Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 07, 2017 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | NOVN | |
Entity Registrant Name | NOVAN, INC. | |
Entity Central Index Key | 1,467,154 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 15,990,658 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 10,960 | $ 34,611 |
Prepaid expenses and other current assets | 580 | 958 |
Total current assets | 11,540 | 35,569 |
Restricted cash | 539 | 539 |
Intangible assets | 75 | 75 |
Other assets | 206 | |
Property and equipment, net | 16,738 | 16,290 |
Total assets | 29,098 | 52,473 |
Current liabilities: | ||
Accounts payable | 937 | 3,130 |
Accrued compensation | 2,195 | 2,305 |
Accrued outside research and development services | 1,176 | 5,737 |
Accrued legal and professional fees | 369 | 382 |
Other accrued expenses | 1,595 | 1,813 |
Deferred revenue, current portion | 2,141 | |
Capital lease obligation, current portion | 11 | 10 |
Total current liabilities | 8,424 | 13,377 |
Deferred revenue, net of current portion | 7,451 | |
Capital lease obligation, net of current portion | 24 | 32 |
Facility financing obligation | 7,998 | 7,998 |
Total liabilities | 23,897 | 21,407 |
Commitments and contingencies (Notes 2, 3 and 5) | ||
Stockholders’ equity | ||
Preferred stock $0.0001 par value; 10,000,000 shares designated as of September 30, 2017 and December 31, 2016; 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | ||
Common stock $0.0001 par value; 200,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 15,998,908 and 15,949,492 shares issued as of September 30, 2017 and December 31, 2016;15,989,408 and 15,939,992 shares outstanding as of September 30, 2017 and December 31, 2016 | 2 | 2 |
Additional paid-in-capital | 157,325 | 154,252 |
Treasury stock at cost, 9,500 shares as of September 30, 2017 and December 31, 2016 | (155) | (155) |
Accumulated deficit | (151,971) | (123,033) |
Total stockholders’ equity | 5,201 | 31,066 |
Total liabilities and stockholders’ equity | $ 29,098 | $ 52,473 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
Statement Of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 15,998,908 | 15,949,492 |
Common stock, shares outstanding | 15,989,408 | 15,939,992 |
Treasury stock, shares | 9,500 | 9,500 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Statement Of Income And Comprehensive Income [Abstract] | ||||
License and collaboration revenue | $ 532 | $ 1,233 | ||
Research and development services revenue | 218 | 286 | ||
Total revenue | 750 | 1,519 | ||
Operating expenses: | ||||
Research and development | 5,193 | $ 14,988 | 19,101 | $ 37,361 |
General and administrative | 2,762 | 2,493 | 10,654 | 9,327 |
Total operating expenses | 7,955 | 17,481 | 29,755 | 46,688 |
Operating loss | (7,205) | (17,481) | (28,236) | (46,688) |
Other (expense) income, net | (239) | 7 | (702) | 50 |
Net loss and comprehensive loss | $ (7,444) | $ (17,474) | $ (28,938) | $ (46,638) |
Net loss per share, basic and diluted | $ (0.47) | $ (5.76) | $ (1.81) | $ (17.64) |
Weighted-average common shares outstanding, basic and diluted | 15,984,428 | 3,033,967 | 15,975,855 | 2,644,116 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Cash flow from operating activities: | ||
Net loss | $ (28,938) | $ (46,638) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 1,030 | 575 |
Share-based compensation | 3,006 | 861 |
Loss (gain) on disposal of property and equipment | 6 | (2) |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other current assets | 488 | 479 |
Accounts payable | (2,077) | 2,182 |
Accrued compensation | (110) | 849 |
Accrued outside research and development services | (4,561) | 8,789 |
Accrued legal and professional fees | (103) | 3 |
Accrued expenses | (19) | 561 |
Deferred revenue | 9,592 | |
Other | (206) | (25) |
Net cash used in continuing operating activities | (21,892) | (32,366) |
Net cash used in discontinued operating activities | (257) | |
Net cash used in operating activities | (21,892) | (32,623) |
Cash flow from investing activities: | ||
Purchases of property and equipment | (1,807) | (3,410) |
Proceeds from the sale of property and equipment | 8 | |
Purchase of intangible asset | (75) | |
Net cash used in investing activities | (1,799) | (3,485) |
Cash flow from financing activities: | ||
Proceeds from initial public offering, net of underwriting fees and commissions | 47,785 | |
Payments related to public offering costs | (20) | (1,480) |
Proceeds from exercise of stock options | 67 | 34 |
Purchase of treasury stock | (155) | |
Payments on capital lease obligation | (7) | (5) |
Payments on facility lease obligation | (95) | |
Net cash provided by financing activities | 40 | 46,084 |
Net (decrease) increase in cash and cash equivalents | (23,651) | 9,976 |
Cash and cash equivalents as of beginning of period | 34,611 | 45,688 |
Cash and cash equivalents as of end of period | 10,960 | 55,664 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Purchases of equipment with accounts payable and accrued expenses | 105 | 723 |
Equipment acquired through capital lease | 39 | |
Non-cash addition to facility financing obligation | 7,847 | |
Non-cash addition to deferred offering costs | $ 90 | 1,710 |
Conversion of convertible preferred stock and non-voting common stock to voting common stock | 104,798 | |
Deferred offering costs reclassified to additional paid-in-capital | $ 3,190 |
Organization and Significant Ac
Organization and Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Organization and Significant Accounting Policies | Note 1: Organization and Significant Accounting Policies Business Description and Basis of Presentation Novan, Inc. (“Novan” and together with its subsidiary, the “Company”) is a North Carolina-based clinical-stage biotechnology company focused on leveraging nitric oxide’s natural antiviral and immunomodulatory mechanisms of action to treat dermatological and oncovirus-mediated diseases. Novan was incorporated in January 2006 under the state laws of Delaware and its wholly owned subsidiary, Novan Therapeutics, LLC, was organized in 2015 under the state laws of North Carolina. The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Basis of Consolidation The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. On December 30, 2015, the Company completed the distribution of 100% of the outstanding member interests of KNOW Bio, LLC (“KNOW Bio”), a former wholly owned subsidiary of the Company, to Novan’s stockholders (the “Distribution”), pursuant to which KNOW Bio became an independent privately held company. Beginning in the fourth quarter of 2015, KNOW Bio’s financial results for periods prior to the Distribution were reflected in the Company’s consolidated financial statements, retrospectively, as discontinued operations. During the nine months ended September 30, 2016, the Company made payments of accounts payable associated with the discontinued operations that were not assumed by KNOW Bio as part of the Distribution. These payments are classified as discontinued operating activities in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2016. The Company does not own an equity interest in KNOW Bio, but does have variable interests in KNOW Bio through the following contractual arrangements: • At the time of the Distribution, the Company entered into exclusive sublicense agreements with KNOW Bio, as described in Note 3 — • The Company entered into a master development services and clinical supply agreement with KNOW Bio in April 2017 and related statements of work (“SOW”) in the second and third quarters of 2017 (collectively, the “KNOW Bio Services Agreement”). Under the KNOW Bio Services Agreement, the Company is providing certain development and manufacturing services to KNOW Bio’s respiratory drug development subsidiary. Pursuant to applicable guidance in FASB ASC 810-10, Consolidation KNOW Bio is advancing work in non-dermatologic nitric oxide therapies through its portfolio of operating subsidiary companies. The Company determined that KNOW Bio is currently a variable interest entity based on a reassessment of variable interest entity characteristics, pursuant to FASB ASC 810-10, Consolidation The Company has concluded that it is not the primary beneficiary of KNOW Bio and, therefore, does not consolidate KNOW Bio in its condensed consolidated financial statements herein. This conclusion is based on the fact that the Company has no significant power or decision-making authority over KNOW Bio’s drug and medical device development activities, which are the activities most significantly impacting KNOW Bio’s economic performance. Under the KNOW Bio Services Agreement, the Company is providing certain development and manufacturing services to KNOW Bio on commercial terms. In exchange for these services, KNOW Bio pays service fees for actual time and materials incurred by the Company on a cost-plus basis. As of September 30, 2017, the Company has a deferred revenue balance of $12 related to services performed under the KNOW Bio Services Agreement. The Company has no exposure to loss as a result of its involvement with KNOW Bio. The Company’s sublicense arrangement with KNOW Bio does expose the Company to potential future risk of loss, whereby the Company is obligated to pay future milestones or royalties to UNC or other licensors in the event of KNOW Bio non-performance under the sublicense arrangement; however, if KNOW Bio failed to pay these obligations, KNOW Bio would be in breach of its agreements with the Company and intellectual property rights would revert back to the Company. See Note 2 — Liquidity and Ability to Continue as a Going Concern The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company has evaluated principal conditions and events that may raise substantial doubt about its ability to continue as a going concern within one year from the date that these financial statements are issued. The Company identified the following conditions: • The Company has reported a net loss in all fiscal periods since inception and, as of September 30, 2017, the Company had an accumulated deficit of $151,971. • The Company’s primary use of cash is to fund its operating expenses, which consist principally of research and development expenditures necessary to advance its product candidates. The Company has evaluated its expected, probable future cash flow needs and has determined that it expects to incur substantial losses in the future as it conducts planned operating activities. The Company expects that the amount of cash and cash equivalents on hand as of September 30, 2017 will not be sufficient to fund all planned operating activities within one year from the date that these financial statements are issued. The Company has concluded that the conditions faced by the Company raise substantial doubt about its ability to continue as a going concern. To mitigate these conditions, the Company needs and intends to raise additional funds through equity or debt financings or generate revenues or other payments from collaborative or licensing partners prior to the commercialization of the Company’s product candidates. There can be no assurance that the Company will be able to obtain additional equity or debt financing or generate revenues or other payments from collaborative or licensing partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could cause the Company to alter or reduce its planned operating activities, including but not limited to delaying planned product candidate development activities, to conserve its cash and cash equivalents. Such actions could delay development timelines and have a material adverse effect on the Company’s results of operations, financial condition and market valuation. Additionally, there is no assurance that the Company can achieve its development milestones or that its intellectual property rights will not be challenged. