| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies 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. Restricted Cash Restricted cash consists of a certificate of deposit held by our bank as collateral for a standby letter of credit in the same notional amount by our landlord to secure our obligations under our corporate office and laboratory facility lease that we entered into in December 2016. We are required to maintain this restricted cash balance, the amount of which is subject to reduction starting on January 1, 2023 if certain conditions are met, for the duration of this lease. Fair Value of Financial Instruments We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows: Level 1 —Quoted prices in active markets for identical assets or liabilities; Level 2 —Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. We review trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data. There were no transfers between Level 1 and Level 2 securities in the periods presented. In certain cases where there is limited activity or less transparency around inputs to valuation, we classify securities as Level 3 within the valuation hierarchy. We do not have any assets or liabilities measured using Level 3 inputs as of September 30, 2018. The following table summarizes our financial instruments that were measured at fair value on a recurring basis by level of input within the fair value hierarchy defined above (in thousands):
September 30, 2018
Basis of Fair Value
Measurements
Total
Level 1
Level 2
Level 3
Assets
Money market funds
$
43,518
$
43,518
$
—
$
—
U.S. Treasury securities
173,337
173,337
—
—
Agency bonds
16,340
16,340
—
—
Corporate bonds
7,443
—
7,443
—
Commercial paper
60,431
—
60,431
—
Certificate of deposit
1,543
—
1,543
—
Total
$
302,612
$
233,195
$
69,417
$
—
December 31, 2017
Basis of Fair Value
Measurements
Total
Level 1
Level 2
Level 3
Assets
Money market funds
$
31,802
$
31,802
$
—
$
—
U.S. Treasury securities
232,900
232,900
—
—
Certificate of deposit
1,543
—
1,543
—
Total
$
266,245
$
264,702
$
1,543
$
—
Revenue Recognition Effective January 1, 2018, we adopted Financial Accounting Standards Board, or FASB, Accounting Standard Update, or ASU 2014-09 , Revenue from Contracts with Customers (Topic 606) , or Topic 606, The terms of our collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. We record research funding payable to us as accounts receivable when our right to consideration is unconditional. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Given the high degree of uncertainty around occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting in Topic 606. A contract’s transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the applicable performance obligation is satisfied. Under Topic 606, we elected to use the practical expedients permitted related to adoption, which do not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period. Topic 606 applies to revenue recognized in accordance with the p Net Loss Per Share of Common Stock We compute basic net loss per common share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. We excluded the following securities from the calculation of diluted net loss per share as the effect would have been antidilutive (in thousands):
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2017
2018
2017
Options to purchase common stock
3,830
3,848
3,934
3,813
Restricted stock awards (RSAs)
1,078
850
975
909
4,908
4,698
4,909
4,722
Accounting Pronouncements Adopted in 2018 In May 2014, FASB issued Topic 606, which supersedes nearly all existing revenue recognition guidance under GAAP. FASB subsequently issued amendments to Topic 606 that have the same effective date and transition date. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in as a result, more judgment and estimates may be required in the course of the revenue recognition process, including with respect to identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. We adopted Topic 606, effective January 1, 2018, using the modified retrospective transition method, in which the new standard is applied as of the date of initial adoption. We recorded the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The adoption of the new revenue recognition guidance resulted in a decrease of $1.4 million to deferred revenue and an increase of $1.4 million to retained earnings as of January 1, 2018. Additionally, we determined that the classification between deferred revenue, current portion, and deferred revenue, long-term portion, changed as a result of adoption of Topic 606. We concluded that we will classify deferred revenue for all licensing and collaboration arrangements as deferred revenue, long-term portion, and will reclassify to deferred revenue, current portion, when the remaining term of the estimated performance period is one year or less. Our adoption of Topic 606 effective January 1, 2018 affected the following financial statement line items: Condensed Statements of Operations
Three Months ended September 30, 2018
(in thousands, except per share data)
Under Topic 606
Under Topic 605
Effect of change
Collaboration and license revenue
$
5,771
$
8,131
$
(2,360
)
Operating expenses
54,519
54,519
—
Operating loss
$
(48,748
)
$
(46,388
)
$
(2,360
)
Net loss
$
(47,244
)
$
(44,884
)
$
(2,360
)
Net loss per share applicable to common stockholders - basic and diluted
$
(1.37
)
$
(1.30
)
$
(0.07
)
Nine Months ended September 30, 2018
(in thousands, except per share data)
Under Topic 606
Under Topic 605
Effect of change
Collaboration and license revenue
$
45,837
$
47,184
$
(1,347
)
Operating expenses
151,711
151,711
—
Operating loss
$
(105,874
)
$
(104,527
)
$
(1,347
)
Net loss
$
(101,694
)
$
(100,347
)
$
(1,347
)
Net loss per share applicable to common stockholders - basic and diluted
$
(3.01
)
$
(2.97
)
$
(0.04
) Condensed Balance Sheets
As of September 30, 2018
(in thousands)
Under Topic 606
Under Topic 605
Effect of change
Receivables from collaborative partner
$
5,015
$
5,015
$
—
Deferred revenue, current portion
1,687
8,817
(7,130
)
Deferred revenue, long-term portion
11,400
4,296
7,104
Accumulated deficit
(255,927
)
(255,953
)
26
Condensed Statements of Cash Flows
Nine Months ended September 30, 2018
(in thousands)
Under Topic 606
Under Topic 605
Effect of change
Net loss
$
(101,694
)
$
(100,347
)
$
(1,347
)
Decrease in deferred revenue in connection with Topic 606 adoption
1,373
—
1,373
Changes in operating assets and liabilities
Receivables from collaborative partner
8,118
8,118
—
Deferred revenue
(9,848
)
(9,822
)
(26
)
Cash, cash equivalents and restricted cash at beginning of period
61,333
61,333
—
Cash, cash equivalents and restricted cash at end of period
65,588
65,588
—
In May 2017, FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) – Scope of Modification Accounting In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash In June 2018, FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting Subtopic 505-50, Equity–Equity-Based Payments to Non-Employees Accounting Pronouncements Not Yet Adopted In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. In light of the anticipated timing of effectiveness of the amendments and expected proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC’s Division of Corporate Finance issued a Compliance and Disclosure Interpretation related to Exchange Act Forms, or CDI – Question 105.09, that provides transition guidance related to this disclosure requirement. CDI – Question 105.09 states that the SEC would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its quarterly report on Form 10-Q for the quarter that begins after the effective date of the amendments. As such, we adopted these SEC amendments on November 5, 2018 and will present the analysis of changes in stockholders’ equity beginning the first quarter of 2019. We do not anticipate that the adoption of these SEC amendments will have a material effect on our financial position, results of operations, cash flows or shareholders’ equity. In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) In February 2016, FASB issued ASU 2016-02, Leases (Topic 842) all annual and interim reporting periods thereafter. E |
