| Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments that are
readily convertible to cash and that mature within three months or
less from the date of purchase. The carrying amounts approximate
fair value due to the short maturities of these instruments. Cash
and cash equivalents consist primarily of cash in readily available
checking and money market accounts.
Short-Term Investments
Short-term investments are marketable securities with maturities
greater than three months from date of purchase that are
specifically identified to fund current operations. Short-term
investments are classified as available-for-sale at fair value as
determined by prices for identical or similar securities at the
balance sheet date. These investments are classified as current
assets, even though the stated maturity date may be one year or
more beyond the current balance sheet date, which reflects
management’s intention to use the proceeds from sales of
these securities to fund our operations, as necessary. The cost of
short-term investments is adjusted for amortization of premiums or
accretion of discounts to maturity, and such amortization or
accretion is included in interest income. The available-for-sale
investments are carried at fair value with unrealized gains and
losses recorded in other comprehensive loss and included as a
separate component of stockholders’ equity (deficit).
Realized gains and losses from the sale of available-for-sale
securities and declines in value judged to be other than temporary
on short-term investments, if any, are determined on a specific
identification basis and are reclassified out of comprehensive loss
and included in interest income in the condensed statement of
operations and comprehensive loss.
Fair Value Measurements
Fair value is defined as the exit price, representing the amount
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use
in pricing an asset or liability. As a basis for considering such
assumptions, the guidance establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
• Level 1 — Quoted prices
(unadjusted) in active markets for identical assets or
liabilities;
• Level 2 — Inputs other than
quoted prices included within Level 1 that are either directly
or indirectly observable; and
• Level 3 — Unobservable inputs
in which little or no market activity exists, therefore requiring
an entity to develop its own assumptions about the assumptions that
market participants would use in pricing.
Research and Development Expenses
Research and development expenses consist of salaries, benefits,
and other personnel costs, preclinical and clinical trial costs,
manufacturing costs for non-commercial products, and research and
development facilities costs. All such costs are charged to
research and development expense as incurred when these
expenditures have no alternative future uses. Payments that we make
in connection with in-licensed technology for a particular research
and development project that have no alternative future uses (in
other research and development projects or otherwise) and therefore
no separate economic values are expensed as research and
development costs at the time such costs are incurred. As of
June 30, 2015, we have no in-licensed technologies that have
alternative future uses in research and development projects or
otherwise.
Clinical Trial Costs and Accruals
A significant portion of our clinical trial costs relate to
contracts with contract research organizations, or CROs. The
financial terms of our CRO contracts may result in payment flows
that do not match the periods over which materials or services are
provided to us under such contracts. Our objective is to reflect
the appropriate clinical trial expenses in our condensed financial
statements by matching those expenses with the period in which
services and efforts are expended. As part of the process of
preparing our condensed financial statements, we rely on cost
information provided by our CROs (concerning monthly expenses as
well as reimbursement for pass through costs). We are also required
to estimate certain of our expenses resulting from our obligations
under our CRO contracts. Accordingly, our clinical trial accrual is
dependent upon the timely and accurate reporting of CROs and other
third-party vendors. If the contracted amounts are modified (for
instance, as a result of changes in the clinical trial protocol or
scope of work to be performed), we modify our accruals accordingly
on a prospective basis. Revisions in the scope of a contract are
charged to expense in the period in which the facts that give rise
to the revision become reasonably certain. Historically, we have
had no material changes in clinical trial expense that had a
material impact on our results of operations or financial
position.
Share-Based Payments
Our share-based awards are measured at fair value on the date of
grant based upon the estimated fair value of common stock. The fair
value of awards expected to vest are recognized and amortized on a
straight-line basis over the requisite service period of the award
less estimated forfeitures. The fair value of each stock option is
estimated on the date of grant using the Black-Scholes option
pricing model that requires the use of subjective assumptions
including volatility, expected term, risk-free rate, and the fair
value of the underlying common stock.