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. Unaudited Interim Condensed Consolidated Financial Statements The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP on the same basis as the audited consolidated financial statements, and in the opinion of management, reflect all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position and its results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results expected for the full fiscal year or any future period. These interim financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017. Leases The Company leases office space and certain equipment under non-cancelable lease agreements. The leases are reviewed for classification as operating or capital leases. For operating leases, rent is recognized on a straight-line basis over the lease period. For capital leases, the Company records the leased asset with a corresponding liability and amortizes the asset over the lease term. Payments are recorded as reductions to the liability with an appropriate interest charge recorded based on the then-outstanding remaining liability. The Company considers the nature of the renovations and the Company’s involvement during the construction period of newly leased office space to determine if it is considered to be the owner of the construction project during the construction period. If the Company determines that it is the owner of the construction project, it is required to capitalize the fair value of the building as well as the construction costs incurred, including capitalized interest, on its consolidated balance sheet along with a corresponding financing liability (“build-to-suit accounting”). Upon completion of the construction of the facility under a build-to-suit lease, the Company assesses whether the circumstances qualify for sales recognition under the sale-leaseback accounting guidance. If the lease meets the sale-leaseback criteria, the Company will remove the asset and related financial obligation from the balance sheet and evaluate the lease for treatment as a capital or operating lease. If upon completion of construction, the project does not meet the sale-leaseback criteria, the leased property will be treated as an asset financing for financial reporting purposes. The portion of the facility financing obligation representing the principal that will be repaid in the next 12 months will be classified as a current liability in the consolidated balance sheets, with the remaining portion of the obligation classified as a noncurrent liability. See Note 5—Commitments and Contingencies for further discussion of the Company’s application of this guidance related to the Company’s primary facility lease. Research and Development Expense Accruals The Company is required to estimate its expenses resulting from its obligations under contracts with clinical research organizations, clinical site agreements, vendors, and consultants in connection with conducting clinical trials and preclinical development. The financial terms of these contracts are subject to negotiations which vary from contract to contract, and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate development and clinical trial expenses in its financial statements by matching those expenses with the period in which the services and efforts are expended. For clinical trials, the Company accounts for these expenses according to the progress of the trial as measured by actual hours expended by contract research organization (CRO) personnel, investigator performance or completion of specific tasks, patient progression, or timing of various aspects of the trial. During the course of a clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its estimates. The Company utilizes judgment and experience to estimate its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in increases or decreases in research and development expenses in future periods when the actual results become known. For preclinical development services performed by outside service providers, the Company determines accrual estimates through financial models, taking into account development progress data received from outside service providers and discussions with applicable Company and service provider personnel. Revenue Recognition—Licensing Arrangements The Company entered into a licensing arrangement in the first quarter of 2017, and may enter into additional licensing arrangements in the future, in exchange for non-refundable upfront payments and potential future milestone and royalty payments. Such arrangements include multiple elements, including the sale of licenses and the provision of services. For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has “stand-alone value” to the licensee. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. When an arrangement is accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed and revenue recognized. Management exercises significant judgment in the determination of (i) whether a deliverable has stand-alone value, (ii) whether the deliverable is considered to be a separate unit of accounting and (iii) the estimation of the relative fair value of each deliverable in the arrangement. The Company recognizes a milestone payment when earned if it is substantive and the Company has no ongoing performance obligations related to the milestone. A milestone payment is considered substantive if it: (i) is commensurate with either the Company’s performance to achieve the milestone or the enhanced value of the delivered item as a result of a specific outcome from the performance to achieve the milestone; (ii) relates solely to past performance; and (iii) is reasonable relative to all of the deliverables and payment terms, including consideration of other potential milestones, within the arrangement. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. See Note 3 — Revenue Recognition—Research and Development Services During 2017, the Company entered into an arrangement to provide research and development services on a fee-for-service basis and may enter into additional arrangements in the future. Under such arrangements, revenue is recognized when all of the following conditions are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) fees are fixed or determinable, and (iv) collection of fees is reasonably assured. The Company’s contract research and development services revenue is recognized in the period in which the services are performed. During the three and nine months ended September 30, 2017, the Company recognized $218 and $286, respectively, in research and development services revenue for services performed under the KNOW Bio Services Agreement and had current deferred revenue related to these services of $12 as of September 30, 2017. Share-Based Compensation The Company applies the fair value method of accounting for share-based compensation, which requires all such compensation to employees, including the grant of employee stock options, to be recognized in the statement of operations based on its fair value at the measurement date (generally the grant date). The expense associated with share-based compensation is recognized over the requisite service period of each award. For awards with only service conditions and graded-vesting features, we recognize compensation cost on a straight-line basis over the requisite service period. For awards with performance conditions, once achievement of the performance condition becomes probable, compensation cost is recognized over the expected period from the date the performance condition becomes probable to the date the performance condition is expected to be achieved. The Company will reassess the probability of vesting at each reporting period for performance awards and adjust compensation cost based on its probability assessment. Share-based awards granted to non-employee directors as compensation for serving on the Company’s Board of Directors are accounted for in the same manner as employee share-based compensation awards. The fair value of each option grant is estimated using a Black-Scholes option-pricing model on the grant date using expected volatility, risk-free interest rate, expected life of options and fair value per share assumptions. Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the option. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, financial leverage, size and risk profile. The Company does not have sufficient stock option exercise history to estimate the expected term of employee stock options and thus continues to calculate expected life based on the mid-point between the vesting date and the contractual term, which is in accordance with the simplified method. The expected term for share-based compensation granted to non-employees is the contractual life. The risk-free rate is based on the U.S. Treasury yield curve during the expected life of the option. Income Taxes The Company did not record a federal or state income tax benefit for the three and nine months ended September 30, 2017 and 2016 . Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Company’s policy for recording interest and penalties is to record them as a component of general and administrative expenses. As of September 30, 2017 and December 31, 2016, the Company accrued no interest and penalties related to uncertain tax positions. Tax years that remain subject to examination by federal and state tax jurisdictions date back to the year ended December 31, 2008. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years are under examination. The determination of recording or releasing a tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise judgment and make estimates with respect to its ability to generate taxable income in future periods. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its net operating loss carryforwards created during the tax periods prior to the change in ownership. The Company has not determined whether ownership changes exceeding this threshold, including the Company’s initial public offering (“IPO”), have occurred. If a change in equity ownership has occurred which exceeds the Section 382 threshold, a portion of the Company’s net operating loss carryforwards may be limited. Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive for all periods presented. All outstanding stock options and all shares of convertible preferred stock outstanding prior to automatic conversion in the IPO have been excluded from the calculation of weighted average common shares outstanding for the three and nine months ended September 30, 2017 and 2016 because the effect is anti-dilutive due to the net loss reported in each of those periods. Segment and Geographic Information The Company has determined that it operates in one segment. The Company uses its nitric oxide-based technology to develop product candidates. The Chief Executive Officer, who is the Company’s chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Although all operations are based in the United States, the Company generated revenue of $1,233, or 81% of total revenue, from its licensing partner in Japan during the nine months ended September 30, 2017. Revenues are attributed to countries based on the location of the partner or customer. Recently Issued Accounting Standards Accounting Pronouncements Adopted In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, Accounting Pronouncements Being Evaluated In May 2014, the FASB and the International Accounting Standards Board issued a converged standard on the recognition of revenue from contracts with customers. The converged standard has been codified within Topic 606, Revenue from Contracts with Customers Management is currently conducting an assessment of its revenue contract portfolio and is The Company will adopt the Topic 606 guidance on January 1, 2018 and In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, |
