loss |
The Company presents all non-owner changes in stockholders’ equity in a single continuous statement of comprehensive loss and shows: (i) each component of net loss along with total net loss; (ii) each component of other comprehensive loss along with a total for other comprehensive loss; and (iii) a total amount for comprehensive loss. The Company’s other comprehensive loss is comprised of unrealized gains (losses) on available-for-sale securities. |
Advertising Costs |
Advertising costs, included in selling, general and administrative expenses, are charged to expense as incurred. Advertising expenses for the year ended December 31, 2014 and 2013, was $9,568,000 and $8,244,000, respectively. The Company did not have advertising costs for the year ended December 31, 2012. |
Net Loss Per Share |
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period without consideration for potential common shares. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period plus any dilutive potential common shares for the period determined using the treasury-stock method. For purposes of this calculation, restricted stock units, options to purchase stock and warrants are considered to be potential common shares and are only included in the calculation of diluted net loss per share when their effect is dilutive. |
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| | Year Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
| | (In thousands, except | |
| | per share amounts) | |
Numerator: | | | | | | | | | | | | |
Net loss | | $ | (49,333 | ) | | $ | (85,883 | ) | | $ | (30,814 | ) |
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Denominator: | | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 60,856 | | | | 47,545 | | | | 39,434 | |
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Basic and diluted net loss per share | | $ | (0.81 | ) | | $ | (1.81 | ) | | $ | (0.78 | ) |
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Outstanding securities at period end not included in the computation of diluted net loss per share as they had an anti-dilutive effect: | | | | | | | | | | | | |
Restricted stock units and options to purchase common stock | | | 7,650 | | | | 6,824 | | | | 6,339 | |
Warrants outstanding | | | — | | | | 283 | | | | 283 | |
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| | | 7,650 | | | | 7,107 | | | | 6,622 | |
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On January 29, 2014, the Company completed an underwritten public offering of 12,000,000 shares of its common stock at a price to the public of $6.00 per share. On February 21, 2014, the underwriters exercised in full their option to purchase 1,800,000 additional shares. |
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On February 3, 2015, the Company completed a private placement of $115,000,000 aggregate principal amount of 2.50% Convertible Senior Notes due 2022, or the 2022 Notes, to the investment bank acting as the initial purchaser who subsequently resold the 2022 Notes to qualified institutional buyers. The 2022 Notes are convertible at an initial conversion rate of 93.2945 shares of the Company’s common stock per $1,000 principal amount of the 2022 Notes, which is equal to an initial conversion price of approximately $10.72 per share of common stock (see Note 12 for more information). |
Recent Accounting Pronouncements |
In May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), which creates a single source of revenue guidance under GAAP for all companies in all industries. The core principle of ASU 2014-09 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates. ASU 2014-09 also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. ASU 2014-09 will be effective for the Company in the first quarter of fiscal 2017, and early adoption is not permitted. The Company may adopt ASU 2014-09 either by way of a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. The Company is currently evaluating the impact that ASU 2014-09 will have on its financial statements and has not yet determined which transition method it will apply. |
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). This update is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments: (1) provide a definition of the term substantial doubt; (2) require an evaluation every reporting period including interim periods; (3) provide principles for considering the mitigating effect of management’s plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans; (5) require an express statement and other disclosures when substantial doubt is not alleviated; and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2014-15 will be effective for the Company beginning with its annual report for fiscal 2016 and interim periods thereafter. The Company is currently evaluating the impact that ASU 2014-15 will have on its financial statements. |