| Description of Business and Summary of Significant Accounting Policies | 1. Description of Business and Summary of Significant Accounting
Policies
Chiasma, Inc. is a biopharmaceutical company incorporated in
2001 under the laws of the State of Delaware. The Company is
dedicated to improving the lives of patients suffering from orphan
diseases by developing and commercializing novel oral therapies
that are currently available only as injections. The Company has
completed a multinational Phase 3 clinical trial of its most
advanced Transient Permeability Enhancer (“TPE”)
platform-based product candidate, octreotide capsules, for the
treatment of acromegaly and its New Drug Application
(“NDA”) was accepted for filing by the United States
Food and Drug Administration (“FDA”) in August 2015. On
the Prescription Drug User Fee Act (“PDUFA”) date of
April 15, 2016, the FDA issued the Company a Complete Response
Letter (“CRL”) regarding the NDA, indicating that the
review is complete and the NDA is not ready for approval in its
present form. The FDA expressed concerns regarding certain aspects
of the Company’s single-arm, open-label Phase 3 clinical
trial and strongly recommended that the Company conduct a
randomized, double-blind and controlled trial that enrolls patients
from the United States and is of sufficiently long duration to
ensure that control of disease activity is stable at the time point
selected for the primary efficacy assessment. In addition, the FDA
advised that, during a recent site inspection, certain deficiencies
were conveyed to the representative of one of the Company’s
suppliers that would need to be resolved before approval. The
Company has requested an End of Review meeting with the FDA to
discuss the concerns the FDA raised in the CRL. Requesting the
meeting does not necessarily mean that the FDA will grant the
meeting in a timely manner, or at all. Even if the FDA grants
the meeting, there are no assurances that such a meeting will lead
to resolution of each of the concerns raised in the CRL or that it
will not foreclose any otherwise available opportunity to meet with
the FDA regarding the CRL or the NDA in the future.
Chiasma, Inc. is headquartered in Massachusetts and has two wholly
owned subsidiaries; Chiasma (Israel) Ltd., and Chiasma Securities
Corp, collectively referred to as the “Company”. The
Company’s product development facilities are in Israel.
In addition to the regulatory uncertainty created by the CRL, the
Company is also subject to risks common to companies in the
biopharmaceutical development industry. There can be no assurance
that the Company’s research and development will be
successfully completed, that adequate protection for the
Company’s intellectual property will be obtained, that any
products developed will obtain required regulatory approval or that
any approved products will be commercially viable. Even if the
Company’s development efforts are successful, it is uncertain
when, if ever, the Company will generate significant product sales.
The Company operates in an environment of rapid technological
change and substantial competition from pharmaceutical and
biotechnology companies.
Liquidity
The Company has incurred significant losses from operations since
its inception and expects losses to continue for at least the next
several years. The Company is heavily dependent on the regulatory
approval and subsequent commercial success of its lead product
candidate, octreotide capsules for the treatment of acromegaly in
the United States and Europe, both of which may never occur.
The Company expects to continue to conduct its recently initiated
international Phase 3 clinical trial of octreotide capsules in
acromegaly to support potential regulatory approval in Europe. The
Company is currently revisiting all areas of investment and
resources in light of our recent receipt of the CRL to potentially
enable an overall reduction of its 2016 expenses and extension of
our cash runway beyond mid-2017. As a public company, the Company
will continue to incur costs associated with operating as a public
company. Therefore, the Company expects to continue to incur
significant operating losses for the foreseeable future.
Successful transition to attaining profitable operations is
dependent upon achieving a level of revenues adequate to support
the Company’s cost structure. As a result of the CRL received
from the FDA in April 2016, the Company’s ability to generate
product revenues has been delayed indefinitely. The Company plans
to continue to fund its losses from operations and capital funding
needs from existing balances of cash, cash equivalents and
marketable securities and potentially through the issuance of debt
and/or equity or through collaborations or license agreements with
other companies. Debt or equity financing may not be available on a
timely basis on terms acceptable to the Company, or at all. If the
Company is not able to secure adequate additional funding, the
Company may be forced to make reductions in spending, extend
payment terms with suppliers, liquidate assets where possible, or
suspend or curtail planned programs. Any of these actions could
materially harm the Company’s business, results of operations
and future prospects.
Basis of Presentation
The Company has prepared the accompanying unaudited condensed
consolidated financial statements pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission
(“SEC”) regarding interim financial reporting.
Accordingly, certain information and footnote disclosures required
by accounting principles generally accepted in the United States
(“U.S. GAAP”) for annual financial statements have been
condensed or omitted. The information included in this quarterly
report on Form 10-Q should be read in conjunction with the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2015. The year-end condensed consolidated balance
sheet data presented for comparative purposes was derived from our
audited financial statements, but does not include all disclosures
required by U.S. GAAP. In the opinion of management, the Company
has prepared the accompanying unaudited condensed consolidated
financial statements on the same basis as its audited financial
statements, and these financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of the interim periods presented.
The results of operations for the three months ended March 31,
2016, are not necessarily indicative of the operating results for
the full year or for any other subsequent interim period.