Research and Development Licens
Research and Development Licenses | 9 Months Ended |
Sep. 30, 2017 | |
Research And Development [Abstract] | |
Research and Development Licenses | Note 2: Research and Development Licenses The Company has entered into various licensing agreements with universities and other research institutions under which the Company receives the rights, and in some cases substantially all of the rights, of the inventors, assignees or co-assignees to produce and market technology protected by certain patents and patent applications. The Company’s primary license agreement is with the University of North Carolina at Chapel Hill (“UNC”) and has been described in further detail within the subsection below. The counterparties to the Company’s various other licensing agreements are the University of Akron Research Foundation, Hospital for Special Surgery, Strakan International S.a.r.l., which is a licensee of the University of Aberdeen, and KIPAX AB. Additionally, see Note 9 —Subsequent Events regarding the KNOW Bio license and sublicense agreement amendments executed in October 2017. UNC License Agreement The Amended, Restated and Consolidated License Agreement dated June 27, 2012, as amended, (the “UNC Agreement”) provides the Company with an exclusive license to issued patents and pending applications directed to the Company’s library of Nitricil compounds, including patents issued in the U.S., Japan and Australia, with claims intended to cover NVN1000, the new chemical entity (“NCE”) for the Company’s current product candidates. Licensed products include any products being developed by the Company or by its sublicensees, KNOW Bio and Sato Pharmaceutical Co., Ltd. (“Sato”) , as described further in Note 3 —Collaboration Arrangements. Additionally, as described in Note 3—Collaboration Arrangements, the Company made a payment to UNC in February 2017 representing the portion of the upfront payment under the license agreement entered into with Sato that was estimated to be directly attributable to the UNC intellectual property rights included in the license to Sato. Unless earlier terminated, the UNC Agreement remains in effect on a country by country and licensed product by licensed product basis until the expiration of the last to expire issued patent covering such licensed product in the applicable country. |
Collarboration Arrangements
Collarboration Arrangements | 9 Months Ended |
Sep. 30, 2017 | |
Collaboration Arrangements [Abstract] | |
Collarboration Arrangements | Note 3: Collaboration Arrangements KNOW Bio Technology Agreements In connection with the Distribution, the Company entered into exclusive license agreements and sublicense agreements with KNOW Bio, as described below. The agreements will continue for so long as there is a valid patent claim under the respective agreement, unless earlier terminated, and upon expiration, will continue as perpetual non-exclusive licenses. KNOW Bio has the right to terminate each such agreement, for any reason upon 90 days advance written notice to the Company. License of existing and potential future intellectual property to KNOW Bio. The Company granted to KNOW Bio exclusive licenses, with the right to sublicense, to certain U.S. and foreign patents and patent applications controlled by the Company as of December 29, 2015 (the “KNOW Bio License Agreement”). The Company also granted to KNOW Bio a non-exclusive license, with the right to sublicense, to any patents and patent applications that may become controlled by the Company during the three years immediately following the agreement’s effective date related to nitric oxide-releasing compositions and methods of manufacturing thereof, including methods of manufacturing and other nitric oxide-based therapeutics. Sublicense of UNC and other third party intellectual property to KNOW Bio. The Company also granted to KNOW Bio exclusive sublicenses, with the ability to further sublicense, under certain of the U.S. and foreign patents and patent applications exclusively licensed to the Company from UNC and another third party directed towards nitric oxide-releasing compositions, to develop and commercialize products utilizing the licensed technology (the “KNOW Bio Sublicense Agreements”). Under the exclusive sublicense to the UNC patents and applications, KNOW Bio is subject to the terms and conditions under the UNC License Agreement, including milestone and diligence payment obligations. However, the Company is obligated to pay UNC any future milestones or royalties in the event of KNOW Bio non-performance under the sublicense arrangement. In such an event, KNOW Bio would be in breach of its agreements with the Company and intellectual property rights would revert back to the Company. There were no milestone or royalty payments required during the three and nine months ended September 30, 2017 and 2016. See Note 9 —Subsequent Events regarding the amendments to the KNOW Bio License Agreement and KNOW Bio Sublicense Agreements executed in October 2017. Sato License Agreement Significant Terms On January 12, 2017, the Company entered into a license agreement, and related amendment, with Sato, relating to SB204, its drug candidate for the treatment of acne vulgaris in Japan (the “Sato Agreement”). Pursuant to the Sato Agreement, the Company granted to Sato an exclusive, royalty-bearing, non-transferable right and license under certain of the Company’s intellectual property rights, with the right to sublicense with the Company’s prior written consent, to develop, use and sell products in Japan that incorporate SB204 in certain topical dosage forms for the treatment of acne vulgaris, and to make the finished form of such products. The rights granted to Sato do not include the right to manufacture the active pharmaceutical ingredient of SB204, which the Company, or its designated contract manufacturer, will retain the rights to supply to Sato. The Company, or its designated contract manufacturer, will also supply finished product to Sato for use in the development of SB204 in the licensed territory. Under the terms of the Sato Agreement, the Company also has exclusive rights to certain intellectual property that may be developed by Sato in the future, which the Company could choose to use for its own development and commercialization of SB204 outside of Japan. Pursuant to the terms of the Sato Agreement, Sato had an exclusive option to negotiate for the license rights in certain additional territories within Asia, subject to Sato’s payment of a specified option exercise fee. During the third quarter of 2017, Sato elected not to execute this option. This option expired, unexercised on September 30, 2017. In exchange for the licenses granted to Sato under the Sato Agreement, Sato agreed to pay the Company an upfront payment, as well as additional milestone payments upon achievement of various future development, regulatory and commercial milestones. Pursuant to the terms of the Sato Agreement, Sato was required to pay the Company an upfront payment of 1.25 billion Japanese Yen (“JPY”), which the Company received in January 2017 in the amount of $10,813 when converted to U.S. Dollars. Sato is also required to pay the Company an aggregate of 2.75 billion JPY upon the achievement of various development and regulatory milestones. Under the Sato Agreement, Sato also agreed to pay the Company up to an aggregate of 0.9 billion JPY in milestone payments upon the achievement of various commercial milestones. Sato must also pay the Company a royalty equal to a mid-single digit percentage of net sales of licensed products in the licensed territory, subject to a reduction in the royalty payments in certain circumstances. The term of the Sato Agreement and the period during which Sato must pay royalties under the Sato Agreement expires, on a licensed product-by-licensed product basis, on the tenth anniversary of the first commercial sale of a licensed product in the licensed field in the licensed territory. The term of the Sato Agreement may be renewed by mutual written agreement of the parties for additional two year periods following expiration of the initial term. The Company, by itself or through its designated third party contract manufacturer, is obligated pursuant to the Sato Agreement to supply Sato with all quantities of licensed products required by Sato to develop the licensed products in the licensed field in the licensed territory. As part of the Sato Agreement, the Company and Sato have also agreed to negotiate a commercial supply agreement pursuant to which the Company, by itself or through its designated third party contract manufacturer, would be the exclusive supplier to Sato of the active pharmaceutical ingredient of licensed products for the manufacture of licensed products in the licensed territory. Sato is responsible for funding the development and commercial costs for the program that are specific to Japan. The Company is obligated to perform certain oversight, review and supporting activities for Sato, including: (i) using commercially reasonable efforts to obtain marketing approval of SB204 in the U.S, (ii) sharing all future scientific information the Company may obtain during the term of the Sato Agreement pertaining to SB204, (iii) performing certain additional pre-clinical studies if such studies are deemed necessary by the Japanese regulatory authority, up to and not to exceed a total cost of $1,000 and (iv) participating in a joint committee that oversees, reviews and approves Sato’s development and commercialization activities under the Sato Agreement. Additionally, the Company has granted Sato the option to use the Company’s trademarks in connection with the commercialization of licensed products in the licensed territory for no additional consideration, subject to the Company’s approval of such use. The Sato Agreement may be terminated by (i) Sato without cause upon 120 days’ advance written notice to the Company, (ii) either party in the event of the other party’s uncured material breach upon 60 days’ advance written notice, (iii) force majeure, (iv) either party in the event of the other party’s dissolution, liquidation, bankruptcy or insolvency and (v) the Company immediately upon written notice if Sato challenges the validity, patentability, or enforceability of any of the Company’s patents or patent applications licensed to Sato under the Sato Agreement. In the event of a termination, no portion of the upfront fee received from Sato in January 2017 is refundable. Accounting Considerations and Revenue Recognition The Company has identified the following four performance deliverables under the Sato Agreement: (i) the grant of the intellectual property license to Sato concluded this commercial supply obligation was a contingent deliverable because SB204 is not yet a commercially approved product and is currently subject to additional clinical