Tesaro (TSRO) 10-Q 9 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 03, 2017
Document and Entity Information
Entity Registrant Name	TESARO, Inc.
Entity Central Index Key	1,491,576
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		53,864,741
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 672,239	$ 785,877
Accounts receivable	6,061	6,195
Inventories	15,643	14,700
Other current assets	13,625	10,515
Total current assets	707,568	817,287
Intangible assets, net	37,387	12,877
Property and equipment, net	8,618	6,640
Restricted cash	2,316	1,694
Other assets	5,116	3,795
Total assets	761,005	842,293
Current liabilities:
Accounts payable	10,343	5,236
Accrued expenses	68,975	68,700
Accrued milestone obligation	24,790
Deferred revenue, current	95	95
Other current liabilities	3,264	2,978
Total current liabilities	107,467	77,009
Convertible notes, net	134,532	131,775
Deferred revenue, non-current	282	305
Other non-current liabilities	5,516	5,086
Total liabilities	247,797	214,175
Commitments and contingencies (Notes 10 and 12)
Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at both December 31, 2016 and March 31, 2017; no shares issued or outstanding at both December 31, 2016 and March 31, 2017
Common stock, $0.0001 par value; 100,000,000 shares authorized at both December 31, 2016 and March 31, 2017; 53,621,679 and 53,815,936 shares issued and outstanding at December 31, 2016 and March 31, 2017, respectively	5	5
Additional paid-in capital	1,626,533	1,604,798
Accumulated other comprehensive loss	(2,844)	(2,924)
Accumulated deficit	(1,110,486)	(973,761)
Total stockholders' equity	513,208	628,118
Total liabilities and stockholders' equity	$ 761,005	$ 842,293

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 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 (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	53,815,936	53,621,679
Common stock, shares outstanding	53,815,936	53,621,679

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Product revenue, net	$ 2,139	$ 276
License, collaboration and other revenues	934	24
Total revenues	3,073	300
Expenses:
Cost of sales - product	444	79
Cost of sales - intangible asset amortization	490	464
Research and development	66,122	52,709
Selling, general and administrative	69,262	30,149
Acquired in-process research and development		4,000
Total expenses	136,318	87,401
Loss from operations	(133,245)	(87,101)
Interest expense	(4,267)	(3,981)
Interest income	841	102
Loss before income taxes	(136,671)	(90,980)
Provision for income taxes	54
Net loss	$ (136,725)	$ (90,980)
Net loss per share applicable to common stockholders - basic and diluted (in dollars per share)	$ (2.55)	$ (2.22)
Weighted-average number of common shares used in net loss per share applicable to common stockholders - basic and diluted (in shares)	53,685	40,966
Comprehensive loss:
Net loss	$ (136,725)	$ (90,980)
Other comprehensive gain (loss):
Unrealized gain (loss) on pension obligation	45	(99)
Foreign currency translation adjustments	35
Other comprehensive gain (loss):	80	(99)
Comprehensive loss	$ (136,645)	$ (91,079)

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revised Statement of Cash Flow
Net loss	$ (136,725)	$ (90,980)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development		4,000
Depreciation and amortization expense	954	733
Stock-based compensation expense	18,401	9,461
Non-cash interest expense	2,757	2,472
Changes in operating assets and liabilities:
Accounts receivable	134	2,561
Inventories	(179)	(4,886)
Other assets	(3,462)	(656)
Accounts payable	5,119	4,293
Accrued expenses	(1,847)	3,923
Deferred revenues	(22)	(15)
Other liabilities	172	1,478
Net cash used in operating activities	(114,698)	(67,616)
Investing activities
Acquisition of product candidate and technology licenses and milestone payments		(4,000)
Purchase of property and equipment	(1,790)	(380)
Change in restricted cash	(510)
Net cash used in investing activities	(2,300)	(4,380)
Financing activities
Proceeds from sales of common stock, net of issuance costs		154,972
Payments for stock issuance costs	(8)
Proceeds from exercise of stock options	3,323	1,338
Net cash provided by financing activities	3,315	156,310
Effect of exchange rate changes on cash and cash equivalents	45
Increase (decrease) in cash and cash equivalents	(113,638)	84,314
Cash and cash equivalents at beginning of period	785,877	230,146
Cash and cash equivalents at end of period	672,239	314,460
Non-cash investing and financing activities
Stock option exercise proceeds receivable as of period end	103	$ 82
Leasehold improvement assets funded by lessor	585
Purchase of property and equipment - cash not paid as of period end	301
Supplemental cash flow information
Cash paid for interest	3,019
Milestone obligation not paid as of period end	$ 24,790

Description of Business

Description of Business	3 Months Ended
	Mar. 31, 2017
Description of Business
Description of Business	1. Description of Business TESARO, Inc., or the Company or TESARO, was incorporated in Delaware on March 26, 2010 and commenced operations in May 2010. Headquartered in Waltham, Massachusetts, TESARO is an oncology-focused biopharmaceutical company dedicated to improving the lives of cancer patients. TESARO acquires, in-licenses, develops, and commercializes oncology products and product candidates. As part of its business strategy, the Company intends to continue to in-license or acquire additional product candidates across various stages of development. The Company operates in one segment. The Company is subject to a number of risks, including, but not limited to, dependence on key individuals, regulatory and manufacturing risks, risks associated with competitors, risks associated with intellectual property, the need to develop additional commercially viable products, competition from other companies, many of which are larger and better capitalized, and the need to obtain adequate additional financing to fund the development and potential commercialization of its product candidates and further its in-licensing and acquisition activities. On September 1, 2015, the Company’s first commercial product, VARUBI® (rolapitant), was approved by the United States Food and Drug Administration, or FDA, in combination with other antiemetic agents in adults for the prevention of delayed nausea and vomiting associated with initial and repeat courses of emetogenic cancer chemotherapy, including, but not limited to, highly emetogenic chemotherapy. The Company commenced sales of VARUBI during the fourth quarter of 2015. On March 27, 2017, the FDA approved the Company’s second commercial product, ZEJULA TM (niraparib), for the maintenance treatment of women with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. The Company commenced sales of ZEJULA in the United States in April 2017. On April 26, 2017, the European Commission approved VARUBY® (oral rolapitant tablets) for the prevention of delayed nausea and vomiting associated with highly and moderately emetogenic cancer chemotherapy in adults. The Company has incurred significant operating losses since inception and has relied on its ability to fund its operations through private and public equity and debt financings and to a lesser extent through license and collaboration arrangements. Management expects operating losses and negative operating cash flows to continue for the foreseeable future. As the Company continues to incur losses, the transition to profitability is dependent upon the successful development, approval, and commercialization of its products and product candidates and the achievement of a level of revenues adequate to support its cost structure. The Company believes that its currently available funds in addition to cash generated from sales of its products will be sufficient to fund the Company’s operations through at least the next 12 months from the issuance of this Quarterly Report on Form 10-Q. Management’s belief with respect to its ability to fund operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management’s estimates, the Company may need to seek additional funding.

