Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation |
The accompanying financial statements include the accounts of Roka Bioscience, Inc. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company does not have any subsidiaries. |
Use of Estimates |
The Company is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and disclosure of contingent assets and liabilities in its financial statements. Actual results could differ from those estimates. The most significant estimates relate to the Company’s valuation of the convertible preferred stock warrant liability, inventory reserves, stock-based compensation expense and imputed interest from deferred instrument payments under a supply agreement with Gen-Probe. |
Fair Value of Financial Instruments |
The carrying amounts reflected in the balance sheet for cash and cash equivalents, trade accounts receivable, accounts payable, short-term deferred payments and accrued expenses approximate fair value due to their short-term maturities. Deferred payments are initially recorded at fair value reflecting the estimated interest rate implicit in the extended payment terms per the related agreement. |
The Company’s derivative financial instruments are measured and recorded in the balance sheet at their fair value. |
Cash and Cash Equivalents |
Cash and cash equivalents include short-term highly liquid investments with original maturities to the Company of three months or less. |
Short-term and Long-term Marketable Securities |
The Company invests excess cash balances in marketable securities of highly rated financial institutions and investment-grade debt instruments. Investments are diversified and concentration of investments is limited for individual institutions, maturities and investment types. The Company’s marketable debt securities have been classified and accounted for as held-to-maturity. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date, and classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term, and recorded at their amortized cost. |
Trade Accounts Receivable |
The Company evaluates the creditworthiness of each customer on a regular basis. The Company uses judgments as to its ability to collect outstanding receivables and provides allowances for the portion of receivables if and when collection becomes doubtful, and it also assesses on an ongoing basis whether collectibility is reasonably assured at the time of sale. Changes to allowances and adjustments for declines in customers’ creditworthiness are recorded as bad debt expense as a component of selling, general and administrative expense. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. |
Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation. The straight-line method of depreciation is used for all property and equipment. Repair and maintenance costs are expensed as incurred. Property and equipment are depreciated over the following estimated useful lives: |
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• | Atlas instruments placed — five years |
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• | Manufacturing equipment — five years |
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• | Laboratory equipment — four years |
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• | Computer and office equipment — three to five years |
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• | Leasehold improvements — the lesser of: the estimated useful life, the term of the respective lease, or ten years |
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• | Software — three years |
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Inventories |
Inventories include raw materials and supplies used for manufacturing of assays and finished products held for sale. The Company’s inventories are stated at the lower of cost or market. Cost includes amounts related to materials, applicable labor and overhead, and is determined in a manner which approximates the first-in first-out method. Reserves are recorded for excess and obsolete inventory and net realizable value, based on management’s review of inventories on hand as compared to estimated future demand, shelf-life and the likelihood of obsolescence. Abnormal production and underutilization costs are expensed as incurred. See Note 5. |
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Intangible Assets |
The Company’s intangible asset relates to research and development projects that were acquired at the Company's inception in connection with the acquisition of industrial testing assets and technology from Gen-Probe. The projects were not completed at the date of acquisition and had no future alternative use. The Company recorded in-process research and development (“IPR&D”) as an intangible asset with an indefinite life until the project was completed. |
Upon successful completion of the IPR&D in January 2012, the Company initiated amortization of the asset over its estimated useful life of 10 years. |
In 2014, based upon the consideration paid under the Company's amended license agreement with Gen-Probe, the Company recorded an additional $26.6 million to the Company's intangible technology, which amount will be amortized through December 31, 2021, the end of the estimated remaining life of the technology asset. See Note 7 for further details. |
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The Company reviews the technology asset for impairment on an annual basis. If events or changes in circumstances indicate that the carrying amount might not be recoverable, the Company would also review the technology asset for impairment at that point in time. An impairment loss is recognized if the sum of estimated future undiscounted cash flows generated from use of the technology asset is less than its carrying value. |
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The Company recorded amortization expense of $1.8 million in the year ended December 31, 2014, and expects to record amortization expense of approximately $3.7 million in each of the 7 years following. |
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Goodwill |
Goodwill represents the excess of purchase price over net assets acquired from Gen-Probe. Goodwill is not amortized; rather, it is subject to a periodic evaluation for impairment by applying a fair-value-based test. The Company evaluates goodwill for impairment in the fourth quarter of each year. In addition, the Company reviews goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Examples of such events include a significant adverse change in legal matters, liquidity or in the business climate, an adverse action or assessment by a regulator or government organization, loss of key personnel, or new circumstances that would have a negative impact on the Company. Goodwill impairment is determined using a two-step approach whereby the fair value of the Company is compared to its book value. |
Based on the Company’s annual impairment evaluation conducted in the fourth quarter of 2014, 2013 and 2012, respectively, the Company concluded that no impairment had occurred. |