studies prior to commercial approval in Japan. The Company considered the provisions of the multiple-elements arrangement guidance and determined that none of the deliverables have standalone value because interdependency of the remaining elements on the delivery of . As a result, all deliverables have been The Company evaluated the timing of delivery for each of the deliverables and concluded that its obligation to participate on the joint committee during Sato’s development process would be the last delivered element under the arrangement and therefore would be the basis for revenue recognition for the combined unit of accounting. The Company began to participate on the joint committee in March 2017 and currently estimates that its participation will continue through the first quarter of 2022. This time period is the Company’s estimated performance period, which the Company montiors and reassesses during each reporting period. The total upfront consideration under this agreement is being recognized as license and collaboration revenue on a straight-line basis over the estimated performance period. Prior to the third quarter of 2017, Company had estimated that its participation in the joint committee would continue through third quarter of 2021. The change in estimate resulted in a $69 decrease in revenue recognized during the three months ended September 30, 2017 as compared to the revenue that would have been recognized using the previously estimated performance period. The change in estimate does not affect the total amount of revenue expected to be recognized over the term of the Sato Agreement. As described in Note 1—Organization and Significant Accounting Policies, t he Company intends to adopt FASB ASC Topic 606, Revenue from Contracts with Customers, guidance on January 1, 2018, and is currently evaluating the impact that Topic 606 will have on reported revenues in 2017 and in future periods The Company determined that the future contingent payments meet the definition of a milestone. The development and regulatory milestones are not considered to be substantive because they do not relate solely to past performance. Accordingly, revenue for the achievement of development milestones will be recognized over the performance period, assuming collectability is reasonably assured. The revenue for the achievement of regulatory milestones will be recognized over the ten year commercial term of the Sato Agreement. As of September 30, 2017, no amounts have been recognized as license and collaboration revenue for any of these potential future milestones and all the contingent payments remained eligible for achievement as of September 30, 2017. During the three and nine months ended September 30, 2017, the Company recognized $532 and $1,233, respectively, in license and collaboration revenue under this agreement. The deferred revenue balance pertaining to the Sato Agreement as of September 30, 2017 was $9,580, including $2,129 and $7,451 in current and non-current deferred revenue, respectively. Contract Acquisition Costs The intellectual property rights granted to Sato under the Sato Agreement include certain intellectual property rights which the Company has licensed from UNC. Under the Company’s license agreement with UNC described in Note 2—Research and Development Licenses, the Company is obligated to pay UNC a running royalty percentage in the low single digits on net sales of licensed products, including net sales that may be generated by Sato. Additionally, the Company made a payment to UNC in February 2017 representing the portion of the Sato upfront payment that was estimated to be directly attributable to the UNC intellectual property rights included in the license to Sato. The Company also entered into an agreement with a third party to assist the Company in exploring the licensing opportunity which led to the execution of the Sato Agreement. The Company paid a fee of $216 to the third party upon execution of the Sato Agreement and is obligated to pay the third party a low-single-digit percentage of any future milestone payments the Company may receive from Sato under the Sato Agreement. The fees associated with payments made to UNC and the third party have been capitalized as other assets, including current and noncurrent portions, in the accompanying balance sheet and are being amortized as general and administrative expense on a straight-line basis over the same estimated period used to recognize revenue on the upfront payment received from Sato. |
Property and Equipment, Net
Property and Equipment, Net | 9 Months Ended |
Sep. 30, 2017 | |
Property Plant And Equipment [Abstract] | |
Property and Equipment, Net | Note 4: Property and Equipment, Net Property and equipment consisted of the following: September 30, December 31, 2017 2016 Computer equipment $ 517 $ 500 Furniture and fixtures 559 504 Laboratory equipment 6,660 5,723 Office equipment 166 106 Building related to facility lease obligation 10,557 10,557 Leasehold improvements 951 1,338 19,410 18,728 Less: Accumulated depreciation and amortization (2,672 ) (2,438 ) $ 16,738 $ 16,290 Depreciation and amortization expense was $391 and $1,030 for the three and nine months ended September 30, 2017, respectively, and $187 and $575 for the three and nine months ended September 30, 2016. |
Commitment and Contingencies
Commitment and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 5: Commitments and Contingencies Lease Obligations Primary Facility Lease In August 2015, the Company entered into a lease agreement for approximately 51,000 rentable square feet of facility space in Morrisville, North Carolina, commencing in April 2016. The initial term of the lease agreement extends through June 30, 2026. The Company has an option to extend the lease agreement by five years upon completion of the initial lease term. Current contractual base rent payments are $93 per month, subject to a three percent increase annually over the term of the lease agreement. Pursuant to the Company’s accounting policy and applicable guidance in ASC 840, Leases The Company has recorded an asset related to the building and construction costs within property and equipment of $10,557 as of September 30, 2017. The non-current facility lease obligation on the Company’s condensed consolidated balance sheet is $7,998 as of September 30, 2017 and December 31, 2016. During the three and nine months ended September 30, 2017, the Company recognized interest expense of $261 and $783, respectively, including $29 of accrued interest included in other accrued expenses as of September 30, 2017. Operating Leases The Company leased a facility under a non-cancelable operating lease that expired in April 2017. Rent expense for operating leases totaled $94 and $345 for the three and nine months ended September 30, 2017, respectively, and $165 and $374 for the three and nine months ended September 30, 2016, respectively. Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. See Note 9 —Subsequent Events regarding legal proceedings that arose in November 2017. Aside from these matters, the Company is not currently a party to any material legal proceedings and is not aware of any claims or actions pending or threatened against the Company that the Company believes could have a material adverse effect on the Company’s business, operating results, cash flows or financial statements. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business. The Company has entered into, and expects to continue to enter into, contracts in the normal course of business with various third parties who support its clinical trials, preclinical research studies and other services related to its development activities. The scope of the services under these agreements can generally be modified at any time, and these agreements can generally be terminated by either party after a period of notice and receipt of written notice. There have been no material contract terminations as of September 30, 2017. Indemnification In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. The Company’s obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. The terms of such obligations vary. It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No material indemnification liabilities were identified or accrued in the accompanying financial statements. Compensatory Obligations In conjunction with the departures of two former Company officers in March and May of 2017, the Company entered into separation and general release agreements with both individuals that included separation benefits consistent with the Company’s obligations under their previously existing employment agreements for “separation from service” for “good reason.” The resulting combined severance expense recognized in the three and nine months ended September 30, 2017, totaled zero and approximately $793, respectively. The remaining accrued severance obligation in respect of the two former officers was $439 as of September 30, 2017, which is included in accrued compensation in the accompanying condensed consolidated balance sheet. The Company also recognized zero and approximately $374 in stock compensation expense during the three and nine months ended September 30, 2017, respectively, related to the accelerated vesting of the former officers’ stock options. In June 2017, the Company reduced its overall employee workforce to reduce operating expenditures and preserve cash on hand. Employee severance costs associated with this action were $224, which were expensed during the second quarter of 2017. The remaining accrued severance obligation was $48 as of September 30, 2017. |
Stockholders' Equity
Stockholders' Equity | 9 Months Ended |
Sep. 30, 2017 | |
Equity [Abstract] | |
Stockholders' Equity | Note 6: Stockholders’ Equity Capital Structure Authorized Shares . In conjunction with the completion of the IPO in September 2016, the Company further amended its amended and restated certificate of incorporation and amended and restated its bylaws. The amendment provides for 210,000,000 authorized shares of capital stock, of which 200,000,000 shares have been designated as $0.0001 par value common stock, and 10,000,000 shares have been designated as $0.0001 par value preferred stock. Preferred Stock The Company’s amended and restated certificate of incorporation provides the Company’s board of directors with the authority to issue $0.0001 par value preferred stock from time to time in one or more series by adopting a resolution and filing a certificate of designations. Voting powers, designations, preferences, dividend rights, conversion rights and liquidation preferences shall be stated and expressed in such resolutions. There were 10,000,000 shares designated as preferred stock and no shares outstanding as of September 30, 2017 and December 31, 2016. Common Stock Authorized, Issued and Outstanding Common Shares The Company’s common stock has a par value of $0.0001 per share and consists of 200,000,000 authorized shares as of September 30, 2017 and December 31, 2016. There were 15,989,408 and 15,939,992 shares of voting common stock outstanding as of September 30, 2017 and December 31, 2016, respectively. The following table summarizes common stock share activity for the nine months ended September 30, 2017: Common Stock Balance as of December 31, 2016 15,939,992 Exercise of stock options 49,416 Balance as of September 30, 2017 15,989,408 The Company had reserved shares of common stock for future issuance as follows: September 30, 2017 December 31, 2016 Outstanding stock options 1,333,153 825,130 For possible future issuance under 2016 Stock Plan (Note 7) 1,106,501 615,207 2,439,654 1,440,337 |
