| Summary of Significant Accounting Policies | Note 3. Summary of Significant Accounting Policies (A) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions often involve assessments of matters that are inherently uncertain and accordingly actual results could differ from those estimates. Significant items subject to estimates and assumptions include those related to revenue recognition, inventory costs, allowances for rebates from proprietary product sales, allowances for sales returns, the useful lives of fixed assets, the valuations of warrants issued and of share-based compensation, and contingencies. (B) Cash and Cash Equivalents The Company considers all short-term, highly liquid investments purchased with original maturities of three months or less to be cash equivalents. At December 31, 2019 and 2018, cash and cash equivalents consisted of cash in bank accounts and money market funds. (C) Concentration of Credit Risk Cash and cash equivalents are maintained at one federally insured financial institution. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any credit risk due to the financial position of the banking institution. Indivior is our largest customer, and these details on this relationship are outlined in Note 5. Indivior does not represent a material credit risk. (D) Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company’s credit terms generally range from 30 to 90 days, depending on the customer and type of invoice. The Company evaluates the collectability of accounts receivable based on a combination of factors. Neither receivables nor revenues are recorded unless collection is reasonably assured. In situations where changing circumstances indicate that a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded against amounts due in order to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts, associated with recoverability of accounts receivable, was $124 and $58 as of December 31, 2019 and 2018, respectively. (E) Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value, in accordance with ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence and shelf life expiration. This evaluation includes analysis of historical sales levels by product, projections of future demand, the risk of competitive obsolescence for products, general market conditions, and a review of the shelf life expiration dates for products. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products, or use them in production, prior to their expiration, the Company records allowances to adjust the carrying value to estimated net realizable value as necessary. (F) Property and Equipment Property and equipment are stated at cost net of accumulated depreciation and amortization, which is computed by the straight-line method based on the estimated useful lives of the respective assets, as discussed below. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the leased assets. Maintenance and repair costs are charged to expense as incurred, and expenditures for major renewals and improvements are capitalized. Upon disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed from the accounts, and any gain or loss is reflected in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company assesses the net book value of its property and equipment for impairment at least annually or when events or circumstances indicate that carrying amounts may not be recoverable in the ordinary course of its business. (G) Intangible Assets Intangible assets include the costs of acquired composition and process technologies and the costs of purchased patents used in the manufacture of orally soluble film. The Company amortizes these assets using the straight-line method over the shorter of their legal lives or estimated useful lives. (H) Impairment of Long-Lived Assets Long lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In these circumstances, the Company compares undiscounted cash flows expected to be generated by that asset or asset group to the corresponding carrying amounts. If this comparison is indicative of impairment, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered most appropriate. (I) Revenue from Contracts with Customers The Company’s revenues include (i) sales of manufactured products pursuant to contracts with commercialization partners, (ii) sales of its proprietary clobazam-based Sympazan oral film product used as a treatment for LGS-related seizures, (iii) license and royalty revenues and (iv) co-development and research fees generally in the form of milestone payments. See Note 5 for further details. Having adopted ASC 606, Revenue from Contracts with Customers, Revenue Recognition Manufacture and Supply Revenue Proprietary Product sales - . License and Royalty Revenue Royalty revenue under ASC 606 is estimated and recognized when sales under supply agreements with commercial partners are recorded, absent any contractual constraints or collectability uncertainties. Royalties based on sales of Suboxone and Zuplenz in 2019 are recorded in this manner. Royalties recorded in 2018 under ASC 605 were based on reported sales data and collectability assessments. Co-development and Research Fees Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g., an NDA filing or obtaining regulatory approval) represent variable consideration and are included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied. The Company also operates under a certain collaborative arrangement under which the parties share revenues and expenses related to development, manufacturing and commercialization of a product. This contractual arrangement falls within the scope of FASB ASC Subtopic 808-10, Collaborative Arrangements Revenue Recognition – Principal Agent Considerations (J) Research and Development Costs incurred in connection with research and development activities are expensed as incurred. Research and development expenses include (i) employee-related expenses, including salaries, benefits, travel and share-based compensation expense, (ii) external research and development expenses incurred under arrangements with third parties, such as contract research and contract manufacturing organizations, investigational sites and consultants, (iii) the cost of acquiring, developing and manufacturing clinical study materials, and (iv) costs associated with preclinical and clinical activities and regulatory operations. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development. (K) Income Taxes Income taxes are recorded in accordance with FASB ASC Topic 740 Income Taxes, or ASC 740, which provides for deferred taxes using an asset and liability approach. Income taxes have been calculated on a separate tax return basis. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Uncertain tax positions are accounted for in accordance with the provision of ASC 740. When uncertain tax positions exist, the tax benefit is recognized to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. To date, the Company has not had any significant uncertain tax positions. (L) Share-Based Compensation The Company records share-based compensation expenses for awards of stock options and restricted stock units (RSUs) under ASC 718, Compensation — Stock Compensation Compensation-Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting, Equity-based Payments to Non-Employees The Company’s stock-based compensation includes grants of stock options and restricted stock units (RSUs) to employees, consultants and non-employee directors. During 2019, the Company also offered employees an opportunity to participate in an employee stock purchase plan. Expenses arising from these grants are recorded in the accompanying financial statements based on their grant date fair values as ratably earned during their respective vesting periods. The Company’s estimates of the fair value of options at their grant dates is based on the Black-Scholes-Merton option valuation model and considers various variables and assumptions, including: • the stock price at the grant date, • exercise price, • both the contractual and estimated expected term of the option, • an estimate of stock price volatility based on that of an industry peer group, • expected dividends, • no dividends for the foreseeable future, and • risk-free interest rate. These assumptions require estimates and judgements and changes in those inputs could impact the amount of expenses that are charged to earnings. The Company recognizes compensation expense for the fair value of restricted stock unit and stock option awards over the requisite service period of the award. All excess tax benefits, taxes and tax deficiencies from stock-based compensation are included in the provision for income taxes in the Consolidated Statement of Operations. (M) Per Share Data Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is calculated by dividing net income available to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common shares include the shares of common stock issuable upon the exercise of outstanding stock options and warrants, the shares of issued but unvested RSUs and the purchase of shares from the Company’s employee stock purchase plan (using the treasury stock method). For all periods presented, potential common shares have been excluded from the calculation of EPS because their effect would be anti-dilutive. (N) Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that may result from transactions and economic events other than those with stockholders, such as unrealized gains or losses on investments. For the periods ending on December 31, 2019 and 2018, the Company’s comprehensive included only its net loss. (O) Fair Value Measurements Certain assets and liabilities are reported on a recurring basis at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1 — Quoted prices in active markets for identical assets or liabilities. Cash and cash equivalents consisted of cash in bank checking accounts and money market funds which are all Level 1 assets. • Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. The Company currently has no Level 2 assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. As of December 31, 2019, the Company has no level 3 assets or liabilities. The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable, accrued expenses and deferred revenue approximate fair value based on the short-term maturity of these assets and liabilities. The Company granted warrants to certain Note Holders in connection with its debt refinancing during 2019. Those warrants were valued based on Level 3 inputs and their fair value was based primarily on an independent third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. (P) Segment Information (R) Deferred Offering Costs Deferred Offering costs, consisting primarily of direct incremental legal, accounting and other fees relating to the Company’s ATM (“At-the-Market” Facility), were capitalized as incurred. As of December 31, 2019, deferred offering costs of $149 were included as a component of Prepaid expenses and other current assets. (S) Recent Accounting Pronouncements As a public emerging growth company, the Company has elected to take advantage of the extended transition period afforded by Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards by the relevant dates on which adoption of such standards is required for public emerging growth companies. From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. Recently Adopted Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers The Company adopted this standard on January 1, 2019 using the modified retrospective method and recorded a cumulative effect adjustment of $2,832 to its accumulated deficit upon adoption. This adjustment related to the deferral of $3,100 of previously recognized license revenue net of the acceleration of $268 of co-development fees and royalties. Under the modified retrospective method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under ASC 605. The Company is generally recognizing existing manufacture and supply revenue, co-development milestones and fees and royalty revenue earlier than it would have under the previous standard. In January 2016, the FASB issued revised guidance governing accounting and reporting of financial instruments (ASU 2016-01) and in 2018 issued technical corrections (ASU 2018-03). This guidance requires that equity investments with readily determinable fair values that are classified as available-for-sale be measured at fair value with changes in value reflected in current earnings. This guidance also simplifies the impairment testing of equity investments without readily determinable fair values and alters certain disclosure requirements. ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities In June 2018, the 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. Recent Accounting Pronouncements Not Adopted as of December 31, 2019: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) There are a number of practical expedients available to the Company at transition. The transitional practical expedients provide that the Company may elect to not re-assess: (i) whether its contracts contain a lease under the new definition, (ii) the classification of those leases and (iii) the accounting for any initial direct costs previously incurred. The Company may also elect to not recognize a ROU asset and lease liability for those leases with a remaining lease term of 12 months or less. The Company will apply these practical expedients upon adoption. Upon adoption, ROU assets and lease liabilities will be recognized on the Company’s consolidated balance sheets. The lease liability recognized upon adoption is based upon the present value of the sum of the remaining minimum lease payments (as previously identified under ASC 840) and any amounts probable of being owed under a residual value guarantee (if applicable), to be determined using an appropriate discount rate, based on the Company’s ability to borrow on a collateralized basis over a similar remaining term and in a similar economic environment. The ROU asset to be recorded is based on the lease liability and adjusted for any prepaid or accrued lease payments, the remaining balance of any lease incentives, initial indirect costs and impairments (if applicable). The recognition of lease liabilities and corresponding ROU assets is expected to have a material impact on the Company’s consolidated balance sheet. The Company estimates that it will record approximately $4,000 of lease liabilities and ROU assets, respectively, as of January 1, 2020, the difference representing previously recorded lease-related assets and liabilities. The Company does not believe the adoption of this standard will have a material impact on its consolidated statements of operations, stockholders’ equity or cash flows. Refer to Note 18, Commitments and Contingencies In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The purpose of the update is to improve the effectiveness of the fair value measurement disclosures that allows for clear communication of information that is most important to the users of financial statements. There were certain required disclosures that have been removed or modified. In addition, the update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The standard will become effective for the Company for its periods beginning after December 15, 2019; early adoption is permitted. The Company In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company. |