Basis of Presentation and Signi

Basis of Presentation and Significant Accounting Policies	3 Months Ended
	Mar. 31, 2017
Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies	2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared by TESARO in conformity with accounting principles generally accepted in the United States of America, or GAAP. Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. See “ New Accounting Pronouncements - Recently Adopted ” below for discussion of the Company’s adoption of new revenue recognition guidance retroactive to January 1, 2015. Otherwise, these reclassifications had no significant effects on the previously reported net loss. The Company’s condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently operates in one business segment, which is the identification, acquisition, development and commercialization of oncology-related therapeutics, and has a single reporting and operating unit structure. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods ended March 31, 2016 and 2017. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2016 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2017 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2016 Annual Report on Form 10-K and are updated below as necessary. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to net product revenues, license, collaboration and other revenues, accrued clinical trial and manufacturing development expenses, stock-based compensation expense, inventory and intangible assets and related amortization. Significant estimates in these condensed consolidated financial statements include estimates made in connection with accrued research and development expenses, stock-based compensation expense, revenue, valuation of convertible notes, intangible assets and related amortization. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of investment credit quality. The hierarchy defines three levels of valuation inputs: Level 1 inputs Quoted prices in active markets for identical assets or liabilities Level 2 inputs Observable inputs other than Level 1 inputs, including quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active Level 3 inputs Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability The following table presents information about the Company’s financial assets and liabilities that have been measured at fair value as of December 31, 2016 and March 31, 2017 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands): December 31, 2016 Description Balance Sheet Classification Total Level 1 Level 2 Level 3 Assets: Money market funds Cash and cash equivalents $ 776,186 $ 776,186 $ — $ — Total assets $ 776,186 $ 776,186 $ — $ — March 31, 2017 Description Balance Sheet Classification Total Level 1 Level 2 Level 3 Assets: Money market funds Cash and cash equivalents $ 637,445 $ 637,445 $ — $ — Total assets $ 637,445 $ 637,445 $ — $ — The carrying amounts of accounts payable and accrued expenses approximate their fair values due to their short-term maturities. In September 2014, the Company issued $201.3 million aggregate principal amount of 3.00% convertible senior notes due October 1, 2021, or the Convertible Notes. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. As of March 31, 2017, the carrying value of the Convertible Notes, net of unamortized discount and debt issuance costs, was $134.5 million and the estimated fair value of the principal amount was $892.8 million. The Convertible Notes are discussed in more detail in Note 5, “Convertible Notes”. Revenue Recognition Effective January 1, 2017, the Company adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers , using the full retrospective transition method. Under this method, the Company will revise its consolidated financial statements for the years ended December 31, 2015 and 2016, and applicable interim periods within those years, as if Topic 606 had been effective for those periods. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue and license, collaboration and other revenues, see Note 11, “Revenue Recognition”. Intangible Assets The Company maintains definite-lived intangible assets related to certain capitalized milestones. These assets are amortized over their remaining useful lives, which are estimated to be the remaining patent life. If the Company’s estimate of the product’s useful life is shorter than the remaining patent life, then the shorter period is used. Intangible assets are amortized using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when future revenues cannot be reasonably estimated. Amortization expense is recorded as a component of cost of sales in the condensed consolidated statements of operations. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the condensed consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value of the intangible asset and recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value. New Accounting Pronouncements - Recently Adopted In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition , and creates a new Topic 606, Revenue from Contracts with Customers . In 2015 and 2016, the FASB issued additional ASUs related to Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. The Company adopted this new standard on January 1, 2017 using the full retrospective transition method, and has elected to use the following practical expedients that are permitted under the rules of the adoption, which have been applied consistently to all contracts within all reporting periods presented: · For completed contracts that had variable consideration, the Company has used the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. Therefore, the Company did not need to estimate its discounts, returns, chargebacks, rebates, co-pay assistance and other allowances on product sales made in the comparative reporting periods. · For all reporting periods presented before January 1, 2017, the Company has not disclosed the amount of the transaction price allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue. Impact of Adoption The Company, as a result of adopting Topic 606 on January 1, 2017, has revised its comparative financial statements for the prior year as if Topic 606 had been effective for that period. As a result, the following financial statement line items for fiscal year 2016 were affected. Condensed Consolidated Statements of Operations and Comprehensive Loss Three months ended March 31, 2016 (in thousands, except per share data) As revised under Topic 606 As originally reported under Topic 605 Effect of change Product revenue, net $ 276 $ 173 $ 103 License, collaboration and other revenues 24 134 (110) Cost of sales - product 79 76 3 Loss from operations (87,101) (87,091) (10) Net loss (90,980) (90,970) (10) Net loss per share applicable to common stockholders - basic and diluted $ (2.22) $ (2.22) $ - Condensed Consolidated Balance Sheets December 31, 2016 (in thousands) As revised under Topic 606 As originally reported under Topic 605 Effect of change Accounts receivable $ 6,195 $ 5,343 $ 852 Other current assets 10,515 8,919 1,596 Accrued expenses 68,700 68,271 429 Deferred revenue, current 95 288 (193) Deferred revenue, non-current 305 — 305 Customer deposit — 15,000 (15,000) Accumulated deficit $ (973,761) $ (990,668) $ 16,907 Condensed Consolidated Statement of Cash Flows Three months ended March 31, 2016 (in thousands) As revised under Topic 606 As originally reported under Topic 605 Effect of change Net loss $ (90,980) $ (90,970) $ (10) Adjustments to reconcile net loss to net cash used in operating activities: Accounts receivable 2,561 (377) 2,938 Other assets (656) (282) (374) Accrued expenses 3,923 3,725 198 Deferred revenues (15) 2,737 (2,752) Cash and cash equivalents at beginning of period 230,146 — Cash and cash equivalents at end of period $ $ 314,460 $ — The most significant change above relates to the Company’s license, collaboration and other revenues and the impact of the potential payment to Zai Lab (Shanghai) Co., Ltd., or Zai Lab, upon exercise of the option to co-market niraparib in China, Hong Kong and Macao, or the China Territories. Under Topic 605, even though the Company believed it was remote that this option would be exercised, the Company had concluded that the contract price was not fixed or determinable under the revenue recognition criteria and accordingly no revenue had been previously recognized. Therefore, the upfront, non-refundable license fee of $15.0 million received by the Company in the fourth quarter of 2016 was deferred and recorded as a customer deposit as of December 31, 2016. Under Topic 606, the Company determined the probability is remote that it will exercise the option and accordingly, the potential future payments to Zai Lab have no impact on the transaction price. Further, the Company evaluated this option to co-market niraparib under Topic 606 and concluded that this option is not a repurchase right and accordingly recognized revenue in 2016 for the transaction price received as and when the performance obligations under this agreement were satisfied by the Company. For further discussion of the adoption of this standard, see Note 11, “Revenue Recognition” and Note 12, “License and Collaboration Arrangements”. In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business. To be considered a business (instead of an asset), an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present (including for early stage companies that have not generated outputs). To be a business without outputs, there will now need to be an organized workforce. The new guidance narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606. Under the final definition, an output is the result of inputs and substantive processes that provide goods or services to customers, other revenue, or investment income, such as dividends and interest. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company has elected to early adopt this ASU effective January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements, although this guidance could impact its accounting conclusions for certain future transactions, such as in-licensing agreements.

