Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation |
The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the reporting date and results of operations for the periods presented. The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to the valuation of convertible preferred stock warrants, equity awards and clinical trial accruals. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions. |
Basis of Consolidation | Basis of Consolidation |
The Company’s consolidated financial statements include the financial statements of the Company and a variable interest entity (“VIE”) for which the Company has been determined to be the primary beneficiary (see Note 9 for further discussion). All intercompany accounts between the Company and the VIE have been eliminated in consolidation. The Company will continue to assess its relationship with the VIE on an ongoing basis as circumstances requiring consolidation may change. |
Segment Reporting | Segment Reporting |
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment. |
Reverse Stock Split | Reverse Stock Split |
On January 16, 2014, the Company effected a 1-for-4.5 reverse stock split of the Company’s issued and outstanding shares of common stock. All issued and outstanding common stock and per share amounts contained in the Company’s consolidated financial statements have been retroactively adjusted to reflect the January 2014 reverse stock split for all periods presented. |
Cash, Cash Equivalents and Marketable Securities | Cash, Cash Equivalents and Marketable Securities |
Cash and cash equivalents consist of cash and highly liquid securities with maturities at the date of acquisition of ninety days or less. Investments with maturities at the date of acquisition of more than ninety days are considered marketable securities and have been classified by management as available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income, if any, are determined on a specific identification basis. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, restricted cash, trade payables, accrued liabilities and long-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, restricted cash, trade payables and accrued liabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Further, based upon the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair value of long-term debt approximates its carrying value. The fair value of marketable securities is based upon market prices quoted on the last day of the fiscal period or a fair value representing the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. See Note 3 for further discussion of fair value measurements. |
Convertible Preferred Stock Warrants | Convertible Preferred Stock Warrants |
The Company accounts for its warrants and other derivative financial instruments as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as derivative liabilities are recorded on the Company’s balance sheet at their fair value on the date of issuance and are revalued at each subsequent balance sheet date, with fair value changes recognized as increases or reductions to other income (expense) in the statements of operations. The Company’s convertible preferred stock warrants were classified as liabilities, and the Company estimated the fair value of these liabilities using option pricing models and assumptions that were based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life, yield, and risk-free interest rate. In connection with the completion of the Company’s initial public offering (“IPO”) in February 2014, all the outstanding warrants to purchase shares of preferred stock automatically converted into warrants to purchase shares of common stock. As a result of the IPO and warrant conversion, the Company reclassified the warrant liability as stockholders’ equity because the converted warrants met the definition of an equity instrument under derivative accounting guidance. The Company performed the final remeasurement of the warrant liability as of the IPO date in February 2014, and recorded the $3,634,000 change in fair value as other income (expense) at that time. |
Stock-Based Compensation Expense | Stock-Based Compensation Expense |
The Company has stock-based compensation plans and an employee stock purchase plan, which are described in Note 8. As of December 31, 2014, the Company had issued both stock option awards and restricted stock units under its stock-based compensation plans and permitted eligible employees to participate in an employee stock purchase plan (“ESPP”) whereby shares of the Company’s common stock may be purchased at a discount. The Company accounts for stock option grants and participation in the ESPP using the Black-Scholes option pricing model. Restricted stock awards are valued based on their fair market value at the time of grant. Further discussion of the expense related to these programs is provided below: |
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Stock option awards. Stock options are valued using the Black-Scholes option pricing model. The Company values option awards on the date of grant or, if the awards are classified as liability awards, it revalues the awards each reporting period using this model until the awards are subsequently classified as equity awards, or otherwise vest or are cancelled. The Black-Scholes option pricing model involves a number of estimates, including the expected lives of stock options, the Company’s anticipated stock volatility and interest rates. The following table summarizes the weighted-average estimates the Company used in the Black-Scholes option pricing model for the years ended December 31, 2014, 2013 and 2012, to determine the grant-date fair value of stock options granted during each period for its stock option awards: |
