| Significant Accounting Policies | 2. Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). Additionally, GTx operates in one business segment.
On December 5, 2016, the Company effected a one-for-ten reverse stock split of its common stock through an amendment to its restated certification of incorporation. As of the effective time of the reverse stock split, every ten shares of the Company's issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock, without any change in par value per share. The amendment to the Company's restated certification of incorporation also reduced the number of authorized shares of common stock from 400,000,000 to 60,000,000 shares. The reverse stock split affected all shares of the Company's common stock outstanding immediately prior to the effective time of the reverse stock split. Additionally, as a result of the reverse stock split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units and warrants issued by the Company and outstanding immediately prior to the effective time, which resulted in a proportionate decrease in the number of shares of the Company's common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under the Company's equity compensation plans immediately prior to the effective time was reduced proportionately. No fractional shares were issued as a result of the reverse stock split. Stockholders who have otherwise been entitled to receive a fractional share received a cash payment in lieu thereof.
As the par value per share of the Company's common stock remained unchanged at $0.001 per share, a total of $144 was retroactively reclassified from common stock to additional paid-in capital in the Company's balance sheets and statements of stockholders' equity. All references to shares of common stock, all per share data, and all warrant, stock option and restricted stock unit ("RSU") activity for all periods presented in these financial statements and notes to financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with initial maturities of three months or less to be cash equivalents.
Short-term Investments
At December 31, 2016 and 2015, short-term investments consisted of Federal Deposit Insurance Corporation ("FDIC") insured certificates of deposit with original maturities of greater than three months and less than one year.
Property and Equipment
Property and equipment is stated at cost. Amortization of leasehold improvements is recognized over the shorter of the estimated useful life of the leasehold improvement or the lease term. Depreciation is computed using the straight-line method over the estimated useful lives as follows:
Office equipment
3 to 5 years
Leasehold improvements
3 to 7 years
Furniture and fixtures
5 years
Computer equipment and software
3 years
Warrant Liability
In November 2014, the Company issued warrants to purchase 6,430,948 shares of its common stock. The Company classified these warrants as a liability on its balance sheet since the warrants contained certain terms that could have required the Company (or its successor) to purchase the warrants for cash in an amount equal to the value (as calculated utilizing a contractually-agreed Black-Scholes-Merton option pricing valuation model ("Black-Scholes Model")) of the unexercised portion of the warrants in connection with certain change of control transactions occurring on or prior to December 31, 2016, with such cash payment capped at an amount equal to $1.25 per unexercised share underlying each warrant. As a result of the provision of the warrants requiring cash settlement upon certain change of control transactions, the Company was required to account for these warrants as a liability at fair value and the estimated warrant liability was required to be revalued at each balance sheet date until the earlier of the exercise of the warrants, the modification to remove the provision that could require cash settlement upon certain change of control transactions or the expiration of such provision on December 31, 2016. Effective March 25, 2016, each of the warrants was amended by agreement of the warrant holders to remove the provision that could require cash settlement upon certain change of control transactions. These warrants were no longer accounted for as a liability as of March 31, 2016. The Company recorded a non-cash reclassification of the warrant fair value to stockholders' equity based on the warrants' fair value as of the March 25, 2016 modification date, with no further adjustments to the fair value of these warrants being required.
Fair Value of Financial Instruments and Warrant Liability
The carrying amounts of the Company's financial instruments (which include cash, cash equivalents, short-term investments, and accounts payable) and its prior warrant liability approximate their fair values. The fair value of the warrant liability was estimated using the Black-Scholes-Merton Model. See Note 6, Stockholders' Equity , for additional disclosure on the valuation methodology and significant assumptions. The Company's financial assets and liabilities are classified within a three-level fair value hierarchy that prioritizes the inputs used to measure fair value, which is defined 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 unobservable for the asset or liability
There were no assets or liabilities measured at fair value on a recurring basis as of December 31, 2016. Liabilities measured at fair value on a recurring basis as of December 31, 2015 included only the Company's warrant liability of $27,349, which was classified within Level 3 of the hierarchy. A non-cash gain of $8,163 related to the change in the fair value of the warrant liability was recognized during the year ended December 31, 2016 in the Company's statement of operations.