Net Loss per Share

Net Loss per Share	3 Months Ended
	Mar. 31, 2017
Net Loss per Share
Net Loss per Share	3. Net Loss per Share Basic and diluted net loss per common share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. The Company’s potentially dilutive shares, which include outstanding stock options, Employee Stock Purchase Plan awards, unvested restricted stock units, or RSUs, and shares issuable upon conversion of the Convertible Notes, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The following table presents amounts that were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect (in thousands): Three Months Ended March 31, 2016 2017 Outstanding stock awards and Employee Stock Purchase Plan 7,068 7,366 Unvested restricted stock units 537 1,093 Shares issuable upon conversion of Convertible Notes 20 4,186 7,625 12,645 In September 2014, the Company issued Convertible Notes, which provide in certain situations for the conversion of the outstanding principal amount of the Convertible Notes into shares of the Company’s common stock at a predefined conversion rate. See Note 5, “Convertible Notes”, for additional information. In conjunction with the issuance of the Convertible Notes, the Company entered into capped call option transactions, or Capped Calls, with certain counterparties. The Capped Calls are expected generally to reduce the potential dilution, and/or offset, to an extent, the cash payments the Company may choose to make in excess of the principal amount, upon conversion of the Convertible Notes. As provided by the terms of the indenture underlying the Convertible Notes, the Company has a choice to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. The Company currently intends to settle the par value of the Convertible Notes in cash and any excess conversion premium in shares. Accordingly, the par value of the Convertible Notes will not be included in the calculation of diluted net income per share, but the dilutive effect of the conversion premium will be considered in the calculation of diluted net income per share using the treasury stock method. The share figures in the table above represent the estimated incremental shares that would be issued, after consideration of the Capped Calls, assuming conversion of all of the outstanding Convertible Notes as of March 31, 2016 and 2017.

Inventories

Inventories	3 Months Ended
	Mar. 31, 2017
Inventories
Inventories	4. Inventories The following table presents inventories as of December 31, 2016 and March 31, 2017 (in thousands): December 31, March 31, 2016 2017 Raw materials $ 13,263 $ 13,165 Work in process 584 1,736 Finished goods 853 742 Total inventories $ 14,700 $ 15,643 Inventories are related to the Company’s approved products, VARUBI and ZEJULA. If future sales of VARUBI or ZEJULA are less than expected, the Company may be required to write down the value of such inventories.

Convertible Notes

Convertible Notes	3 Months Ended
	Mar. 31, 2017
Convertible Notes.
Convertible Notes	5. Convertible Notes On September 29, 2014, in a registered underwritten public offering, the Company completed the issuance of $201.3 million aggregate principal amount of Convertible Notes. In conjunction with the sale of the Convertible Notes, the Company used $20.8 million of the net proceeds to enter into separate Capped Calls. The Convertible Notes bear interest at a rate of 3.00% per annum, payable semi-annually on April 1 and October 1, and will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Convertible Notes will mature on October 1, 2021, unless earlier converted or repurchased in accordance with their terms. Prior to the close of business on the business day immediately preceding April 1, 2021, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods as discussed below, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion price of the Convertible Notes is approximately $35.13 per share of common stock at an initial conversion rate of 28.4627 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. At any time prior to the close of business on the business day immediately preceding April 1, 2021, holders may convert their Convertible Notes at their option only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2014 (and only during such calendar quarter), if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter in which the conversion occurs is greater than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. As of March 31, 2017, the carrying value of the Convertible Notes, net of unamortized discount and debt issuance costs, was $134.5 million and the estimated fair value of the principal amount was $892.8 million. As provided by the terms of the indenture underlying the Convertible Notes, the Company has a choice to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. The Company currently intends to settle the par value of the Convertible Notes in cash and any excess conversion premium in shares. The following table presents total interest expense recognized related to the Convertible Notes during the three months ended March 31, 2016 and 2017 (in thousands): Three Months Ended March 31, 2016 2017 Contractual interest expense $ 1,509 $ 1,509 Amortization of debt discount 2,315 2,615 Amortization of debt issuance costs 157 143 Total interest expense $ 3,981 $ 4,267

Stock-Based Compensation

Stock-Based Compensation	3 Months Ended
	Mar. 31, 2017
Stock-Based Compensation
Stock-Based Compensation	6. Stock-Based Compensation The Company maintains several equity compensation plans, including the TESARO, Inc. 2012 Omnibus Incentive Plan, or the 2012 Incentive Plan, the TESARO, Inc. 2010 Stock Incentive Plan, or the 2010 Incentive Plan, the TESARO, Inc. 2015 Non-Employee Director Stock Incentive Plan, or the 2015 Director Plan, and the TESARO, Inc. 2012 Employee Stock Purchase Plan, or the 2012 ESPP. On April 27, 2012, the stockholders of the Company approved the 2012 Incentive Plan, which had been previously adopted by the board of directors. Upon effectiveness of the 2012 Incentive Plan, the Company ceased making awards under the 2010 Incentive Plan. The 2012 Incentive Plan initially allowed the Company to grant awards for up to 1,428,571 shares of common stock plus the number of shares of common stock available for grant under the 2010 Incentive Plan as of the effectiveness of the 2012 Incentive Plan (an additional 6,857 shares) plus the number of shares of common stock related to awards outstanding under the 2010 Incentive Plan that terminate by expiration, forfeiture, cancellation, cash settlement or otherwise. The number of shares available for grants of awards under the 2012 Incentive Plan is increased automatically on January 1 by a number of shares of common stock equal to the lesser of 4% of the shares of common stock outstanding at such time or the number of shares determined by the Company’s board of directors. Most recently, on January 1, 2016 and 2017, the number of shares authorized for issuance under the 2012 Incentive Plan was increased by 1,611,191 shares and 2,144,867 shares, respectively. Awards under the 2012 Incentive Plan may include the following award types: stock options, which may be either incentive stock options or nonqualified stock options; stock appreciation rights; restricted stock; RSUs; dividend equivalent rights; performance shares; performance units; cash-based awards; other stock-based awards, including unrestricted shares; or any combination of the foregoing. The exercise price of stock options granted under the 2012 Incentive Plan is equal to the closing price of a share of the Company’s common stock on the grant date. On May 14, 2015, the stockholders of the Company approved the 2015 Director Plan, which had been previously adopted by the board of directors in order to have a plan in addition to the 2012 Incentive Plan for purposes of granting awards to non-employee directors. The 2015 Director Plan allows the Company to grant awards for up to 500,000 shares of common stock. Awards under the 2015 Director Plan may include the following award types: stock options; stock appreciation rights; restricted stock; RSUs; unrestricted stock; or any combination of the foregoing. The exercise price of stock options granted under the 2015 Director Plan is equal to the closing price of a share of the Company’s common stock on the grant date. On May 11, 2016, the Company’s stockholders approved an amendment to the 2015 Director Plan that limits the maximum number of shares of stock subject to awards granted in any calendar year to any non-employee director of the Company to 50,000 shares and affirms that 500,000 shares are reserved for issuance under the 2015 Director Plan. The following table presents stock-based compensation expense as reflected in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands): Three Months Ended March 31, 2016 2017 Research and development $ 3,743 $ 7,125 Selling, general and administrative 5,718 11,276 Total stock-based compensation expense $ 9,461 $ 18,401 Stock Options The following table presents a summary of the Company’s stock option activity and related information: Weighted-average exercise price per Shares share Outstanding at December 31, 2016 6,978,621 $ 40.65 Granted 491,590 167.45 Exercised (78,251) 42.59 Cancelled (44,280) 45.22 Outstanding at March 31, 2017 7,347,680 $ 49.09 Vested at March 31, 2017 3,634,361 $ 26.90 At March 31, 2017, there was approximately $143.4 million of total unrecognized compensation cost related to unvested stock options, which the Company expects to recognize over a remaining weighted-average period of 2.6 years. Restricted Stock Units The following table presents a summary of the Company’s RSU activity and related information: Weighted-average grant date fair Shares value per share Unvested restricted stock units at December 31, 2016 760,123 $ 58.55 Granted 455,975 173.77 Vested (116,006) 43.88 Forfeited (7,075) 56.54 Unvested restricted stock units at March 31, 2017 1,093,017 $ 108.19 At March 31, 2017, there was approximately $111.4 million of unrecognized compensation cost related to unvested RSUs, which the Company expects to recognize over a remaining weighted-average period of 3.4 years. In July 2016, the Company issued 15,000 RSUs with service and performance conditions to certain employees, none of which vested during the three months ended March 31, 2017. Vesting of these awards is contingent on the occurrence of certain milestone events and fulfillment of any remaining service condition. As a result, the related compensation cost is recognized as an expense when achievement of the milestone is considered probable. The Company recognized $0.5 million of related expense during the three months ended March 31, 2017. ESPP Under the Company’s 2012 ESPP, an aggregate of 275,000 shares of common stock have been reserved for issuance pursuant to purchase rights granted to the Company’s employees or to employees of the Company’s designated subsidiaries. As of March 31, 2017, 194,245 shares remained available for issuance. During the three months ended March 31, 2016 and 2017, the Company did not issue any shares under the 2012 ESPP, and recognized approximately $0.3 million and $0.5 million in related stock-based compensation expense, respectively.