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| Year Ended December 31, | |
| 2014 | | | 2013 | | | 2012 | |
Risk free interest rate | | 1.40% | | | | 1.50% | | | | 1.00% | |
Expected life in years | 6.2 years | | | 6.1 years | | | 6.0 years | |
Expected dividend yield | | 0.00% | | | | 0.00% | | | | 0.00% | |
Expected volatility | | 87.20% | | | | 82.60% | | | | 94.30% | |
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The Company determines its risk-free interest rate assumption based on the U.S. Treasury yield for obligations with contractual lives similar to the expected lives of the Company’s share-based payment awards being valued. The weighted-average expected life of options is calculated using the simplified method, as prescribed by the SEC, due to the lack of relevant historical exercise data. Due to the Company’s limited historical stock price volatility data, the estimated volatility is determined by incorporating the historical stock price volatility of comparable companies whose shares prices are publicly available. The assumed dividend yield is based on the Company’s expectation of not paying dividends in the foreseeable future. Forfeitures are estimated based upon the historical and anticipated future experience. |
Based upon these assumptions, the Company has estimated the per share weighted-average grant date fair value of its options granted for the years ended December 31, 2014, 2013 and 2012 at $11.54, $0.55 and $0.63, respectively. |
Restricted stock awards. Restricted stock awards are valued based on the fair market value of the Company’s stock on the date of grant. The weighted-average grant date fair value of the RSUs granted in 2013 was $0.54. There were no restricted stock awards granted in 2014 or 2012. |
Employee Stock Purchase Plan. In 2014 the Company began permitting eligible employees to purchase shares of the Company’s common stock at a discount to the fair market value at semi-annual intervals. In determining the value of shares issued under the ESPP, the Company uses the Black-Scholes option pricing model and values the contributions at each purchase interval or when contributions are modified. The Black-Scholes inputs are determined in the same manner as for stock options and the weighted-average inputs used for the ESPP for the year ended December 31, 2014, were as follows: |
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| Year Ended December 31, 2014 | | | | | | | | | |
Risk free interest rate | | 0.20% | | | | | | | | | |
Expected life in years | 1.3 years | | | | | | | | | |
Expected dividend yield | | 0.00% | | | | | | | | | |
Expected volatility | | 82.00% | | | | | | | | | |
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The table below summarizes the total stock-based compensation expense included in the Company’s statements of operations for stock options, restricted stock and shares subject to purchase under the ESPP for the periods presented (in thousands): |
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| Year Ended December 31, | |
| 2014 | | | 2013 | | | 2012 | |
Research and development | $ | 1,832 | | | $ | 89 | | | $ | 43 | |
General and administrative | | 1,975 | | | | 211 | | | | 39 | |
Total stock-based compensation expense | $ | 3,807 | | | $ | 300 | | | $ | 82 | |
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The total unrecognized stock-based compensation expense related to unvested stock options and restricted shares not yet vested at December 31, 2014, was approximately $13,848,000 to be recognized over a weighted-average period of approximately 39 months. The total unrecognized stock-based compensation expense related to the ESPP at December 31, 2014, was approximately $253,000, which is expected to be recognized over a weighted-average period of approximately 7 months. |
Research and Development | Research and Development |
The Company’s research and development expenses consist primarily of costs associated with clinical trials managed by the Company’s contract research organizations (“CROs”), salaries and related employee benefits, and costs associated with non-clinical activities, such as regulatory, drug development of product candidates, and pre-commercialization manufacturing expenses. The Company uses external service providers and vendors to conduct clinical trials, to manufacture product candidates to be used in clinical trials and to provide various other research and development related products and services. The Company accounts for research and development expenditures as incurred and accrues expenses based upon estimates of work performed, patient enrollment and experience with similar contracts. |
Patent Cost | 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 in the statement of operations. |
Property and Equipment | Property and Equipment |
Property and equipment, including leasehold improvements, are stated at cost or, if the assets are impaired, at fair value. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally as follows: five years for machinery and equipment; seven years for furniture and fixtures; three years for office equipment; and three years for computer equipment and software. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Asset lives are reviewed periodically to determine if appropriate and adjustments are made as necessary. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are expensed as incurred. |
For the years ended December 31, 2014, 2013 and 2012, the Company recorded depreciation expense on its property and equipment of $49,000, $12,000 and $30,000, respectively. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) |