Stock Option Plan
Stock Option Plan | 9 Months Ended |
Sep. 30, 2017 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Stock Option Plan | Note 7: Stock Option Plan 2008 Stock Plan During 2008, the Company adopted the 2008 Stock Plan (the “2008 Plan”). As amended, a total of 1,416,666 shares of common stock were reserved for issuance under the 2008 Plan. Eligible plan participants included employees, directors, and consultants. The 2008 Plan permitted the granting of incentive stock options, nonqualified stock options, and other stock-based awards. As further described below, as of September 20, 2016, no additional awards will be granted under the 2008 Plan. 2016 Stock Plan Effective September 20, 2016 (the “Effective Date”), the Company adopted the 2016 Incentive Award Plan (the “2016 Plan”). The 2016 Plan is the successor to the 2008 Plan. As of the Effective Date, no additional awards will be granted under the 2008 Plan, but all stock awards granted under the 2008 Plan prior to the Effective Date will remain subject to the terms of the 2008 Plan. Any shares associated with stock awards previously granted under the 2008 Plan that are forfeited subsequent to the Effective Date of the 2016 Plan are not eligible for future issuance under the 2016 Plan. On June 5, 2017, the Company’s stockholders approved an amendment to the 2016 Plan to increase the aggregate number of shares of common stock that may be issued pursuant to awards under the 2016 Plan by an additional 1,200,000 shares. All other material terms of the 2016 Plan otherwise remained unchanged. As of September 30, 2017, there were 1,106,501 shares available for future issuance under the 2016 Plan. Under both the 2008 Plan and the 2016 Plan, options to purchase the Company’s common stock may be granted at a price no less than the fair value of a common stock share on the date of grant. The fair value shall be the closing sales price for a share as quoted on any established securities exchange for such grant date or the last preceding date for which such quotation exists. Vesting terms of options issued are determined by the board of directors or compensation committee of the board. The Company’s stock options vest based on terms in the stock option agreements and have a maximum term of ten years. Stock Compensation Expense During the three and nine months ended September 30, 2017, the Company recorded employee share-based compensation expense of $871 and $3,006, respectively. During the three and nine months ended September 30, 2016, the Company recorded employee share-based compensation expense of $327 and $861, respectively. Total share-based compensation expense included in the condensed consolidated statements of operations is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Research and development $ 475 $ 95 $ 1,301 $ 274 General and administrative 396 232 1,705 587 $ 871 $ 327 $ 3,006 $ 861 Stock option activity for the nine months ended September 30, 2017 is as follows: Shares Subject to Outstanding Options Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Options outstanding as of December 31, 2016 825,130 $ 11.27 Options granted 830,945 5.13 Options forfeited (273,506 ) 13.93 Options exercised (49,416 ) 1.36 Options outstanding as of September 30, 2017 1,333,153 $ 7.27 8.84 $ 1,236 |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 8: Related Party Transactions Members of the Company’s board of directors held 1,585,916 and 1,561,916 shares of the Company’s common stock as of September 30, 2017 and December 31, 2016, respectively. In June 2017, Kelly Martin assumed the role of the Company’s Chief Executive Officer on an interim basis. Mr. Martin also continues to serve as a member of the Company’s board of directors. Mr. Martin served as chief executive officer of Malin Corporation plc, the parent company of Malin Life Sciences Holdings Limited (“Malin”), a greater than 10% shareholder of the Company, until October 1, 2017. Mr. Martin has not received any additional compensation for his service as the Company’s Chief Executive Officer during the three and nine months ended September 30, 2017. Mr. Martin continues to be compensated pursuant to the Company’s non-employee director compensation policy. Upon stepping into the Company’s Chief Executive Officer role, Mr. Martin engaged a number of Malin employees to assist him in certain strategic and tactical initiatives and activities. The Company has agreed to reimburse Malin for its out-of-pocket expenses for Mr. Martin and other Malin employees related to this effort. During the three and nine months ended September 30, 2017, the Company has accrued $230 in out-of-pocket travel expenses owed to Malin. These expenses are expected to be reimbursed in the fourth quarter of 2017. Two of the Company’s directors are also affiliated with Malin, including Sean Murphy, who is an executive officer and a director of Malin and is an executive vice president of Malin Corporation plc, and Robert A. Ingram, who is a director of Malin Corporation plc. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 9: Subsequent Events Shelf Registration Filing On October 2, 2017, the Company filed a shelf registration statement on Form S-3 with the SEC, which the SEC declared effective on October 10, 2017. The registration statement contained a prospectus which covers: (i) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $150,000 of the Company’s common stock, preferred stock, debt securities, warrants, and units, including those that may be issued upon conversion of, in exchange for or upon exercise of any such securities; and (ii) the offering, issuance and sale of up to 2,623,485 shares of the Company’s common stock Malin, the Company’s largest stockholder. These common stock shares represent Malin’s total shareholding in the Company as of October 2, 2017. Malin requested that the Company register all of the shares it presently holds to facilitate its ability to utilize the shares as collateral. Malin represented to our board of directors that it has no present intention to sell its shares or monetize its shareholding but reserves its right to manage its balance sheet and equity positions going forward. Malin confirmed it remains supportive of the management team and board of Novan, the potential application of the underlying technology platform in broad dermatological indications and the value proposition of the Company. The Company incurred costs directly related to the shelf registration statement filing totaling $110 which were capitalized and included in prepaid expenses and other current assets in the accompanying balance sheet as of September 30, 2017. Amendments to License and Sublicense Agreements with KNOW Bio The Company and KNOW Bio entered into certain amendments dated October 13, 2017 (the “KNOW Bio Amendments”) to the KNOW Bio License Agreement and KNOW Bio Sublicense Agreements (collectively, the “KNOW Bio Agreements”) described in Note 3—Collaboration Arrangements. Pursuant to the terms of the KNOW Bio Amendments, t KNOW Bio KNOW Bio KNOW Bio KNOW Bio The Company is obligated to make the following fixed and contingent payments in exchange for the rights granted to the Company in the Oncovirus Field: (i) A nominal non-refundable upfront payment due upon execution of the KNOW Bio Amendments. (ii) For products that incorporate a certain nitric oxide-releasing composition specified in the KNOW Bio KNOW Bio o A milestone payment upon the first time each Covered Product is approved by the U.S. Food and Drug Administration (“FDA”) for marketing in the Oncovirus Field; o A royalty in the low single digits on net sales of Covered Products in the Oncovirus Field until the later of the expiration of the KNOW Bio patents covering the applicable Covered Product or the expiration of regulatory exclusivity on the applicable Covered Product; and o In the event the Company sublicenses the rights to a Covered Product to a third party in the Oncovirus Field, the Company must pay KNOW Bio a low double digit percentage of any clinical development or NDA approval milestones the Company receives from the sublicensee for the Covered Product in the Oncovirus Field. Nitricil is not the nitric oxide-releasing composition specified in the KNOW Bio The rights granted to the Company in the Oncovirus Field in the KNOW Bio Amendments continue for so long as there is a valid patent claim under the KNOW Bio Agreements, and upon expiration continue on a perpetual non-exclusive basis, and are subject to the termination rights of KNOW Bio and the Company that are set forth in the KNOW Bio Agreements. In addition, under the KNOW Bio Amendments, KNOW Bio may terminate the rights granted to the Company in the Oncovirus Field if: (i) the Company does not file a first investigational new drug (“IND”) application with the FDA for a product in the Oncovirus Field by October 2020; or (ii) the Company does not file a first new drug application (“NDA”) with the FDA by October 2025 for a product in the Oncovirus Field and does not otherwise have any active clinical programs related to the Oncovirus Field at such time. The Company also obtained a three-year exclusive option to include within the Company’s rights described above in the Oncovirus Field the development and commercialization of products for all diagnostic, therapeutic, prophylactic and palliative uses for any disease, condition or disorder caused by up to four other specified oncoviruses (the “Option Field”). If the Company elects to exercise its option, it will pay an exercise fee for each oncovirus for which the option is exercised, and the additional rights included in the Oncovirus Field as a result of the option exercise will be subject to the same payment obligations for Covered Products, conditions, and termination rights as described above for the Oncovirus Field. The KNOW Bio Amendments also provide a mechanism whereby either party can cause a new chemical entity (“NCE”) covered by the KNOW Bio Agreements to become exclusive to such party by filing an IND on the NCE. An NCE that becomes exclusive to a party under this provision may not be commercialized by the other party until the later of expiration of patents covering the NCE or regulatory exclusivity covering the NCE. A party who obtains exclusivity for an NCE must advance development of the NCE pursuant to terms of the KNOW Bio Amendments in order to maintain such exclusivity; otherwise, such exclusivity will expire. The terms of the KNOW Bio Amendments were negotiated at arms-length and do not provide the Company with an ability to significantly influence KNOW Bio or its operations. Legal Proceeding The Company is subject to putative stockholder class action lawsuits that were filed in November 2017 in the United States District Court for the Middle District of North Carolina against the Company and certain of its current and former directors and officers. The lawsuits were filed on behalf of a putative class of all persons who purchased or otherwise acquired the Company’s securities (1) pursuant or traceable to the Company’s IPO, or (2) on the open market between September 21, 2016 and January 26, 2017. The lawsuits assert claims for violation of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder, in connection with statements related to the Company’s Phase 3 clinical trials of SB204. The complaints seek, among other things, an unspecified amount of compensatory damages and attorneys’ fees and costs on behalf of the putative class. The Company believes that the claims lack merit and intends to defend the lawsuits vigorously. However, there can be no assurance that a favorable resolution will be obtained in such lawsuits, and the actual costs may be material. Other than as described above, the Company is not currently a party to any material legal proceedings and is not aware of any claims or actions pending or threatened against the Company that the Company believes could have a material adverse effect on the Company’s business, operating results, cash flows or financial statements. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business. |