Awards granted to non-employees are subject to periodic revaluation
over their vesting terms. The fair value of non-employee awards is
remeasured at each reporting period as the underlying awards vest
unless the instruments are fully vested, immediately exercisable
and nonforfeitable on the date of grant. We record the expense for
stock option grants to non-employees based on the estimated fair
value of the stock options using the Black-Scholes option pricing
model. Estimated fair value of the restricted stock awards granted
to non-employees is recorded on the earlier of the performance
commitment date or the date the services required are completed and
are remeasured at fair value during the service period. As
non-employee restricted stock awards vest, they are remeasured at
fair value and expensed based on the intrinsic value method which
is measured as the difference between the exercise price paid for
the restricted stock award and the fair value of the shares as the
right of the repurchase lapses each vesting period.
Comprehensive Loss
Comprehensive loss is defined as the change in equity during the
period from transactions and other events and non-owner sources,
including unrealized losses on marketable securities.
Segment Reporting
We operate in a single industry segment which is the discovery and
development of personalized therapeutics for the treatment of solid
tumors and blood cancers. Our chief operating decision-maker
reviews the operating results on an aggregate basis and manages the
operations as a single operating segment.
Net Loss per Share
We calculated basic net loss per common share by dividing the net
loss by the weighted-average number of common shares outstanding
for the period, without consideration for common stock equivalents.
Diluted net loss per share is calculated by dividing the net loss
by the weighted-average number of common share equivalents
outstanding for the period determined using the treasury-stock
method. Dilutive common stock equivalents are comprised of unvested
restricted stock awards and outstanding stock options under our
equity plan. For all periods presented, there is no difference in
the number of shares used to calculate basic and diluted shares
outstanding due to the antidilutive effect of the securities.
Because of our net loss, unvested stock awards representing an
aggregate of 3,899,285 shares of common stock and options to
purchase an aggregate of 410,000 shares of common stock, are
excluded from the calculation of diluted net loss per common share
as of June 30, 2015 due to the anti-dilutive effect of the
securities.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB,
issued Accounting Standard Update, or ASU, 2014-09, Revenue from
Contracts with Customers (Topic 606), that supersedes most current
revenue recognition guidance, including industry-specific guidance.
The guidance provides that an entity recognize revenue when it
transfers promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. This guidance
also requires additional disclosure about the nature, amount,
timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in
judgments, and assets recognized from costs incurred to obtain or
fulfill a contract. The new standard allows for two methods of
adoption: (a) full retrospective adoption, meaning the
standard is applied to all periods presented, or (b) modified
retrospective adoption, meaning the cumulative effect of applying
the new standard is recognized as an adjustment to the opening
retained earnings balance.
In July 2015, the FASB voted to amend ASU 2014-09 by approving a
one-year deferral of the effective date as well as providing the
option to early adopt the standard on the original effective date.
Accordingly, we will adopt the standard for annual reporting period
beginning after December 15, 2017, including interim periods
within that reporting period. We are currently evaluating the
alternative transition methods and the potential effects on our
financial statements and future operating results.
In August 2014, the FASB issued ASU 2014-15, Presentation of
Financial Statements-Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern. Under the new guidance, management will be required
to assess an entity’s ability to continue as a going concern,
and to provide related footnote disclosures in certain
circumstances. The provisions of this ASU are effective for annual
periods beginning after December 15, 2016, and for annual and
interim periods thereafter. We are currently evaluating the
potential changes from this ASU to our future financial reporting
and disclosures. | 2. Summary of Significant Accounting Policies
Use of Estimates
The Company’s financial statements are prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”). The preparation of the Company’s
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
expenses during the reporting period.
Reported amounts and note disclosures reflect the overall economic
conditions that are most likely to occur and anticipated measures
management intends to take. Actual results could differ materially
from those estimates. All revisions to accounting estimates are
recognized in the period in which the estimates are revised and in
any future periods affected.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash. The Company maintains deposits in federally insured financial
institutions in excess of federally insured limits and limits its
exposure to cash risk by placing its cash with credit quality
rating financial institutions.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets
which is three years for each asset class.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. If such circumstances are
determined to exist, an estimate of undiscounted future cash flows
produced by the long-lived asset, including its eventual residual
value, is compared to the carrying value to determine whether
impairment exists. In the event that such cash flows are not
expected to be sufficient to recover the carrying amount of the
assets, the assets are written-down to their estimated fair values.
While the Company’s current and historical operating losses
and negative cash flows are indicators of impairment, the Company
believes that future cash flows to be received support the carrying
value of its long-lived assets and, accordingly, has not recognized
any impairment losses through December 31, 2014.