Common Stock Transactions

Common Stock Transactions	3 Months Ended
	Mar. 31, 2017
Common Stock Transactions
Common Stock Transactions	7. Common Stock Transactions In March 2016, the Company sold 4,404,658 shares of common stock in a private placement offering at a price of $35.19 per share, to certain accredited investors, including funds affiliated with three of its directors and current investors, resulting in gross proceeds of approximately $155.0 million. The price per share was equal to the volume weighted average price for the ten-day period ending on March 17, 2016. There were no placement agents used for this financing. The sale and issuance of the shares of common stock in the private placement was made in reliance on the exemption afforded by Section 4(a)(2) under the Securities Act of 1933 and Regulation D promulgated under the Securities Act.

Income Taxes

Income Taxes	3 Months Ended
	Mar. 31, 2017
Income Taxes
Income Taxes	8. Income Taxes Deferred tax assets and deferred tax liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company does not recognize a tax benefit for uncertain tax positions unless it is more likely than not that the position will be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of cumulative benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for uncertain tax positions that may result in tax payments. If such unrecognized tax benefits were realized and not subject to valuation allowances, the entire amount would impact the tax provision. As of March 31, 2017, the Company’s uncertain tax positions were subject to valuation allowances. The Company recorded a provision for income taxes in the three months ended March 31, 2017 of $0.1 million. The provision for income taxes consists of current tax expense, which relates primarily to the Company’s subsidiary operations in foreign tax jurisdictions.

Intangible Assets

Intangible Assets	3 Months Ended
	Mar. 31, 2017
Intangible Assets
Intangible Assets	9. Intangible Assets The following table presents intangible assets as of December 31, 2016 and March 31, 2017 (in thousands): December 31, March 31, 2016 2017 Estimated useful life Acquired and in-licensed rights $ 15,000 $ 40,000 8-13 Years Less accumulated amortization (2,123) (2,613) Total intangible asset, net $ 12,877 $ 37,387 The increase in acquired and in-licensed rights as of March 31, 2017 was due to the milestone of $25.0 million owed to Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., or Merck, which was triggered by the FDA approval of ZEJULA on March 27, 2017. The Company recorded $0.5 million and $0.5 million in amortization expense related to intangible assets during the three months ended March 31, 2016 and 2017, respectively. Estimated future amortization expense for intangible assets as of March 31, 2017 is $2.8 million for the remainder of 2017, $3.8 million per year for 2018, 2019, 2020, and 2021, and $19.3 million thereafter.

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2017
Commitments and Contingencies
Commitments and Contingencies	10. Commitments and Contingencies The Company leases approximately 124,000 square feet of office space in Waltham, Massachusetts under a non-cancelable operating lease agreement. The Company also leases 7,100 square feet of office space in Zug, Switzerland. The Company recognizes rental expense on a straight-line basis over the respective lease term including any free rent periods and tenant allowances. Future minimum rental commitments under the Company’s leased properties as of March 31, 2017 were $4.0 million for the remainder of the year ending December 31, 2017 and $5.6 million, $5.6 million, $2.9 million and $0.2 million for the years ending December 31, 2018, 2019, 2020 and 2021 respectively. No amounts are due thereafter. The Company has entered into agreements with certain vendors for the provision of services, including services related to data management, clinical and commercial operation support and diagnostic test development, that the Company is not able to terminate for convenience under its contracts, and thus avoid any and all future obligations to the vendors. Under such agreements, the Company is contractually obligated to make certain minimum payments to the vendors, with the exact amounts in the event of termination to be based on the timing of the termination and the exact terms of the agreement. The Company has certain obligations under licensing agreements with third parties that are contingent upon achieving various development, regulatory and commercial milestones. Pursuant to these license agreements, the Company is required to make milestone payments if certain development, regulatory and commercial sales milestones are achieved, and may have certain additional research funding obligations. Also, pursuant to the terms of each of these license agreements, when and if commercial sales of a product commence, the Company will pay royalties to its licensors on net sales of the respective products. Legal Proceedings The Company may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which the Company is focused. The Company is not a party to any material litigation and does not have contingency reserves established for any litigation liabilities.

Revenue Recognition

Revenue Recognition	3 Months Ended
	Mar. 31, 2017
Revenue recognition
Revenue Recognition	11. Revenue Recognition Product Revenue, Net The Company sells its products principally to a limited number of specialty distributors and specialty pharmacy providers in the U.S., or collectively, its Customers. These Customers subsequently resell the Company’s products to health care providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products. Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer. When the Company performs shipping and handling activities after the transfer of control to the Customer (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less. Reserves for Variable Consideration Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the Company’s sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the Customer) or a current liability (if the amount is payable to a party other than a Customer). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known. Trade Discounts and Allowances: The Company generally provides Customers with discounts which include incentive fees that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order management, data and distribution services from certain Customers. To the extent the services received are distinct from the Company’s sale of products to the Customer, these payments are classified in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss of the Company. Product Returns: Consistent with industry practice, the Company generally offers Customers a limited right of return for product that has been purchased from the Company based on the product’s expiration date, which lapses upon shipment to a patient. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using available industry data and its own historical sales information, including its visibility into the inventory remaining in the distribution channel. The Company has not received any returns to date and believes that returns of its products will be minimal. Provider Chargebacks and Discounts: Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed but for which the Company has not yet issued a credit. Government Rebates: The Company is subject to discount obligations under state Medicaid programs and Medicare. The Company estimates its Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the consolidated balance sheet. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. Payor Rebates: The Company contracts with various private payor organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Other Incentives: Other incentives which the Company offers include voluntary patient assistance programs, such as co-pay assistance programs which are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. To date, the Company’s only source of product revenue has been from the U.S. sales of the oral formulation of VARUBI, which it began shipping to Customers in November 2015. The following table summarizes activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2016 (as revised) and 2017 (in thousands): Chargebacks, discounts and fees Government and other rebates Returns Total Balance at December 31, 2015 $ 813 $ 422 $ 8 $ 1,243 Provision related to current period sales 82 50 - 132 Adjustment related to prior period sales - - - - Credit or payments made during the period (9) (24) - (33) Balance at March 31, 2016 $ 886 $ 448 $ 8 $ 1,342 Balance at December 31, 2016 177 1,312 18 1,507 Provision related to current period sales 736 562 8 1,306 Adjustment related to prior period sales - - - - Credit or payments made during the period (756) (1,157) - (1,913) Balance at March 31, 2017 $ 157 $ 717 $ 26 $ 900 License, Collaboration and Other Revenues The Company enters into out-licensing agreements which are within the scope of Topic 606, under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides through its contract manufacturers; and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Milestone Payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. If the Company is entitled to additional payments when the customer exercises these options , any additional payments are recorded in license, collaboration and other revenues when the customer obtains control of the goods, which is upon delivery. Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its out-licensing arrangements. The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. The following table presents changes in the Company’s contract assets and liabilities during the three months ended March 31, 2016 (as revised) and 2017 (in thousands): Balance at Beginning of Period Additions Deductions Balance at End of Period Three months ended March 31, 2016 Contract assets $ 1,000 $ - $ - $ 1,000 Contract liabilities: Deferred revenue $ 92 $ - $ (15) $ 77 Three months ended March 31, 2017 Contract assets $ 1,000 $ - $ - $ 1,000 Contract liabilities: Deferred revenue $ 399 $ - $ (23) $ 376 During the three months ended March 31, 2016 (as revised) and 2017, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods (in thousands): Three Months Ended March 31, Revenue recognized in the period from: 2016 2017 Amounts included in the contract liability at the beginning of the period $ 15 $ 23 Performance obligations satisfied in previous periods $ - $ -