As the Company has the positive intent and ability to hold its certificates of deposit classified as short-term investments until maturity, these investments have been classified as held to maturity investments and are stated at cost, which approximates fair value. The Company considers these to be Level 2 investments as the fair values of these investments are determined using third-party pricing sources, which generally utilize observable inputs, such as interest rates and maturities of similar assets.
Concentration of Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and short-term investments. The Company has established guidelines relating to diversification and maturities of its cash equivalents and short-term investments which are designed to manage risk. The Company's cash and cash equivalents consist of bank deposits, certificates of deposit, and money market mutual funds. Bank deposits may at times be in excess of FDIC insurance limits. The Company's short-term investments consist of FDIC insured certificates of deposit with original maturities of greater than three months and less than one year.
Research and Development Expenses
Research and development expenses include, but are not limited to, the Company's expenses for personnel, supplies, and facilities associated with research activities, screening and identification of product candidates, formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies, clinical trials, regulatory and medical affairs activities, quality assurance activities and license fees. The Company expenses these costs in the period in which they are incurred. The Company estimates its liabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon the Company's estimate of services received and degree of completion of the services in accordance with the specific third party contract.
Patent Costs
The Company expenses patent costs, including legal expenses, in the period in which they are incurred. Patent expenses are included in general and administrative expenses in the Company's statements of operations.
Income Taxes
The Company accounts for deferred taxes by recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, at December 31, 2016 and December 31, 2015, net of the valuation allowance, the net deferred tax assets were reduced to zero. See Note 8, Income Taxes , for further discussion.
Share-Based Compensation
The Company has stock option and equity incentive plans that provide for the purchase or acquisition of the Company's common stock by certain of the Company's employees and non-employees. The Company recognizes compensation expense for its share-based payments based on the fair value of the awards over the period during which an employee or non-employee is required to provide service in exchange for the award. See Note 3, Share-Based Compensation , for further discussion.
Other Income (Expense), Net
Other income (expense), net consists of foreign currency transaction gains and losses, interest earned on the Company's cash, cash equivalents and short-term investments, interest expense, and other non-operating income or expense. Other income (expense), net for the year ended December 31, 2014 also included expenses related to the private placement of common stock and warrants completed in November 2014 as the warrants issued were initially accounted for as a liability.
Basic and Diluted Net Loss Per Share
Basic and diluted net income (loss) per share attributable to common stockholders is calculated based on the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share gives effect to the dilutive potential of common stock consisting of stock options, unvested RSUs and common stock warrants. For the year ended December 31, 2015, since the average market price of the shares underlying common stock warrants exceeded the exercise price of the warrants, and the presumed exercise of such warrants were dilutive to the net loss per share for the period, adjustments to net loss for the period were required to remove the change in fair value of the warrant liability.
The following table sets forth the computation of the Company's net loss per share is as follows:
Years Ended December 31,
2016
2015
2014
Basic and diluted net loss per share
Numerator:
Net loss — basic
$
)
$
)
$
)
Adjustments for the gain on change in fair value of the warrant liability
-
)
-
​
​
​
​
​
​
​
​
​
​
​
Net loss — diluted
$
)
$
)
$
)
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Denominator:
Weighted average shares outstanding — basic
Dilutive warrants
-
-
Dilutive restricted stock units
-
-
Dilutive stock options
-
-
​
​
​
​
​
​
​
​
​
​
​
Weighted average shares outstanding — diluted
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Net loss per share:
Basic
$
)
$
)
$
)
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Diluted
$
)
$
)
$
)
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Weighted average shares outstanding:
Basic
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Diluted
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
Weighted average potential shares of common stock of 8,162,347, 838,745, and 2,462,877 were excluded from the calculation of diluted net loss per share for the years ended December 31, 2016, 2015 and 2014, respectively, as inclusion of the potential shares would have had an anti-dilutive effect on the net loss per share for the periods. At December 31, 2016, the Company had 15,919,572 shares of common stock outstanding.
Comprehensive Loss
For all periods presented, there were no differences between net loss and comprehensive loss.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board issued Accounting Standard Update 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern . The new guidance 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 within one year of the date the financial statements are issued and to provide related footnote disclosure. This new guidance was effective for the year ended December 31, 2016 and interim periods thereafter.
Subsequent Events
The Company has evaluated all events or transactions that occurred after December 31, 2016 up through the date the financial statements were issued. There were no material recognizable or nonrecognizable subsequent events during the period evaluated. |