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Research and Development Expenses |
Research and development expenses are comprised of costs incurred in performing research and development activities including manufacturing development and scale-up costs and product development and are principally comprised of salaries and benefits, outside contractor costs and professional fees, research license fees, depreciation and amortization of laboratory equipment, facilities, and lab supplies. These costs are expensed as incurred. |
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Revenue Recognition |
The Company generates revenue from the sale of Atlas Detection Assays and consumable supplies for use with its Atlas instruments, as well as limited revenue from instrument rentals and service and maintenance contracts. The Company generally provides Atlas instruments free of charge under reagent rental agreements and retains title to the instruments which remain capitalized on the Company’s balance sheet under property and equipment. The Company recovers the cost of providing the Atlas instruments in the amount it charges for its Atlas Detection Assays. The reagent rental agreements are typically for one-year periods and there are no minimum purchase obligations. Revenue is recognized over the term of the reagent rental agreement as Atlas Detection Assays and other supplies are shipped. Shipping and handling costs incurred by the Company are included in its billings to customers. |
The Company recognizes revenue net of discounts and sales related taxes where applicable. The Company recognizes product revenue upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding acceptance, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. There is no customer right of return in the Company’s sales agreements. |
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Revenues for leases and service and maintenance contracts are recognized ratably over the term of the contract. Revenues for the sale of Atlas instruments are recognized upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding acceptance, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. |
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Cost of Revenue |
The Company manufactures products for commercial sale as well as for internal use or evaluation. Cost of revenue primarily consists of the cost of materials, direct labor and manufacturing overhead costs associated with the production and distribution of Atlas Detection Assays and consumable supplies for the Atlas instruments. Cost of revenue also includes depreciation on Atlas instruments installed with our customers, expenses related to service and maintenance of instruments and royalties. The Company classifies costs for commercial products to Cost of revenue and costs for internal use or evaluations to Research and development or Selling, general and administrative costs. |
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Share-based Compensation |
The Company grants stock options and restricted shares to employees, independent directors and consultants of the Company. The Company recognizes share-based compensation expense, based on the fair value of stock awards, on a straight-line basis over the requisite service period of the individual grants, which typically is equal to the vesting period. See Note 15. |
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Convertible Preferred Stock |
The Company had multiple classes of convertible preferred stock outstanding prior to its IPO. All shares of convertible preferred stock were converted into shares of Common Stock upon completion of its IPO. See Note 14. |
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Warrants for Convertible Preferred Stock |
Prior to the IPO, the Company had issued warrants to purchase shares of various classes of preferred stock. Upon completion of the IPO, all such warrants converted to warrants to purchase shares of Common Stock. See Note 16. |
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Income Taxes |
The Company applies the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained. See Note 13. |
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Prior Period Adjustments |
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Previously, the Company calculated the fair value of its convertible preferred stock warrants outstanding using a time period based upon an estimated liquidation date. During 2014, it was determined that a liquidation date cannot be reasonably estimated, nor do these warrants automatically expire upon a liquidation event such as an initial public offering, and consequently the life used to value these warrants should reflect the expiration date of each warrant. As a result of this change in estimate, during the three months ended March 31, 2014 the Company recognized the following prior period expenses: approximately $435,000 related to the change in fair value of warrants, approximately $26,000 of interest expense and approximately $77,000 of other expenses as a result of the change in calculation of the fair value of warrants. Additionally, this change in valuation resulted in a reduction of notes payable of approximately $77,000, deemed to be an additional debt discount which will be accreted to notes payable over the life of the loan with a corresponding charge to interest expense. Furthermore, the change in valuation resulted in an increase in deferred financing costs of $77,000 which was expensed in the year ended December 31, 2014. The Company does not believe these adjustments are material to the current or prior periods. |
Common A and Common B Reverse Stock Split |
In July 2014, the Company’s board of directors authorized and the Company’s shareholders approved an 11.04:1 reverse stock split of the Company’s Common A and Common B shares, effective on July 3, 2014. In addition, effective on the date of the reverse stock split, the conversion ratio of Convertible Preferred Stock was adjusted by a factor of 11.04 and consequently, each share of Series B, Series C and Series E became convertible into approximately 0.0906 shares of Common Stock and each share of Series D became convertible into approximately 0.0937 shares of Common Stock. As stated in Note 1, all shares of Common A, Common B and Convertible Preferred Stock converted into Common Stock upon the completion of the Company's IPO. The Company’s historical share and per share information have been retroactively adjusted to give effect to this reverse split and corresponding change in conversion ratio. |
New Accounting Pronouncements |
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. |
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In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, and early adoption is permitted. The Company is currently in the process of evaluating the impact this new guidance will have. |
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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. The Company is currently in the process of evaluating the impact this new guidance will have. |