Convertible Notes and Derivative Accounting
At inception, the Company performs an assessment of all embedded
features of a debt instrument to determine if (1) such
features should be bifurcated and separately accounted for, and
(2) if bifurcation requirements are met, whether such features
should be classified and accounted for as equity or liability. The
fair value of the embedded feature is measured initially, included
as a liability on the balance sheet, and remeasured each reporting
period. Any changes in fair value are recorded in the statement of
operations. The Company monitors, on an ongoing basis, whether
events or circumstances could give rise to a change in its
classification of embedded features.
The Company accounts for its convertible notes, that may be settled
in cash upon conversion (including partial cash settlement), by
separating the liability and equity components of the instruments
in a manner that reflects the Company’s nonconvertible debt
borrowing rate. The Company determines the carrying amount of the
liability component by measuring the fair value of similar debt
instruments that do not have the conversion feature. If a
similar debt instrument does not exist, the Company estimates the
fair value by using assumptions that market participants would use
in pricing a debt instrument, including market interest rates,
credit standing, yield curves and volatilities. Determining the
fair value of the debt component requires the use of accounting
estimates and assumptions. These estimates and assumptions are
judgmental in nature and could have a significant impact on the
determination of the debt component and the associated non-cash
interest expense.
Deferred Rent
Deferred rent consists of the difference between cash payments and
the recognition of rent expense on a straight-line basis for the
facilities the Company occupies. The Company’s lease for its
facilities provides for fixed increases in minimum annual rental
payments. The total amount of rental payments due over the lease
term is being charged to rent expense ratably over the life of the
lease. The Company’s deferred rent balance is contained
within other long-term liabilities on the Company’s Balance
Sheet.
Research and Development Costs
Research and development costs are expensed as incurred. Research
and development costs consist of direct and indirect internal costs
related to specific projects as well as fees paid to other entities
that conduct certain research activities on the Company’s
behalf. Payments that the Company makes in connection with
in-licensed technology for a particular research and development
project that have no alternative future uses (in other research and
development projects or otherwise) and therefore no separate
economic values are expensed as research and development costs at
the time such costs are incurred. As of December 31, 2014, the
Company has no in-licensed technologies that have alternative
future uses in research and development projects or otherwise.
Patent Costs
The Company expenses all costs as incurred in connection with
patent applications, including direct application fees, and the
legal and consulting expenses related to making such applications,
and such costs are included in general and administrative expenses
within the Company’s Statement of Operations and
Comprehensive Loss.
Share-Based Compensation
Restricted stock awards are valued based on the fair value on the
grant date. The fair value of restricted stock awards expected to
vest are recognized on a straight-line basis over the requisite
service period of the award. Restricted stock awards granted to
non-employees are recorded at their fair value on the earlier of
the performance commitment date or the date the services required
are completed and are remeasured at fair value during the service
period. As non-employee restricted stock awards vest, they are
remeasured at fair value and expensed based on the intrinsic value
method which is measured as the difference between the exercise
price paid for the restricted stock award and the fair value of the
shares as the right of the repurchase lapses each vesting
period.
The Company’s equity incentive plan allows for the issuance
of restricted stock awards to employees and non-employee
consultants that may be subject to vesting. The unvested shares of
any restricted stock awards are held in escrow as the stock award
vests or until award holder termination, whichever occurs first. In
the event of a termination, the Company has the right of
repurchase, at its option, for the portion of unvested stock awards
from the terminated award holder. The repurchase price for unvested
stock awards will be the lower of (i) the fair market value of
the shares of common stock on the date of repurchase or
(ii) their original purchase price. For all unvested stock
awards, a liability is established related to the cash received for
the unvested portion of the stock award, which represents the
Company’s obligation if all award holders were to be
terminated, and is recorded within other long-term liabilities on
the Company’s Balance Sheet.
Income Taxes
Income taxes have been accounted for using the asset and liability
method. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
applicable to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. A valuation allowance against deferred tax assets is recorded
if, based upon the weight of all available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. For uncertain tax positions that meet “a
more likely than not” threshold, the Company recognizes the
benefit of uncertain tax positions in the financial statements.