License and Collaboration Arran

License and Collaboration Arrangements	3 Months Ended
	Mar. 31, 2017
License and Collaboration Arrangements
License and Collaboration Arrangements	12. License and Collaboration Arrangements Out-Licenses Janssen Biotech, Inc. On April 5, 2016, the Company entered into separate transactions with Janssen Biotech, Inc., or Janssen, and its affiliate, Johnson & Johnson Innovation – JJDC, Inc., or JJDC, consisting of a collaboration and license agreement with Janssen, or the Collaboration Agreement, and a stock purchase agreement and investor agreement, each with JJDC (the “Stock Purchase Agreement” and the “Investor Agreement,” respectively, and collectively with the Collaboration Agreement, the “Agreements”). Under the terms of the Collaboration Agreement, the Company granted Janssen licenses under certain patent rights and know-how relating to niraparib for prostate cancer worldwide, except for Japan. Janssen will conduct all development and commercialization of niraparib in the field of prostate cancer worldwide (excluding Japan). With the exception of China, under the Collaboration Agreement, the Company retained all rights worldwide to develop and commercialize niraparib outside of prostate cancer. Pursuant to the Collaboration Agreement, within 30 days after the date of the Collaboration Agreement, the Company provided Janssen with electronic copies of certain know-how relating to development of niraparib. In addition, at Janssen’s request and in return for certain reimbursement, the Company is also responsible for manufacturing and supplying to Janssen all of Janssen’s requirements of active pharmaceutical ingredient, or API, for niraparib and niraparib products to be used by Janssen for its development activities in prostate cancer indications. Also at Janssen’s request, the Company is responsible for manufacturing of certain niraparib products and API for commercial sale in the field of prostate cancer. In both cases, if Janssen exercises its right to receive the manufacturing services, the Company will receive reimbursement that will at least cover its cost of providing such services. The Company received a $35.0 million up-front, non-refundable license fee from Janssen. Assuming successful development and commercialization of niraparib products for prostate cancer, the Company could receive up to an additional $43.0 million in clinical milestones and $372.0 million in regulatory and sales milestones as well as tiered, double-digit royalties on aggregate net sales of products in the field of prostate cancer. Janssen is responsible for funding all development and commercialization of niraparib in prostate cancer worldwide (excluding Japan), including research, development, manufacturing, regulatory and commercialization activities. Janssen may terminate the Collaboration Agreement at any time after April 5, 2017 upon 90 days’ written notice, upon termination of the Company’s license agreement with Merck or in the event of certain safety concerns. Either party may terminate the Collaboration Agreement for uncured material breach or bankruptcy. Unless earlier terminated, the Collaboration Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired. The Company assessed this arrangement in accordance with Topic 606 and concluded that the contract counterparty, Janssen, is a customer. The Company identified the following material promises under the contract: (1) the licenses under certain patent rights relating to niraparib for prostate cancer worldwide, except for Japan, and transfer of certain development and regulatory information; and (2) the obligation to participate in Joint Committees. In addition, the Company identified the following customer options that will create manufacturing obligations for the Company upon exercise by Janssen: (1) the supply of API and niraparib products for Janssen’s development and commercial needs; and (2) the supply of niraparib for Janssen’s clinical trial needs. The Company considered the manufacturing capabilities of Janssen, Janssen’s right to sublicense and manufacture API, and the fact that the manufacturing services are not proprietary and can be provided by other vendors, to conclude that the license has stand-alone functionality and is distinct. The Company’s obligation to participate in the Joint Committees and provide development, regulatory and commercialization information to Janssen does not significantly impact or modify the licenses’ granted functionality. Further, the customer options for manufacturing services were evaluated as a material right, but were concluded to be immaterial to the Company’s financial statements. Based on these assessments, the Company identified the license and the participation in Joint Committees as the only performance obligations at the inception the arrangement, which were both deemed to be distinct. Under the Collaboration Agreement, in order to evaluate the appropriate transaction price, the Company determined that the up-front amount constituted the entirety of the consideration to be included in the transaction price and to be allocated to the performance obligations based on the Company’s best estimate of their relative stand-alone selling prices. For the license, the stand-alone selling price was calculated using an income approach model and included the following key assumptions: the development timeline, revenue forecast, discount rate and probabilities of technical and regulatory success. The relative selling price of the Company’s Joint Committee participation was based on a full-time equivalent rate for the level of effort required, which can be reasonably estimated to be incurred over the performance period, which is the development period. The Company believes that a change in the assumptions used to determine its best estimate of selling price for the license most likely would not have a significant effect on the allocation of consideration received (or receivable) to the performance obligations. The transaction price includes only the $35.0 million up-front consideration received. None of the clinical or regulatory milestones has been included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the licensees’ efforts. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Janssen and therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. During the second quarter of 2016, the Company allocated $34.5 million of the transaction price to the license and recognized this amount as revenue concurrent with the transfer of the license and certain development and regulatory know-how that occurred within 30 days of entering into the Collaboration Agreement. Revenue allocated to the participation in the Joint Committees performance obligation, $0.5 million, is being recognized on a straight-line basis over a period of five years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best estimate of the period of the obligation to participate in the Joint Committees. Through March 31, 2017, the Company had recognized $34.6 million as license and collaboration revenue under the Collaboration Agreement. The remaining transaction price of $0.4 million is recorded in deferred revenue as of March 31, 2017 on the consolidated balance sheets and will be recognized as revenue over a period of forty-eight months. Revenue associated with the manufacturing supply services is recognized when the material is delivered to Janssen. Through March 31, 2017, the Company had recognized $2.7 million as other revenues within license, collaboration and other revenues in the Company’s consolidated statements of operations and comprehensive loss under the Collaboration Agreement. Additionally, the Company considered whether the Stock Purchase Agreement and the Investor Agreement with JJDC would be subject to combination with the Collaboration Agreement. The Company determined that they should not be combined because the deliverables and terms in these arrangements are not closely interrelated or interdependent in terms of payment or functionality, the arrangements were negotiated separately, and the common stock was sold at approximately its fair value. Zai Lab (Shanghai) Co., Ltd. On September 28, 2016, or the Effective Date, the Company entered into a Collaboration, Development and License Agreement, or the Zai Agreement, with Zai Lab. Under the terms of the Zai Agreement, the Company exclusively licensed the rights to develop and commercialize niraparib to Zai Lab for the China Territories. Zai Lab will conduct all development and commercialization of niraparib in the China Territories, except for prostate cancer. The Company retains all rights outside of the China Territories to develop and commercialize niraparib with the exception of prostate cancer. Under the terms of the Zai Agreement, the Company received a $15.0 million up-front, non-refundable license fee from Zai Lab in the fourth quarter of 2016. Assuming successful development and commercialization of niraparib products in the China Territories, the Company could receive additional regulatory and sales milestones as well as tiered, double-digit royalties on aggregate net sales of products in the China Territories. Zai Lab is responsible for funding all development and commercialization of niraparib in the China Territories, including research, development, manufacturing, regulatory and commercialization activities. The term of the Zai Agreement continues, on a country-by-country basis, until the later of expiration of the last patent in the China Territories covering the niraparib product, or ten years from the first commercial sale in such country. The Zai Agreement may also be terminated by Zai Lab at any time upon prior written notice, or by either party for material breach or insolvency. The Company identified the following performance obligations under the contract: (1) exclusive license with rights to develop and commercialize niraparib to Zai Lab for the China Territories; (2) provision of technical assistance related to the know-how transfer for the development of niraparib; and (3) initial supply to Zai Lab of certain materials for the manufacture of niraparib. In addition, the Company may also become responsible for manufacturing of certain niraparib products and materials for commercial sale in certain instances based on regulatory requirements in the China Territories for which the Company will receive reimbursement that approximates stand-alone selling price. The Zai Agreement also provides the Company with an option to co-market niraparib in the China Territories with Zai Lab, in return for certain consideration. This co-marketing right must be exercised by the Company no later than twelve months prior to the launch of niraparib in the China Territories. In addition, the Zai Agreement provides the Company with a right of first refusal with respect to licenses for two novel, discovery-stage immuno-oncology programs from Zai Lab. The Company evaluated the Zai Agreement under Topic 606. Based on that evaluation, the up-front, non-refundable fees and the reimbursement received for the initial supply of materials constituted the amount of the consideration to be included in the transaction price and have been allocated to the performance obligations identified based on the Company’s best estimate of the relative stand-alone selling price. None of the clinical or regulatory development milestones have been included in the transaction price, as all such milestone amounts are not within the control of the Company or the licensee and are not considered probable to occur until those approvals are received. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Zai Lab and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur. The Company concluded the option to co-market niraparib is not a repurchase right as Zai Lab would continue to control its rights to commercialize niraparib in its licensed territories if the Company exercised its right. The Company further assessed and concluded that the probability of exercise of this right is remote, and the transaction price received and described above was properly allocated to the performance obligations under this agreement and recognized to revenue as those performance obligations were satisfied by the Company. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. During the third quarter of 2016, the Company allocated $14.8 million of the transaction price to the license and recognized this amount as revenue concurrent with the transfer of the license. Revenue allocated to the technical assistance performance obligation, $0.2 million, was recognized on a straight-line basis through the service period which was substantially completed during the fourth quarter of 2016. In addition, revenue associated with the initial manufacturing supply services was recognized upon delivery of the materials during the fourth quarter of 2016. Through both December 31, 2016 and March 31, 2017, the Company has recognized $15.7 million as revenues within license, collaboration and other revenues in the Company’s consolidated statements of operations and comprehensive loss under the Zai Agreement. Jiangsu Hengrui Medicine Co., Ltd. In July 2015, the Company entered into a license agreement with Jiangsu Hengrui Medicine Co., Ltd., or Hengrui, pursuant to which Hengrui has licensed the rights to develop, manufacture and commercialize rolapitant in the China Territories. The Company received a $1.0 million up-front, non-refundable license fee from Hengrui in the fourth quarter of 2015. The Company has evaluated the terms of this arrangement under Topic 606 and has determined that there are two performance obligations: (1) exclusive license with rights to develop, manufacture and commercialize rolapitant in the China Territories; and (2) provision of technical assistance related to the know-how transfer for the development of the rolapitant formulations. The Company further determined that the transaction price for this arrangement includes the $1.0 million up-front consideration received and a future regulatory development milestone of $1.0 million. This future milestone payment relates to the submission of the clinical trial application with the China FDA. The Company is also entitled to an additional payment of $1.0 million contingent on the achievement of regulatory approval. However, as this milestone is not within the control of the Company or Hengrui, the amount has not been included in the transaction price by the Company. Any consideration related to sales-based milestones (including royalties at percentage rates in the low teens) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Hengrui. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. During the third quarter of 2015, the Company allocated $1.9 million of the transaction price to the license and recognized this amount as revenue concurrent with the transfer of the license. Revenue allocated to the technical assistance performance obligation, $0.1 million, was recognized on a straight-line basis through the service period and was substantially completed during the fourth quarter of 2016. Through both December 31, 2016 and March 31, 2017, the Company has recognized $2.0 million as revenues within license, collaboration and other revenues in the Company’s consolidated statements of operations and comprehensive loss under this agreement. Merck Collaboration In May 2015, the Company entered into a research agreement with Merck Sharp & Dohme B.V., a subsidiary of Merck, to perform a trial to evaluate the preliminary safety and efficacy of niraparib plus KEYTRUDA® in patients with triple negative breast cancer and patients with ovarian cancer. Under the terms of this agreement, the Company is responsible for providing niraparib study materials and for carrying out clinical research activities. The Company and Merck share in the external costs of the study equally, with certain exceptions. The Company records cost-sharing payments due from Merck as reductions of research and development expense. During the three months ended March 31, 2016 and 2017, the Company incurred $0.8 million and $2.1 million in external costs related to this study, of which $0.4 million and $1.0 million is reimbursable by Merck, respectively. At March 31, 2017, $1.1 million of cost-sharing receivable from Merck has been recorded in other current assets on the condensed consolidated balance sheets.