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Components of comprehensive income (loss) includes, among other items, unrealized gains and losses on the changes in fair value of investments and foreign currency translation adjustments for entities not using the U.S. Dollar as their functional currency. These components are added, net of their related tax effect, to the reported net income (loss) to arrive at comprehensive income (loss). The components of accumulated other comprehensive income at December 31, 2014, on the Company’s consolidated balance sheet was comprised of the net unrealized net holding gains on the Company’s investments in marketable securities and foreign currency translation adjustments related to the consolidation of the Company’s variable interest entity which does not use the U.S. Dollar as its function currency. There was no similar accumulated other comprehensive income or loss components at December 31, 2013 and 2012. See Note 4 for further detail of the unrealized holdings gains and losses on the Company’s investments in marketable securities and Note 9 for further detail of the Company’s variable interest entity. |
Concentration Risk | Concentration Risk |
Credit Risk. Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain safety and liquidity. To date, the Company has not experienced any material realized losses on its cash, cash equivalents, restricted cash and marketable securities. |
Manufacturing. The Company depends on an outsourced manufacturing strategy for its product candidates. It currently has a single source of supply for its drugs substance and has a single manufacturer for its drug product. If the Company’s third-party manufacturers are unable to manufacture its products, or if its suppliers or third-party manufacturers decide they no longer want to manufacture its products, the Company may need to find alternative manufacturing facilities, which would be time-consuming and significantly impact its ability to develop, obtain regulatory approval for or market our products. |
Net Loss per Share | Net Loss per Share |
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, convertible preferred stock, unvested restricted common stock subject to repurchase, stock options and convertible preferred stock warrants are considered to be potentially dilutive securities but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share were the same for all periods presented. |
The actual net loss per shares amounts for the years presented were computed based on the weighted average shares of common stock outstanding during the respective periods and includes the effect of the (1) 8,050,000 common shares issues pursuant to the initial public offering in February 2014; and (2) 3,622,500 common shares issued pursuant to the follow-on offering in the third quarter of 2014. As a result of the issuance of these common shares, there is a lack of comparability in the basic and diluted net loss per share amounts for the periods presented. See Note 8 for further discussion. |
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The following table sets forth the total number of outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive: |
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| Year Ended December 31, | |
| 2014 | | | 2013 | | | 2012 | |
Convertible preferred stock | | — | | | | 14,937,836 | | | | 9,109,868 | |
Warrants to purchase convertible preferred stock | | — | | | | 859,743 | | | | 824,944 | |
Warrants to purchase common stock | | 547,089 | | | | — | | | | — | |
Common stock options | | 1,992,012 | | | | 986,111 | | | | 512,228 | |
Common stock subject to repurchase | | 624,710 | | | | 955,555 | | | | — | |
| | 3,163,811 | | | | 17,739,245 | | | | 10,447,040 | |
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Income Taxes | Income Taxes |
Income taxes are accounted for under the asset and liability method. Under this method, 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 and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply 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. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. A valuation allowance is recorded when it is more likely than not that some, or all, of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies. |
The Company assesses its income tax positions and record tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10, Development State Entities, which eliminates the financial reporting distinction between development stage entities and other reporting entities, thereby eliminating the requirements to present inception-to-date information in the statements of operations and stockholders’ equity and cash flow, or label the financial statements as those of a development stage entity. The Company has elected to early adopt this guidance, as permitted, for its financial statements for the year ended December 31, 2014, and therefore has no longer labeled its consolidated financial statements as those of a development stage entity or included any inception-to-date information. |
In August 2014, the FASB issued ASU No. 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. ASU No. 2014-15 requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statements are issued. If such conditions or events exist, certain disclosures are required. ASU No. 2014-15 is effective prospectively for fiscal years beginning after beginning December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of ASU No. 2014-15 on its consolidated financial statements and related disclosures. |