Organization and Significant 15
Organization and Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Consolidation | Basis of Consolidation The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. On December 30, 2015, the Company completed the distribution of 100% of the outstanding member interests of KNOW Bio, LLC (“KNOW Bio”), a former wholly owned subsidiary of the Company, to Novan’s stockholders (the “Distribution”), pursuant to which KNOW Bio became an independent privately held company. Beginning in the fourth quarter of 2015, KNOW Bio’s financial results for periods prior to the Distribution were reflected in the Company’s consolidated financial statements, retrospectively, as discontinued operations. During the nine months ended September 30, 2016, the Company made payments of accounts payable associated with the discontinued operations that were not assumed by KNOW Bio as part of the Distribution. These payments are classified as discontinued operating activities in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2016. The Company does not own an equity interest in KNOW Bio, but does have variable interests in KNOW Bio through the following contractual arrangements: • At the time of the Distribution, the Company entered into exclusive sublicense agreements with KNOW Bio, as described in Note 3 — • The Company entered into a master development services and clinical supply agreement with KNOW Bio in April 2017 and related statements of work (“SOW”) in the second and third quarters of 2017 (collectively, the “KNOW Bio Services Agreement”). Under the KNOW Bio Services Agreement, the Company is providing certain development and manufacturing services to KNOW Bio’s respiratory drug development subsidiary. Pursuant to applicable guidance in FASB ASC 810-10, Consolidation KNOW Bio is advancing work in non-dermatologic nitric oxide therapies through its portfolio of operating subsidiary companies. The Company determined that KNOW Bio is currently a variable interest entity based on a reassessment of variable interest entity characteristics, pursuant to FASB ASC 810-10, Consolidation The Company has concluded that it is not the primary beneficiary of KNOW Bio and, therefore, does not consolidate KNOW Bio in its condensed consolidated financial statements herein. This conclusion is based on the fact that the Company has no significant power or decision-making authority over KNOW Bio’s drug and medical device development activities, which are the activities most significantly impacting KNOW Bio’s economic performance. Under the KNOW Bio Services Agreement, the Company is providing certain development and manufacturing services to KNOW Bio on commercial terms. In exchange for these services, KNOW Bio pays service fees for actual time and materials incurred by the Company on a cost-plus basis. As of September 30, 2017, the Company has a deferred revenue balance of $12 related to services performed under the KNOW Bio Services Agreement. The Company has no exposure to loss as a result of its involvement with KNOW Bio. The Company’s sublicense arrangement with KNOW Bio does expose the Company to potential future risk of loss, whereby the Company is obligated to pay future milestones or royalties to UNC or other licensors in the event of KNOW Bio non-performance under the sublicense arrangement; however, if KNOW Bio failed to pay these obligations, KNOW Bio would be in breach of its agreements with the Company and intellectual property rights would revert back to the Company. See Note 2 — |
Liquidity and Ability to Continue as a Going Concern | Liquidity and Ability to Continue as a Going Concern The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company has evaluated principal conditions and events that may raise substantial doubt about its ability to continue as a going concern within one year from the date that these financial statements are issued. The Company identified the following conditions: • The Company has reported a net loss in all fiscal periods since inception and, as of September 30, 2017, the Company had an accumulated deficit of $151,971. • The Company’s primary use of cash is to fund its operating expenses, which consist principally of research and development expenditures necessary to advance its product candidates. The Company has evaluated its expected, probable future cash flow needs and has determined that it expects to incur substantial losses in the future as it conducts planned operating activities. The Company expects that the amount of cash and cash equivalents on hand as of September 30, 2017 will not be sufficient to fund all planned operating activities within one year from the date that these financial statements are issued. The Company has concluded that the conditions faced by the Company raise substantial doubt about its ability to continue as a going concern. To mitigate these conditions, the Company needs and intends to raise additional funds through equity or debt financings or generate revenues or other payments from collaborative or licensing partners prior to the commercialization of the Company’s product candidates. There can be no assurance that the Company will be able to obtain additional equity or debt financing or generate revenues or other payments from collaborative or licensing partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could cause the Company to alter or reduce its planned operating activities, including but not limited to delaying planned product candidate development activities, to conserve its cash and cash equivalents. Such actions could delay development timelines and have a material adverse effect on the Company’s results of operations, financial condition and market valuation. Additionally, there is no assurance that the Company can achieve its development milestones or that its intellectual property rights will not be challenged. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
Unaudited Interim Condensed Consolidated Financial Statements | Unaudited Interim Condensed Consolidated Financial Statements The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP on the same basis as the audited consolidated financial statements, and in the opinion of management, reflect all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position and its results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results expected for the full fiscal year or any future period. These interim financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017. |
Leases | Leases The Company leases office space and certain equipment under non-cancelable lease agreements. The leases are reviewed for classification as operating or capital leases. For operating leases, rent is recognized on a straight-line basis over the lease period. For capital leases, the Company records the leased asset with a corresponding liability and amortizes the asset over the lease term. Payments are recorded as reductions to the liability with an appropriate interest charge recorded based on the then-outstanding remaining liability. The Company considers the nature of the renovations and the Company’s involvement during the construction period of newly leased office space to determine if it is considered to be the owner of the construction project during the construction period. If the Company determines that it is the owner of the construction project, it is required to capitalize the fair value of the building as well as the construction costs incurred, including capitalized interest, on its consolidated balance sheet along with a corresponding financing liability (“build-to-suit accounting”). Upon completion of the construction of the facility under a build-to-suit lease, the Company assesses whether the circumstances qualify for sales recognition under the sale-leaseback accounting guidance. If the lease meets the sale-leaseback criteria, the Company will remove the asset and related financial obligation from the balance sheet and evaluate the lease for treatment as a capital or operating lease. If upon completion of construction, the project does not meet the sale-leaseback criteria, the leased property will be treated as an asset financing for financial reporting purposes. The portion of the facility financing obligation representing the principal that will be repaid in the next 12 months will be classified as a current liability in the consolidated balance sheets, with the remaining portion of the obligation classified as a noncurrent liability. See Note 5—Commitments and Contingencies for further discussion of the Company’s application of this guidance related to the Company’s primary facility lease. |
Research and Development Expense Accruals | Research and Development Expense Accruals The Company is required to estimate its expenses resulting from its obligations under contracts with clinical research organizations, clinical site agreements, vendors, and consultants in connection with conducting clinical trials and preclinical development. The financial terms of these contracts are subject to negotiations which vary from contract to contract, and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is to reflect the appropriate development and clinical trial expenses in its financial statements by matching those expenses with the period in which the services and efforts are expended. For clinical trials, the Company accounts for these expenses according to the progress of the trial as measured by actual hours expended by contract research organization (CRO) personnel, investigator performance or completion of specific tasks, patient progression, or timing of various aspects of the trial. During the course of a clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its estimates. The Company utilizes judgment and experience to estimate its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in increases or decreases in research and development expenses in future periods when the actual results become known. For preclinical development services performed by outside service providers, the Company determines accrual estimates through financial models, taking into account development progress data received from outside service providers and discussions with applicable Company and service provider personnel. |