Basis of Presentation and Sig18

Basis of Presentation and Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 31, 2017
Basis of Presentation and Significant Accounting Policies
Basis of Presentation	Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared by TESARO in conformity with accounting principles generally accepted in the United States of America, or GAAP. Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. See “ New Accounting Pronouncements - Recently Adopted ” below for discussion of the Company’s adoption of new revenue recognition guidance retroactive to January 1, 2015. Otherwise, these reclassifications had no significant effects on the previously reported net loss. The Company’s condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently operates in one business segment, which is the identification, acquisition, development and commercialization of oncology-related therapeutics, and has a single reporting and operating unit structure. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods ended March 31, 2016 and 2017. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2016 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2017 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2016 Annual Report on Form 10-K and are updated below as necessary.
Use of Estimates	Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to net product revenues, license, collaboration and other revenues, accrued clinical trial and manufacturing development expenses, stock-based compensation expense, inventory and intangible assets and related amortization. Significant estimates in these condensed consolidated financial statements include estimates made in connection with accrued research and development expenses, stock-based compensation expense, revenue, valuation of convertible notes, intangible assets and related amortization. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
Revenue Recognition	Revenue Recognition Effective January 1, 2017, the Company adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers , using the full retrospective transition method. Under this method, the Company will revise its consolidated financial statements for the years ended December 31, 2015 and 2016, and applicable interim periods within those years, as if Topic 606 had been effective for those periods. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue and license, collaboration and other revenues, see Note 11, “Revenue Recognition”.
Intangible Assets	Intangible Assets The Company maintains definite-lived intangible assets related to certain capitalized milestones. These assets are amortized over their remaining useful lives, which are estimated to be the remaining patent life. If the Company’s estimate of the product’s useful life is shorter than the remaining patent life, then the shorter period is used. Intangible assets are amortized using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when future revenues cannot be reasonably estimated. Amortization expense is recorded as a component of cost of sales in the condensed consolidated statements of operations. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the condensed consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value of the intangible asset and recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value.