Comprehensive Loss
The Company is required to report all components of comprehensive
loss, including net loss, in the financial statements in the period
in which they are recognized. Comprehensive loss is defined as the
change in equity during a period from transactions and other events
and circumstances from non-owner sources, including unrealized
losses on investments. Net loss and comprehensive loss were the
same for the period presented, therefore, a separate statement of
comprehensive loss is not included in the accompanying financial
statements.
Segment Reporting
Operating segments are components of an enterprise about which
separate discrete financial information is available for evaluation
by the chief operating decision-maker for purposes of making
decisions regarding resource allocation and assessing performance.
To date, the Company has viewed its operations and managed its
business as one segment operating primarily in the United
States.
Fair Value Measurements
The Company categorizes its assets and liabilities measured at fair
value in accordance with the authoritative accounting guidance that
establishes a consistent framework for measuring fair value, and
expands disclosures for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis.
Fair value is defined as the exit price, representing the amount
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use
in pricing an asset or liability. As a basis for considering such
assumptions, the guidance establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
• Level 1- Quoted prices (unadjusted)
in active markets for identical assets or liabilities;
• Level 2- Inputs other than quoted
prices included within Level 1 that are either directly or
indirectly observable; and
• Level 3- Unobservable inputs in which
little or no market activity exists, therefore requiring an entity
to develop its own assumptions about the assumptions that market
participants would use in pricing.
At December 31, 2014, the Company did not have financial
assets that are measured at fair value on a recurring basis. The
carrying amounts of the Company’s financial instruments,
which include cash, prepaid expenses, accounts payable, accrued
expenses and all related party amounts approximate their fair
values at December 31, 2014, primarily due to their short-term
nature. The Company believes the fair value of its convertible
notes approximates their carrying value as of December 31,
2014. No transfers between levels have occurred during the periods
presented. Liabilities measured at fair value on a recurring basis
as of December 31, 2014 are as follows, in thousands:
Fair Value Measurements at
December 31, 2014
Balance as of Quoted Prices Significant Significant
Liabilities
Embedded derivative liability(1) $ 196 $
— $
— $ 196
(1) The Company’s license agreement
with the with The Regents of the University of California San
Francisco (“UCSF”), further described in Note 7,
provides for an indexed milestone payment upon the occurrence of a
qualified preferred stock financing and a subsequent initial public
offering or a change of control event, as defined in the agreement.
The indexed milestone was determined to qualify as an embedded
derivative liability requiring an estimate of fair value.
The Company estimates the fair value of its derivative liabilities
at the time of issuance and subsequent remeasurement at each
reporting date using a probability model that considers the
probability of achieving the events that would trigger such
liabilities and the estimated time period the liabilities would be
outstanding. The estimates are based, in part, on subjective
assumptions and could differ materially in the future. Changes to
these assumptions can have a significant impact on the fair value
of the derivative liabilities.
The following table provides a reconciliation of all liabilities
measured at fair value using Level 3 significant unobservable
inputs, in thousands:
Derivative
Balance at August 22, 2014 (Inception) $
—
Issuance of derivative liability(1) 196
Change in fair value(2)
—
Balance at December 31, 2014 $ 196
(1) The amount is included within
research and development expenses on the Company’s Statement
of Operations and Comprehensive Loss.
(2) The license agreement was executed in
November 2014 and no change in the valuation occurred between the
execution date and December 31, 2014.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by
the weighted-average number of common shares outstanding for the
period, without consideration for common stock equivalents. Diluted
net loss per share is calculated by dividing the net loss by the
weighted-average number of common share equivalents outstanding for
the period determined using the treasury-stock method. Dilutive
common stock equivalents are comprised of unvested restricted stock
awards outstanding under the Company’s equity plan. For all
periods presented, there is no difference in the number of shares
used to calculate basic and diluted shares outstanding due to the
antidilutive effect of the securities.
Potentially dilutive securities, which includes unvested stock
awards of 4,532,874 are excluded from the calculation of diluted
net loss per share due to the anti-dilutive effect of the
securities. In addition, the Company has $2.5 million in principal
of outstanding convertible promissory notes, issued in October and
December 2014, that are convertible into common stock upon the
occurrence of various future events at prices that are not
determinable until the occurrence of those future events. As such,
the Company has excluded these convertible notes payable from the
calculation of diluted net loss per share. |
