| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from
these estimates.
Concentration of Credit Risk
The Company invests in a variety of financial instruments and, by
its policy, limits the amount of credit exposure with any one
issuer, industry or geographic area.
Accounts receivable are typically unsecured and are concentrated in
the pharmaceutical industry and government sector. Accordingly, the
Company may be exposed to credit risk generally associated with
pharmaceutical companies and government funded entities. The
Company has not historically experienced any significant losses due
to concentration of credit risk.
Accounts receivable consists of the following (in thousands):
March 31, December 31,
Vifor (1) $ 1,698 $ 51,090
(1) Accounts receivable at March 31,
2018 and December 31, 2017 included $1.6 million and
$1.1 million, respectively, of unbilled receivables related to
development costs to be reimbursed by Vifor (International) Ltd.,
and/or its affiliates (collectively, Vifor) under the agreement
relating to CCX140, which we refer to as the CCX140 Agreement. As
of December 31, 2017, accounts receivable excluded the
$10.0 million cash commitment received from Vifor in February
2018 in connection with the agreement that harmonized the
geographic commercialization rights underlying the agreements for
both avacopan and CCX140 drug candidates, which we refer to as the
Avacopan Amendment. See “Note 8. Collaboration and License
Agreements” for a detailed discussion.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss
attributable to common stockholders by the weighted-average number
of common shares outstanding during the period, without
consideration for common stock equivalents.
Diluted net loss per share is computed by dividing net loss
attributable to common stockholders by the sum of the
weighted-average number of common shares outstanding and dilutive
common stock equivalent shares outstanding for the period. The
Company’s potentially dilutive common stock equivalent
shares, which include incremental common shares issuable upon
(i) the exercise of outstanding stock options and warrants,
(ii) vesting of restricted stock units (RSUs) and restricted
stock awards (RSAs), and (iii) the purchase from contributions
to the 2012 Employee Stock Purchase Plan (the ESPP), (calculated
based on the treasury stock method), are only included in the
calculation of diluted net loss per share when their effect is
dilutive.
For the three months ended March 31, 2018 and 2017, the
following potentially dilutive securities were excluded from the
calculation of diluted net loss per share due to their
anti-dilutive effect:
Three Months
Ended
March 31,
2018 2017
Options to purchase common stock, including purchases from
contributions to ESPP 11,824,877 10,646,551
Restricted stock units 459,682 565,345
Restricted stock awards 85,431 31,306
Warrants to purchase common stock 150,000 150,000
12,519,990 11,393,202
Comprehensive Loss
Comprehensive loss comprises net loss and other comprehensive loss.
For the periods presented other comprehensive loss consists of
unrealized losses on the Company’s available-for-sale
Revenue Recognition
Effective January 1, 2018, the Company adopted Accounting
Standards Codification (ASC) Topic 606, Revenue from
Contracts with Customers
The Company enters into corporate collaborations under which it may
obtain upfront license fees, research and development funding and
development and regulatory and commercial milestone payments and
royalty payments. The Company’s performance obligations
under these arrangements may include licenses of intellectual
property, distribution rights, research and development services,
delivery of manufactured product, and/or participation on joint
steering committees.
Licenses of intellectual property: If the license to the
Company’s intellectual property is determined to be distinct
from the other performance obligations identified in the
arrangement, the Company recognizes revenue from upfront license
fees allocated to the license when the license is transferred to
the customer and the customer is able to use and benefit from the
license. For licenses that are bundled with other promises, the
Company utilizes judgement to assess the nature of the combined
performance obligation to determine whether the combined
performance obligation is satisfied over time or at a point in time
and, if over time, the appropriate method of measuring proportional
performance for purposes of recognizing revenue from non-refundable, up-front
Milestone payments: At the inception of each arrangement that
includes development, regulatory or commercial milestone payments,
the Company evaluates whether the milestones are considered
probable of being reached and estimates the amount to be included
in the transaction price. ASC 606 suggests two alternatives to use
when estimating the amount of variable consideration: the expected
value method and the most likely amount method. Under the expected
value method, an entity considers the sum of probability-weighted
amounts in a range of possible consideration amounts. Under the
most likely amount method, an entity considers the single most
likely amount in a range of possible consideration amounts.