Basis of Presentation and Sig19

Basis of Presentation and Significant Accounting Policies (Tables)	3 Months Ended
	Mar. 31, 2017
Basis of Presentation and Significant Accounting Policies
Schedule of company's financial assets and liabilities that have been measured at fair value and indicating the fair value hierarchy of the valuation inputs utilized to determine such fair value:	The following table presents information about the Company’s financial assets and liabilities that have been measured at fair value as of December 31, 2016 and March 31, 2017 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands): December 31, 2016 Description Balance Sheet Classification Total Level 1 Level 2 Level 3 Assets: Money market funds Cash and cash equivalents $ 776,186 $ 776,186 $ — $ — Total assets $ 776,186 $ 776,186 $ — $ — March 31, 2017 Description Balance Sheet Classification Total Level 1 Level 2 Level 3 Assets: Money market funds Cash and cash equivalents $ 637,445 $ 637,445 $ — $ — Total assets $ 637,445 $ 637,445 $ — $ —
Summary of impact to Company's condensed consolidated Statements of Operations and Comprehensive Loss,Cash Flows,Balance sheet for early adoption of Accounting Standard Update	Condensed Consolidated Statements of Operations and Comprehensive Loss Three months ended March 31, 2016 (in thousands, except per share data) As revised under Topic 606 As originally reported under Topic 605 Effect of change Product revenue, net $ 276 $ 173 $ 103 License, collaboration and other revenues 24 134 (110) Cost of sales - product 79 76 3 Loss from operations (87,101) (87,091) (10) Net loss (90,980) (90,970) (10) Net loss per share applicable to common stockholders - basic and diluted $ (2.22) $ (2.22) $ - Condensed Consolidated Balance Sheets December 31, 2016 (in thousands) As revised under Topic 606 As originally reported under Topic 605 Effect of change Accounts receivable $ 6,195 $ 5,343 $ 852 Other current assets 10,515 8,919 1,596 Accrued expenses 68,700 68,271 429 Deferred revenue, current 95 288 (193) Deferred revenue, non-current 305 — 305 Customer deposit — 15,000 (15,000) Accumulated deficit $ (973,761) $ (990,668) $ 16,907 Condensed Consolidated Statement of Cash Flows Three months ended March 31, 2016 (in thousands) As revised under Topic 606 As originally reported under Topic 605 Effect of change Net loss $ (90,980) $ (90,970) $ (10) Adjustments to reconcile net loss to net cash used in operating activities: Accounts receivable 2,561 (377) 2,938 Other assets (656) (282) (374) Accrued expenses 3,923 3,725 198 Deferred revenues (15) 2,737 (2,752) Cash and cash equivalents at beginning of period 230,146 — Cash and cash equivalents at end of period $ $ 314,460 $ —

Net Loss per Share (Tables)

Net Loss per Share (Tables)	3 Months Ended
	Mar. 31, 2017
Net Loss per Share
Schedule of share amount excluded from the calculation of diluted net loss per share, prior to the use of the treasury stock method, due to their anti-dilutive effect	The following table presents amounts that were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect (in thousands): Three Months Ended March 31, 2016 2017 Outstanding stock awards and Employee Stock Purchase Plan 7,068 7,366 Unvested restricted stock units 537 1,093 Shares issuable upon conversion of Convertible Notes 20 4,186 7,625 12,645

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Mar. 31, 2017
Inventories
Schedule of current inventories	The following table presents inventories as of December 31, 2016 and March 31, 2017 (in thousands): December 31, March 31, 2016 2017 Raw materials $ 13,263 $ 13,165 Work in process 584 1,736 Finished goods 853 742 Total inventories $ 14,700 $ 15,643

Convertible Notes (Tables)

Convertible Notes (Tables)	3 Months Ended
	Mar. 31, 2017
Convertible Notes.
Schedule of convertible note interest expense	The following table presents total interest expense recognized related to the Convertible Notes during the three months ended March 31, 2016 and 2017 (in thousands): Three Months Ended March 31, 2016 2017 Contractual interest expense $ 1,509 $ 1,509 Amortization of debt discount 2,315 2,615 Amortization of debt issuance costs 157 143 Total interest expense $ 3,981 $ 4,267

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	3 Months Ended
	Mar. 31, 2017
Stock-Based Compensation
Schedule of stock-based compensation expense as reflected in the Company's condensed consolidated statements of operations and comprehensive loss	The following table presents stock-based compensation expense as reflected in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands): Three Months Ended March 31, 2016 2017 Research and development $ 3,743 $ 7,125 Selling, general and administrative 5,718 11,276 Total stock-based compensation expense $ 9,461 $ 18,401
Summary of the Company's stock option activity and related information	Weighted-average exercise price per Shares share Outstanding at December 31, 2016 6,978,621 $ 40.65 Granted 491,590 167.45 Exercised (78,251) 42.59 Cancelled (44,280) 45.22 Outstanding at March 31, 2017 7,347,680 $ 49.09 Vested at March 31, 2017 3,634,361 $ 26.90
Summary of the Company's restricted stock unit (RSU) activity and related information	Weighted-average grant date fair Shares value per share Unvested restricted stock units at December 31, 2016 760,123 $ 58.55 Granted 455,975 173.77 Vested (116,006) 43.88 Forfeited (7,075) 56.54 Unvested restricted stock units at March 31, 2017 1,093,017 $ 108.19

Intangible Asset (Tables)

Intangible Asset (Tables)	3 Months Ended
	Mar. 31, 2017
Intangible Assets
Schedule of finite-lived intangible assets	The following table presents intangible assets as of December 31, 2016 and March 31, 2017 (in thousands): December 31, March 31, 2016 2017 Estimated useful life Acquired and in-licensed rights $ 15,000 $ 40,000 8-13 Years Less accumulated amortization (2,123) (2,613) Total intangible asset, net $ 12,877 $ 37,387

Revenue Recognition (Tables)

Revenue Recognition (Tables)	3 Months Ended
	Mar. 31, 2017
Revenue recognition
Summary of activity in each of the product revenue allowance and reserve categories	The following table summarizes activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2016 (as revised) and 2017 (in thousands): Chargebacks, discounts and fees Government and other rebates Returns Total Balance at December 31, 2015 $ 813 $ 422 $ 8 $ 1,243 Provision related to current period sales 82 50 - 132 Adjustment related to prior period sales - - - - Credit or payments made during the period (9) (24) - (33) Balance at March 31, 2016 $ 886 $ 448 $ 8 $ 1,342 Balance at December 31, 2016 177 1,312 18 1,507 Provision related to current period sales 736 562 8 1,306 Adjustment related to prior period sales - - - - Credit or payments made during the period (756) (1,157) - (1,913) Balance at March 31, 2017 $ 157 $ 717 $ 26 $ 900
Summary of changes in the balances of the contract assets and liabilities	Balance at Beginning of Period Additions Deductions Balance at End of Period Three months ended March 31, 2016 Contract assets $ 1,000 $ - $ - $ 1,000 Contract liabilities: Deferred revenue $ 92 $ - $ (15) $ 77 Three months ended March 31, 2017 Contract assets $ 1,000 $ - $ - $ 1,000 Contract liabilities: Deferred revenue $ 399 $ - $ (23) $ 376
Schedule of revenue recognized due to changes in contract asset and contract liability balances	Three Months Ended March 31, Revenue recognized in the period from: 2016 2017 Amounts included in the contract liability at the beginning of the period $ 15 $ 23 Performance obligations satisfied in previous periods $ - $ -

Description of Business (Detail

Description of Business (Details)	3 Months Ended
	Mar. 31, 2017segment
Description of Business
Number of operating segments	1