Revenue Recognition—Licensing Arrangements | Revenue Recognition—Licensing Arrangements The Company entered into a licensing arrangement in the first quarter of 2017, and may enter into additional licensing arrangements in the future, in exchange for non-refundable upfront payments and potential future milestone and royalty payments. Such arrangements include multiple elements, including the sale of licenses and the provision of services. For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has “stand-alone value” to the licensee. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. When an arrangement is accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed and revenue recognized. Management exercises significant judgment in the determination of (i) whether a deliverable has stand-alone value, (ii) whether the deliverable is considered to be a separate unit of accounting and (iii) the estimation of the relative fair value of each deliverable in the arrangement. The Company recognizes a milestone payment when earned if it is substantive and the Company has no ongoing performance obligations related to the milestone. A milestone payment is considered substantive if it: (i) is commensurate with either the Company’s performance to achieve the milestone or the enhanced value of the delivered item as a result of a specific outcome from the performance to achieve the milestone; (ii) relates solely to past performance; and (iii) is reasonable relative to all of the deliverables and payment terms, including consideration of other potential milestones, within the arrangement. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. See Note 3 — |
Revenue Recognition—Research and Development Services | Revenue Recognition—Research and Development Services During 2017, the Company entered into an arrangement to provide research and development services on a fee-for-service basis and may enter into additional arrangements in the future. Under such arrangements, revenue is recognized when all of the following conditions are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) fees are fixed or determinable, and (iv) collection of fees is reasonably assured. The Company’s contract research and development services revenue is recognized in the period in which the services are performed. During the three and nine months ended September 30, 2017, the Company recognized $218 and $286, respectively, in research and development services revenue for services performed under the KNOW Bio Services Agreement and had current deferred revenue related to these services of $12 as of September 30, 2017. |
Share-Based Compensation | Share-Based Compensation The Company applies the fair value method of accounting for share-based compensation, which requires all such compensation to employees, including the grant of employee stock options, to be recognized in the statement of operations based on its fair value at the measurement date (generally the grant date). The expense associated with share-based compensation is recognized over the requisite service period of each award. For awards with only service conditions and graded-vesting features, we recognize compensation cost on a straight-line basis over the requisite service period. For awards with performance conditions, once achievement of the performance condition becomes probable, compensation cost is recognized over the expected period from the date the performance condition becomes probable to the date the performance condition is expected to be achieved. The Company will reassess the probability of vesting at each reporting period for performance awards and adjust compensation cost based on its probability assessment. Share-based awards granted to non-employee directors as compensation for serving on the Company’s Board of Directors are accounted for in the same manner as employee share-based compensation awards. The fair value of each option grant is estimated using a Black-Scholes option-pricing model on the grant date using expected volatility, risk-free interest rate, expected life of options and fair value per share assumptions. Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded companies over the expected life of the option. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, financial leverage, size and risk profile. The Company does not have sufficient stock option exercise history to estimate the expected term of employee stock options and thus continues to calculate expected life based on the mid-point between the vesting date and the contractual term, which is in accordance with the simplified method. The expected term for share-based compensation granted to non-employees is the contractual life. The risk-free rate is based on the U.S. Treasury yield curve during the expected life of the option. |
Income Taxes | Income Taxes The Company did not record a federal or state income tax benefit for the three and nine months ended September 30, 2017 and 2016 . Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The Company’s policy for recording interest and penalties is to record them as a component of general and administrative expenses. As of September 30, 2017 and December 31, 2016, the Company accrued no interest and penalties related to uncertain tax positions. Tax years that remain subject to examination by federal and state tax jurisdictions date back to the year ended December 31, 2008. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years are under examination. The determination of recording or releasing a tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise judgment and make estimates with respect to its ability to generate taxable income in future periods. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its net operating loss carryforwards created during the tax periods prior to the change in ownership. The Company has not determined whether ownership changes exceeding this threshold, including the Company’s initial public offering (“IPO”), have occurred. If a change in equity ownership has occurred which exceeds the Section 382 threshold, a portion of the Company’s net operating loss carryforwards may be limited. |
Net Loss Per Share | Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive for all periods presented. All outstanding stock options and all shares of convertible preferred stock outstanding prior to automatic conversion in the IPO have been excluded from the calculation of weighted average common shares outstanding for the three and nine months ended September 30, 2017 and 2016 because the effect is anti-dilutive due to the net loss reported in each of those periods. |
Segment and Geographic Information | Segment and Geographic Information The Company has determined that it operates in one segment. The Company uses its nitric oxide-based technology to develop product candidates. The Chief Executive Officer, who is the Company’s chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Although all operations are based in the United States, the Company generated revenue of $1,233, or 81% of total revenue, from its licensing partner in Japan during the nine months ended September 30, 2017. Revenues are attributed to countries based on the location of the partner or customer. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards Accounting Pronouncements Adopted In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, Accounting Pronouncements Being Evaluated In May 2014, the FASB and the International Accounting Standards Board issued a converged standard on the recognition of revenue from contracts with customers. The converged standard has been codified within Topic 606, Revenue from Contracts with Customers Management is currently conducting an assessment of its revenue contract portfolio and is The Company will adopt the Topic 606 guidance on January 1, 2018 and In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, |
Property and Equipment, Net (Ta
Property and Equipment, Net (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Property Plant And Equipment [Abstract] | |
Components of Property and Equipment | Property and equipment consisted of the following: September 30, December 31, 2017 2016 Computer equipment $ 517 $ 500 Furniture and fixtures 559 504 Laboratory equipment 6,660 5,723 Office equipment 166 106 Building related to facility lease obligation 10,557 10,557 Leasehold improvements 951 1,338 19,410 18,728 Less: Accumulated depreciation and amortization (2,672 ) (2,438 ) $ 16,738 $ 16,290 |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Equity [Abstract] | |
Summary of Common Stock Activity | The following table summarizes common stock share activity for the nine months ended September 30, 2017: Common Stock Balance as of December 31, 2016 15,939,992 Exercise of stock options 49,416 Balance as of September 30, 2017 15,989,408 |
Schedule of Reserved Shares of Common Stock for Future Issuance | The Company had reserved shares of common stock for future issuance as follows: September 30, 2017 December 31, 2016 Outstanding stock options 1,333,153 825,130 For possible future issuance under 2016 Stock Plan (Note 7) 1,106,501 615,207 2,439,654 1,440,337 |
Stock Option Plan (Tables)
Stock Option Plan (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Schedule of Share-based Compensation Expenses | During the three and nine months ended September 30, 2017, the Company recorded employee share-based compensation expense of $871 and $3,006, respectively. During the three and nine months ended September 30, 2016, the Company recorded employee share-based compensation expense of $327 and $861, respectively. Total share-based compensation expense included in the condensed consolidated statements of operations is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Research and development $ 475 $ 95 $ 1,301 $ 274 General and administrative 396 232 1,705 587 $ 871 $ 327 $ 3,006 $ 861 |
Summary of Stock Option Activity | Stock option activity for the nine months ended September 30, 2017 is as follows: Shares Subject to Outstanding Options Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Options outstanding as of December 31, 2016 825,130 $ 11.27 Options granted 830,945 5.13 Options forfeited (273,506 ) 13.93 Options exercised (49,416 ) 1.36 Options outstanding as of September 30, 2017 1,333,153 $ 7.27 8.84 $ 1,236 |
Organization and Significant 19
Organization and Significant Accounting Policies - Additional Information (Details) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017USD ($) | Sep. 30, 2017USD ($)Segment | Dec. 31, 2016USD ($) | Dec. 30, 2015 | |
Organization And Significant Accounting Policies [Line Items] | ||||
Accumulated deficit | $ (151,971,000) | $ (151,971,000) | $ (123,033,000) | |
Research and development services revenue | 218,000 | 286,000 | ||
Deferred revenue, current portion | 2,141,000 | 2,141,000 | ||
Accrued interest or penalties related to uncertain tax positions | 0 | $ 0 | $ 0 | |
Number of segment | Segment | 1 | |||
License and collaboration revenue | 532,000 | $ 1,233,000 | ||
Sato Agreement | ||||
Organization And Significant Accounting Policies [Line Items] | ||||
Deferred revenue, current portion | 2,129,000 | 2,129,000 | ||
License and collaboration revenue | 532,000 | $ 1,233,000 | ||
Percentage of license and collaboration revenue | 81.00% | |||
KNOW Bio | ||||
Organization And Significant Accounting Policies [Line Items] | ||||
Percentage of outstanding member interests of KNOW Bio distributed to stockholders | 100.00% | |||
Research and development services revenue | 218,000 | $ 286,000 | ||
Deferred revenue, current portion | $ 12,000 | $ 12,000 |
Research and Development Lice20
Research and Development Licenses - Additional Information (Details) | 9 Months Ended |
Sep. 30, 2017USD ($) | |
Licensing Agreements | |
Research And Development Licenses [Line Items] | |
Accrual for future payments | $ 0 |
UNC Agreement | |
Research And Development Licenses [Line Items] | |
License agreement payment in regulatory and commercial milestones | $ 425,000 |
Collarboration Arrangements - A