On July 21, 2015, the Company completed the sale of 7,319,750
shares of its common stock in its IPO, at a price to the public of
$16.00 per share, resulting in net proceeds to the Company of
approximately $106.5 million after deducting underwriting discounts
and commissions and offering expenses payable by the Company. In
preparation for the IPO, the Company’s board of directors and
stockholders approved a 1-for-9.132 reverse stock split (the
“Reverse Split”) of the Company’s common stock
effective June 30, 2015. In connection with the closing of the
IPO on July 21, 2015, all of the Company’s outstanding
redeemable convertible preferred stock automatically converted into
16,403,011 shares of common stock. All previously reported common
stock share amounts in the accompanying financial statements and
related notes have been retroactively adjusted to reflect the
reverse stock split. The significant increase in shares outstanding
in July 2015 is expected to impact the year-over-year comparability
of the Company’s net loss per share calculations throughout
2016.
Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments
purchased with an original maturity of three months or less at the
date of purchase.
Marketable Securities
The Company’s investments primarily consisted of commercial
paper, corporate and government debt securities. These marketable
securities are classified as available-for-sale, and as such, are
reported at fair value on the Company’s condensed
consolidated balance sheets. Unrealized holding gains and losses
are reported within accumulated other comprehensive income as a
separate component of stockholders’ equity. The amortized
cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization, together
with interest on securities, are included in other expense, net, on
the Company’s condensed consolidated statements of
operations.
If a decline in the fair value of a marketable security below the
Company’s cost basis is determined to be other than
temporary, such marketable security is written down to its
estimated fair value as a new cost basis and the amount of the
write-down is included in earnings as an impairment charge. The
cost of securities sold is based on the specific identification
method.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash,
cash equivalents, marketable securities and long-term restricted
deposits. Periodically, the Company maintains deposits in financial
institutions in excess of government insured limits. Management
believes that the Company is not exposed to significant credit risk
as the Company’s deposits are held at financial institutions
that management believes to be of high credit quality and the
Company has not experienced any significant losses in these
deposits. The Company regularly invests excess operating cash in
deposits with major financial institutions and money market funds
and in notes issued by the U.S. government, as well as in fixed
income investments and U.S. bond funds, both of which can be
readily purchased and sold using established markets. The Company
believes that the market risk arising from its holdings of these
financial instruments is mitigated based on the fact that many of
these securities are either government backed or of high credit
rating.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses, and the disclosure of
contingent assets and liabilities as of and during the reporting
period. The Company bases these estimates and assumptions on
historical experience when available, and on various factors that
it believes to be reasonable under the specific circumstances.
Significant estimates relied upon in preparing the accompanying
condensed consolidated financial statements include, but are not
limited to, the fair value of common stock and other equity
instruments, accounting for stock-based compensation, present value
of long-term purchase obligation, income taxes, useful lives of
long-lived assets, and accounting for certain accruals. The Company
assesses the above estimates on an ongoing basis; however, actual
results could materially differ from those estimates.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued new revenue recognition guidance which
provides a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
will supersede most current revenue recognition guidance. The new
standard also requires significantly expanded disclosures regarding
the qualitative and quantitative information of an entity’s
nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers. The guidance is currently
effective for the Company in 2018. Early adoption is permitted in
2017. The Company is currently evaluating the impact the standard
may have on its consolidated financial statements.
In August 2014, the FASB issued new guidance which requires
management to assess an entity’s ability to continue as a
going concern and to provide related disclosures in certain
circumstances. The requirements of the standard will be effective
for the annual and interim financial statement periods ending after
December 15, 2016, with early adoption permitted. The Company
adopted this guidance effective January 2016. The adoption of this
standard did not have a material impact on the Company’s
condensed consolidated financial statements.
In April 2015, the FASB issued new guidance which requires the
presentation of debt issuance costs in the balance sheet as a
deduction from the carrying amount of the related debt liability,
consistent with the current treatment of debt discounts. The
Company adopted this guidance effective January 2016. The adoption
of this standard did not have a material impact on the
Company’s condensed consolidated balance sheet.
In July 2015, the FASB issued new guidance which requires an entity
to measure inventory at the lower of cost and net realizable value.
Net realizable value is defined as the estimated selling prices in
the ordinary course of business, less reasonably predictable costs
of completion, disposal, and transportation. This guidance does not
apply to inventory that is measured using last-in, first-out. The
guidance is effective for the Company in 2017. Early adoption is
permitted. The adoption of this guidance is not expected to have a
material impact on the Company’s consolidated financial
statements.
In November 2015, the FASB issued new guidance which requires all
deferred income taxes be presented on the balance sheet as
noncurrent. The new guidance is intended to simplify financial
reporting by eliminating the requirement to classify deferred taxes
between current and noncurrent. The guidance is effective for the
Company in 2017. Early adoption is permitted. The adoption of this
guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
In February 2016, the FASB issued new guidance which establishes a
right-of-use model that requires a lessee to record an asset and a
lease liability on the balance sheet for all leases with terms
longer than 12 months. Leases will be classified as either finance
or operating, with classification affecting the pattern of expense
recognition in the income statement. The guidance is effective for
the Company in 2019. A modified retrospective transition approach
is required for lessees for capital and operating leases existing
at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The
Company is currently evaluating the impact the standard may have on
its consolidated financial statements.
In March 2016, the FASB issued guidance simplifying aspects of the
accounting for employee share-based payments, including the
accounting for income taxes, forfeitures, statutory withholding
requirements, and classification on the statement of cash flows.
The standard is effective for interim and annual periods beginning
after December 15, 2016, with early adoption permitted. The
Company is currently evaluating the impact the standard may have on
its consolidated financial statements. |