Whichever method is used, it should be consistently applied
throughout the life of the contract; however, it is not necessary
for the Company to use the same approach for all contracts. The
Company expects to use the most likely amount method for
development and regulatory milestone payments. If it is probable
that a significant revenue reversal would not occur, the associated
milestone value is included in the transaction price. Milestone
payments that are not within the Company’s or the
licensee’s control, such as regulatory approvals, are not
considered probable of being achieved until those approvals are
received. The transaction price is then allocated to each
performance obligation on a relative stand-alone selling price
basis. The Company recognizes revenue as or when the performance
obligations under the contract are satisfied. At the end of each
subsequent reporting period, the Company re-evaluates catch-up
Commercial milestones and royalties: For arrangements that
include sales-based royalties, including milestone payments based
on the level of sales, and in which the license is deemed to be the
predominant item to which the royalties relate, the Company
recognizes revenue when the related sales occur. To date, the
Company has not recognized any royalty revenue resulting from its
collaboration arrangements.
Up-front
Upon adoption of ASC 606 under the modified retrospective
transition method, the Company recognized the cumulative effect of
initially applying the new revenue standard of $47.3 million
as an adjustment to the opening balance of accumulated deficit and
an increase in deferred revenue. The comparative information has
not been restated and continues to be reported under the accounting
standards in effect for those periods. Before the adoption of ASC
606, the Company recognized upfront fees straight-line under ASC
605 over the estimated performance period and recognized milestones
when earned under the milestone method of accounting. See
“Note 2. Summary of Significant Accounting Policies –
Revenue Recognition” in the Company’s Annual Report on
Form 10-K
The impact of adoption on the Company’s consolidated
statement of operations and balance sheet was as follows (in
thousands):
For the Three Months Ended
March 31, 2018
As Balances Without Effect of
Statement of Operations
Collaboration and license revenue $ 9,546 $ 4,364 $ 5,182
Loss from operations (9,856 ) (15,038 ) 5,182
Net loss (9,417 ) (14,599 ) 5,182
March 31, 2018
As Balances Without Effect of
Balance Sheet
Liabilities:
Deferred revenue $ 68,997 $ 15,023 $ 53,974
Noncurrent deferred revenue 74,554 86,379 (11,825 )
Stockholders’ equity:
Accumulated deficit (345,948 ) (303,799 ) (42,149 )
Recent Accounting Pronouncements
On December 22, 2017, the Tax Cuts and Jobs Act (“the
Act”) was enacted into law. Accounting Standards Codification
(ASC) 740, Income Taxes, requires companies to recognize the effect
of the tax law changes in the period of enactment. Shortly after
the enactment of the Act, the SEC staff issued Staff Accounting
Bulletin No. 118 (SAB 118) to address the application of U.S.
GAAP in situations when a registrant does not have the necessary
information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for
certain income tax effects of the Act. The Company has adjusted its
deferred tax assets and liabilities based on the reduction of the
U.S. federal corporate tax rate from 34% to 21% and assessed the
realizability of its deferred tax assets based on its current
understanding of the provisions of the new law. The Company
considers its accounting for the impacts of the new law to be
provisional and the Company will continue to assess the impact of
the recently enacted tax law (and expected further guidance from
federal and state tax authorities as well as further guidance for
the associated income tax accounting) on its business and
consolidated financial statements for the remainder of 2018. No
adjustments were made to the provisional estimate during the three
months ended March 31, 2018.
In February 2016, the Financial Accounting Standard Board issued
Accounting Standards Update No. 2016-12,
The Company has reviewed other recent accounting pronouncements and
concluded they are either not applicable to the business or that no
material effect is expected on the consolidated financial
statements as a result of future adoption. |
