| 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. 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,”
“we,” “us”, “our” or
“Chiasma”. Our product development facilities are in
Israel. We are 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. We have completed a multinational Phase 3 clinical
trial of our most advanced Transient Permeability Enhancer
(“TPE”) platform-based product candidate, octreotide
capsules, for the treatment of acromegaly and our New Drug
Application (“NDA”) was accepted for filing by the
United States Food and Drug Administration (“FDA”) in
August 2015. We expect to continue to conduct the international
Phase 3 clinical trial of octreotide capsules in acromegaly that we
initiated in March 2016 to support potential regulatory approval in
Europe. On the Prescription Drug User Fee Act (“PDUFA”)
date of April 15, 2016, the FDA issued 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. In June 2016, we participated in an End of Review
meeting with the FDA to discuss the concerns the FDA raised in the
CRL and have received the minutes of the meeting.
In its CRL, the FDA advised us that it did not believe our
application had provided substantial evidence of efficacy to
warrant approval, and advised us that we would need to conduct
another clinical trial in order to overcome this deficiency. The
FDA expressed concerns regarding certain aspects of our single-arm,
open-label Phase 3 clinical trial and strongly recommended that we
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
our suppliers that would need to be resolved before approval.
In the End of Review meeting minutes, the FDA reiterated its strong
recommendation for a randomized, double-blind and controlled trial,
and introduced the concept of a placebo control as a design element
that could address some of the FDA’s concerns. While we
acknowledge this feedback, we continue to explore various potential
paths forward, including a determination as to whether we can
produce data sufficient to satisfy the FDA of the efficacy and
safety of Mycapssa in adult patients with acromegaly. The FDA
stated that it considers pathways alternative to its
recommendations to be less ideal and ultimately more risky to our
efforts to secure approval of our NDA for octreotide capsules in
acromegaly. The FDA strongly recommended that we work with the FDA
to reach a common understanding of expectations prior to initiating
and executing any alternative plans.
The U.S. regulatory pathway is highly uncertain at this time, and
we may never reach a common understanding with the FDA on a path
forward to develop Mycapssa in the U.S., or obtain regulatory
approval of octreotide capsules in the United States.
In addition to the regulatory uncertainty created by the CRL, we
are also subject to risks common to companies in the
biopharmaceutical development industry. There can be no assurance
that our research and development will be successfully completed,
that adequate protection for our 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 our development efforts are
successful, it is uncertain when, if ever, we will generate
significant product sales. We operate in an environment of rapid
technological change and substantial competition from
pharmaceutical and biotechnology companies.
Liquidity
We have incurred significant losses from operations since our
inception and expect losses to continue for at least the next
several years. We are heavily dependent on the regulatory approval
and subsequent commercial success of our lead product candidate,
octreotide capsules for the treatment of acromegaly in the United
States and Europe, both of which may never occur.
We expect to continue to conduct our recently initiated
international Phase 3 clinical trial of octreotide capsules in
acromegaly to support potential regulatory approval in Europe. In
June 2016, we announced a corporate restructuring plan intended to
focus our resources on the continued development of Mycapssa for
the maintenance treatment of adult acromegaly patients. We are
currently revisiting all areas of investment and resources in light
of the CRL and our End of Review Meeting with the FDA to
potentially enable further reductions of our expenses and extension
of our cash runway. We currently expect our existing cash, cash
equivalents and marketable securities to fund our operations
through at least 2017. As a public company, we will continue to
incur costs associated with operating as a public company.
Therefore, we expect 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
our cost structure. As a result of the CRL and our subsequent
interactions with the FDA, our ability to generate product revenues
has been delayed indefinitely. We plan to continue to fund our
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 us, or at all. If we are not able to secure adequate
additional funding, we may be forced to make further 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 our business, results of
operations and future prospects.
Basis of Presentation
We have 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 our 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, we have prepared the accompanying unaudited
condensed consolidated financial statements on the same basis as
our 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 and six months ended June 30, 2016, are not necessarily
indicative of the operating results for the full year or for any
other subsequent interim period.
On July 21, 2015, we completed the sale of 7,319,750 shares of
our common stock in our IPO, at a price to the public of $16.00 per
share, resulting in net proceeds to us of approximately $106.5
million after deducting underwriting discounts and commissions and
offering expenses payable by us. In preparation for the IPO, our
board of directors and stockholders approved a 1-for-9.132 reverse
stock split (the “Reverse Split”) of our common stock
effective June 30, 2015. In connection with the closing of the
IPO on July 21, 2015, all of our 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 our 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
Our investments primarily consist 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 our 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 (income), net, on our condensed
consolidated statements of operations.
If a decline in the fair value of a marketable security below our
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 us to significant
concentration of credit risk consist primarily of cash, cash
equivalents, marketable securities and long-term restricted
deposits. Periodically, we maintain deposits in financial
institutions in excess of government insured limits. Management
believes that we are not exposed to significant credit risk as our
deposits are held at financial institutions that management
believes to be of high credit quality and we have not experienced
any significant losses in these deposits. We regularly invest
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.
We believe that the market risk arising from our 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. We base 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,
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. We assess the above
estimates on an ongoing basis; however, actual results could
materially differ from those estimates.
Recently Issued Accounting Pronouncements
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. We adopted
this guidance effective January 2016. The adoption of this standard
did not have a material impact on our condensed 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 in 2017
with early adoption is permitted. We adopted this guidance
effective June 2016. We applied the guidance prospectively and
therefore prior periods have not been retrospectively adjusted. At
December 31, 2015, our net current deferred tax asset was $0.1
million. The adoption of this standard did not have a material
impact on our condensed 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 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. We are currently evaluating
the impact the standard may have on our 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. During
the three months ended June 30, 2016, we adopted this
standard. As a result, we have elected to account for forfeitures
as they occur. The adoption of this standard did not have a
material impact on our condensed consolidated financial
statements. |