Collarboration Arrangements - Additional Information (Details) | Jan. 19, 2017USD ($) | Jan. 12, 2017USD ($) | Jan. 12, 2017JPY (¥) | Jan. 31, 2017USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2016USD ($) |
Collaborative Arrangements Transactions [Line Items] | ||||||||
Milestone and royalty payments | $ 0 | $ 0 | $ 0 | $ 0 | ||||
Increase (decrease) in deferred revenue | 9,592,000 | |||||||
Collaboration and license revenue | 532,000 | 1,233,000 | ||||||
Deferred revenue, current portion | 2,141,000 | 2,141,000 | ||||||
Deferred revenue, net of current portion | $ 7,451,000 | $ 7,451,000 | ||||||
Sato License Agreement | ||||||||
Collaborative Arrangements Transactions [Line Items] | ||||||||
Unexercised option expiration date | Sep. 30, 2017 | |||||||
Upfront payment under license agreement | $ 10,813,000 | ¥ 1,250,000,000 | $ 0 | |||||
Description of license terms | The term of the Sato Agreement and the period during which Sato must pay royalties under the Sato Agreement expires, on a licensed product-by-licensed product basis, on the tenth anniversary of the first commercial sale of a licensed product in the licensed field in the licensed territory. | |||||||
License agreement additional term | 2 years | 2 years | ||||||
Maximum potential amount of research activity costs to be paid as per the agreement | $ 1,000,000 | |||||||
Commercial term of agreement | 10 years | |||||||
Collaboration and license revenue | $ 532,000 | $ 1,233,000 | ||||||
Deferred revenue | 9,580,000 | 9,580,000 | ||||||
Deferred revenue, current portion | 2,129,000 | 2,129,000 | ||||||
Deferred revenue, net of current portion | 7,451,000 | 7,451,000 | ||||||
License agreement execution expense paid to third party | $ 216,000 | |||||||
Sato License Agreement | Development and Regulatory Milestones | ||||||||
Collaborative Arrangements Transactions [Line Items] | ||||||||
Potential future milestones, revenue recognized | $ 0 | |||||||
Sato License Agreement | Change in accounting estimate | ||||||||
Collaborative Arrangements Transactions [Line Items] | ||||||||
Increase (decrease) in deferred revenue | $ (69,000) | |||||||
Change in accounting estimate description | The change in estimate resulted in a $69 decrease in revenue recognized during the three months ended September 30, 2017 as compared to the revenue that would have been recognized using the previously estimated performance period. The change in estimate does not affect the total amount of revenue expected to be recognized over the term of the Sato Agreement. | |||||||
Sato License Agreement | Maximum | ||||||||
Collaborative Arrangements Transactions [Line Items] | ||||||||
Aggregate Development And Regulatory Milestone Payments Potentially Receivable Under License Agreement | ¥ | ¥ 2,750,000,000 | |||||||
Aggregate Commercial Milestone Payments Potentially Receivable Under License Agreement | ¥ | ¥ 900,000,000 |
Property and Equipment, Net - C
Property and Equipment, Net - Components of Property and Equipment (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment [Line Items] | ||
Furniture and fixtures | $ 559 | $ 504 |
Building related to facility lease obligation | 10,557 | 10,557 |
Leasehold improvements | 951 | 1,338 |
Property, Plant and Equipment, Gross | 19,410 | 18,728 |
Less: Accumulated depreciation and amortization | (2,672) | (2,438) |
Property, Plant and Equipment, Net | 16,738 | 16,290 |
Computer Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Equipment | 517 | 500 |
Laboratory Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Equipment | 6,660 | 5,723 |
Office Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Equipment | $ 166 | $ 106 |
Property and Equipment, Net - A
Property and Equipment, Net - Additional Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Property Plant And Equipment [Abstract] | ||||
Depreciation and amortization expense | $ 391 | $ 187 | $ 1,030 | $ 575 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||||
Sep. 30, 2017USD ($) | Jun. 30, 2017USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2017USD ($)Officer | Sep. 30, 2016USD ($) | Dec. 31, 2016USD ($) | Aug. 31, 2015ft² | |
Commitments And Contingencies [Line Items] | |||||||
Lease expiration date | Apr. 30, 2017 | ||||||
Property and equipment, net | $ 16,738 | $ 16,738 | $ 16,290 | ||||
Facility lease obligation | 7,998 | 7,998 | 7,998 | ||||
Rent expense for operating leases | 94 | $ 165 | 345 | $ 374 | |||
Employees | |||||||
Commitments And Contingencies [Line Items] | |||||||
Employee severance costs | $ 224 | ||||||
Remaining accrued severance obligation | 48 | 48 | |||||
Two Former Officers | |||||||
Commitments And Contingencies [Line Items] | |||||||
Severance expenses | 0 | $ 793 | |||||
Number of former officers | Officer | 2 | ||||||
Remaining accrued severance obligation | 439 | $ 439 | |||||
Stock compensation expense related to accelerated vesting of former officers stock options | 0 | $ 374 | |||||
Primary Facility Lease | |||||||
Commitments And Contingencies [Line Items] | |||||||
Rentable square feet of additional facility space | ft² | 51,000 | ||||||
Lease expiration date | Jun. 30, 2026 | ||||||
Optional term of extending lease agreement | 5 years | ||||||
Current contractual base rent payments per month | $ 93 | ||||||
Percentage of increase in annual rental payments | 3.00% | ||||||
Grounds rent expense per month | $ 8 | ||||||
Facility lease obligation | 7,998 | 7,998 | $ 7,998 | ||||
Interest expense | 261 | 783 | |||||
Primary Facility Lease | Other Accrued Expenses | |||||||
Commitments And Contingencies [Line Items] | |||||||
Accrued interest | 29 | $ 29 | |||||
Primary Facility Lease | Building Related to Facility Lease Obligation | |||||||
Commitments And Contingencies [Line Items] | |||||||
Property and equipment, estimated useful life | 25 years | ||||||
Property and equipment, net | $ 10,557 | $ 10,557 |
Stockholders' Equity - Addition
Stockholders' Equity - Additional Information (Details) - $ / shares | 9 Months Ended | ||
Sep. 30, 2017 | Dec. 31, 2016 | Sep. 26, 2016 | |
Equity [Abstract] | |||
Capital stock, shares authorized | 210,000,000 | ||
Common stock, shares authorized | 200,000,000 | 200,000,000 | 200,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Number of series of preferred stock, description | Time to time in one or more series by adopting a resolution and filing a certificate of designations | ||
Preferred stock, shares outstanding | 0 | 0 | |
Common stock, shares outstanding | 15,989,408 | 15,939,992 |
Stockholders' Equity - Summary
Stockholders' Equity - Summary of Common Stock Activity (Details) | 9 Months Ended |
Sep. 30, 2017shares | |
Equity [Abstract] | |
Common stock shares, beginning balance | 15,939,992 |
Exercise of stock options | 49,416 |
Common stock shares, ending balance | 15,989,408 |
Stockholders' Equity - Schedule
Stockholders' Equity - Schedule of Reserved Shares of Common Stock for Future Issuance (Details) - shares | Sep. 30, 2017 | Dec. 31, 2016 |
Equity [Line Items] | ||
Common stock shares reserved for future issuance | 2,439,654 | 1,440,337 |
2016 Stock Plan | ||
Equity [Line Items] | ||
Common stock shares reserved for future issuance | 1,106,501 | 615,207 |
Outstanding stock options | ||
Equity [Line Items] | ||
Common stock shares reserved for future issuance | 1,333,153 | 825,130 |
Stock Option Plan - Additional
Stock Option Plan - Additional Information (Details) - USD ($) $ in Thousands | Jun. 05, 2017 | Sep. 20, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2008 |
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||||||
Share-based compensation expense | $ 871 | $ 327 | $ 3,006 | $ 861 | |||
2008 Stock Plan | |||||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||||||
Common stock shares reserved for future issuance | 1,416,666 | ||||||
Additional awards to be granted under the plan | 0 | ||||||
Stock options expiration period | 10 years | ||||||
2016 Stock Plan | |||||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |||||||
Common stock shares reserved for future issuance | 833,333 | ||||||
Additional awards to be granted under the plan | 1,200,000 | ||||||
Shares available for future issuance | 1,106,501 | 1,106,501 | |||||
Stock options expiration period | 10 years |
Stock Option Plan - Schedule of
Stock Option Plan - Schedule of Share-based Compensation Expenses (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Total share-based compensation expense | $ 871 | $ 327 | $ 3,006 | $ 861 |
Research and development | ||||
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Total share-based compensation expense | 475 | 95 | 1,301 | 274 |
General and administrative | ||||
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Total share-based compensation expense | $ 396 | $ 232 | $ 1,705 | $ 587 |
Stock Option Plan - Summary of
Stock Option Plan - Summary of Stock Option Activity (Details) $ / shares in Units, $ in Thousands | 9 Months Ended |
Sep. 30, 2017USD ($)$ / sharesshares | |
Shares Subject to Outstanding Options | |
Options outstanding as of December 31, 2016 | shares | 825,130 |
Options granted | shares | 830,945 |
Options forfeited | shares | (273,506) |
Options exercised | shares | (49,416) |
Options outstanding as of September 30, 2017 | shares | 1,333,153 |
Weighted-Average Exercise Price Per Share | |
Options outstanding as of December 31, 2016 | $ / shares | $ 11.27 |
Options granted | $ / shares | 5.13 |
Options forfeited | $ / shares | 13.93 |
Options exercised | $ / shares | 1.36 |
Options outstanding as of September 30, 2017 | $ / shares | $ 7.27 |
Weighted- Average Remaining Contractual Term (in years) | |
Options outstanding as of September 30, 2017 | 8 years 10 months 3 days |
Aggregate Intrinsic Value | |
Options outstanding as of September 30, 2017 | $ | $ 1,236 |
Related Party Transactions - Ad
Related Party Transactions - Additional Information (Details) | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2017USD ($)Directorshares | Sep. 30, 2017USD ($)Directorshares | Dec. 31, 2016shares | |
Related Party Transaction [Line Items] | |||
Common stock, number of shares held | shares | 15,989,408 | 15,989,408 | 15,939,992 |
Chief Executive Officer | |||
Related Party Transaction [Line Items] | |||
Ownership percentage of shares | greater than 10% | ||
Additional Compensation | $ | $ 0 | $ 0 | |
Members of Board of Directors | |||
Related Party Transaction [Line Items] | |||
Common stock, number of shares held | shares | 1,585,916 | 1,585,916 | 1,561,916 |
Malin Life Sciences Holdings Limited | |||
Related Party Transaction [Line Items] | |||
Out of pocket travel expenses | $ | $ 230,000 | $ 230,000 | |
Number of directors also affiliated with related party | Director | 2 | 2 |
Subsequent Events - Additional
Subsequent Events - Additional Information (Details) | Oct. 13, 2017_Oncoviruses | Oct. 02, 2017USD ($)shares | Sep. 30, 2017USD ($) |
Prepaid Expenses and Other Current Assets | |||
Subsequent Event [Line Items] | |||
Shelf registration, costs capitalized | $ 110,000 | ||
Subsequent Event | |||
Subsequent Event [Line Items] | |||
Equity, debt, warrants and units, aggregate offering price | $ 150,000,000 | ||
Subsequent Event | KNOW Bio | |||
Subsequent Event [Line Items] | |||
Option term for development and commercialization of products rights | 3 years | ||
Subsequent Event | Maximum | KNOW Bio | |||
Subsequent Event [Line Items] | |||
Number of other specified oncoviruses | _Oncoviruses | 4 | ||
Subsequent Event | Malin Life Sciences Holdings Limited | Maximum | |||
Subsequent Event [Line Items] | |||
Registered for future offering, issuance and sale of common stock, shares | shares | 2,623,485 |