Basis of Presentation and Sig27

Basis of Presentation and Significant Accounting Policies - Fair Value and Convertible Senior Notes (Details) - USD ($) $ in Thousands	1 Months Ended
	Sep. 30, 2014	Mar. 31, 2017	Dec. 31, 2016	Sep. 29, 2014
Convertible Senior Notes
Net carrying amount		$ 134,500
Fair value of principal amount		892,800
Convertible senior notes due October 2021
Convertible Senior Notes
Proceeds from issuance of convertible notes	$ 201,300
Interest rate (as a percent)	3.00%			3.00%
Net carrying amount		134,500
Fair value of principal amount		892,800
Fair Value, Measurements, Recurring
Financial Assets and Liabilities Measured At Fair Value
Total assets		637,445	$ 776,186
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1
Financial Assets and Liabilities Measured At Fair Value
Total assets		637,445	776,186
Money Market Funds | Fair Value, Measurements, Recurring
Financial Assets and Liabilities Measured At Fair Value
Cash and cash equivalents		637,445	776,186
Money Market Funds | Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1
Financial Assets and Liabilities Measured At Fair Value
Cash and cash equivalents		$ 637,445	$ 776,186

Basis of Presentation and Sig28

Basis of Presentation and Significant Accounting Policies - New Accounting Pronouncements - Recently Adopted (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Revised Statements of Operations and Comprehensive Loss
Product revenue, net	$ 2,139	$ 276
License revenue	934	24
Cost of sales - product	444	79
Loss from operations	133,245	87,101
Net loss	$ (136,725)	$ (90,980)
Net loss per share applicable to common stockholders - basic and diluted (in dollars per share)	$ (2.55)	$ (2.22)
Revised Statement of Financial Position
Accounts receivable	$ 6,061		$ 6,195
Other current assets	13,625		10,515
Accrued expenses	68,975		68,700
Deferred revenue, current	95		95
Deferred revenue, non-current	282		305
Accumulated deficit	(1,110,486)		(973,761)
Revised Statement of Cash Flow
Net loss	(136,725)	$ (90,980)
Adjustments to reconcile net loss to net cash used in operating activities:
Accounts receivable	134	2,561
Other assets	(3,462)	(656)
Accrued expenses	(1,847)	3,923
Deferred revenues	(22)	(15)
Cash and cash equivalents at beginning of period	785,877	230,146
Cash and cash equivalents at end of period	672,239	314,460
Accounting Standards Updates 2016-09
Revised Statements of Operations and Comprehensive Loss
Product revenue, net		276
License revenue		24
Cost of sales - product		79
Loss from operations		87,101
Net loss		$ (90,980)
Net loss per share applicable to common stockholders - basic and diluted (in dollars per share)		$ (2.22)
Revised Statement of Financial Position
Accounts receivable			6,195
Other current assets			10,515
Accrued expenses			68,700
Deferred revenue, current			95
Deferred revenue, non-current			305
Accumulated deficit			(973,761)
Revised Statement of Cash Flow
Net loss		$ (90,980)
Adjustments to reconcile net loss to net cash used in operating activities:
Accounts receivable		2,561
Other assets		(656)
Accrued expenses		3,923
Deferred revenues		(15)
Cash and cash equivalents at beginning of period		230,146
Cash and cash equivalents at end of period		314,460
Effect of change | Accounting Standards Updates 2016-09
Revised Statements of Operations and Comprehensive Loss
Product revenue, net		103
License revenue		(110)
Cost of sales - product		3
Loss from operations		10
Net loss		(10)
Revised Statement of Financial Position
Accounts receivable			852
Other current assets			1,596
Accrued expenses			429
Deferred revenue, current			(193)
Deferred revenue, non-current			305
Customer deposit			(15,000)
Accumulated deficit			16,907
Revised Statement of Cash Flow
Net loss		(10)
Adjustments to reconcile net loss to net cash used in operating activities:
Accounts receivable		2,938
Other assets		(374)
Accrued expenses		198
Deferred revenues		(2,752)
As originally reported under Topic 605 | Accounting Standards Updates 2016-09
Revised Statements of Operations and Comprehensive Loss
Product revenue, net		173
License revenue		134
Cost of sales - product		76
Loss from operations		87,091
Net loss		$ (90,970)
Net loss per share applicable to common stockholders - basic and diluted (in dollars per share)		$ (2.22)
Revised Statement of Financial Position
Accounts receivable			5,343
Other current assets			8,919
Accrued expenses			68,271
Deferred revenue, current			288
Customer deposit			15,000
Accumulated deficit			$ (990,668)
Revised Statement of Cash Flow
Net loss		$ (90,970)
Adjustments to reconcile net loss to net cash used in operating activities:
Accounts receivable		(377)
Other assets		(282)
Accrued expenses		3,725
Deferred revenues		2,737
Cash and cash equivalents at beginning of period		230,146
Cash and cash equivalents at end of period		$ 314,460
Collaborative Arrangement | Zai Lab (Shanghai) Co., Ltd.
Impact of Adoption
Previously recognized revenue	0
Impact of potential future payments on transaction price	$ 0

Net Loss per Share (Details)

Net Loss per Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net Loss per Share
Amounts excluded from the calculation of diluted net loss per share due to their anti-dilutive effect	12,645	7,625
Outstanding stock awards and Employee Stock Purchase Plan
Net Loss per Share
Amounts excluded from the calculation of diluted net loss per share due to their anti-dilutive effect	7,366	7,068
Unvested restricted stock units
Net Loss per Share
Amounts excluded from the calculation of diluted net loss per share due to their anti-dilutive effect	1,093	537
Shares issuable upon conversion of Convertible Notes
Net Loss per Share
Amounts excluded from the calculation of diluted net loss per share due to their anti-dilutive effect	4,186	20

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Inventories
Raw materials	$ 13,165	$ 13,263
Work in process	1,736	584
Finished goods	742	853
Total inventories	$ 15,643	$ 14,700

Convertible Notes (Details)

Convertible Notes (Details)	Sep. 29, 2014USD ($)	Mar. 31, 2017USD ($)item$ / shares	Mar. 31, 2016USD ($)	Sep. 30, 2014
Long-term Debt		$ 134,500,000
Convertible Debt, Fair Value Disclosures		892,800,000
Interest expense
Total interest expense		4,267,000	$ 3,981,000
Interest Paid		$ 3,019,000
Convertible senior notes due October 2021
Aggregate principal amount	$ 201,300,000
Capped call transactions payments	$ 20,800,000
Interest rate (as a percent)	3.00%			3.00%
Conversion price per share of convertible notes into common stock | $ / shares		$ 35.13
Convertible notes conversion ratio per 1,000 principal		28.4627
Denominator of the principal amount used in conversion		$ 1,000
Long-term Debt		134,500,000
Convertible Debt, Fair Value Disclosures		892,800,000
Interest expense
Contractual interest expense		1,509,000	1,509,000
Amortization of debt discount		2,615,000	2,315,000
Amortization of debt issuance costs		143,000	157,000
Total interest expense		$ 4,267,000	$ 3,981,000
Convertible senior notes due October 2021 | Conversion of convertible notes into common stock after December 31,2014
Convertible threshold trading days | item		20
Convertible threshold consecutive trading days		30 days
Minimum threshold percentage of stock price trigger		130.00%
Convertible senior notes due October 2021 | Conversion of convertible notes when common share trading price is less than 98% of target ratio
Convertible threshold trading days | item		5
Convertible threshold consecutive trading days		10 days
Denominator of the principal amount for conversion into common stock		$ 1,000
Threshold percentage forcing conversion when less than share price times conversion ratio		98.00%

Stock-Based Compensation - Stoc

Stock-Based Compensation - Stock Compensation Plans (Details) - USD ($) $ in Thousands	Jan. 01, 2017	May 11, 2016	Jan. 01, 2016	Mar. 31, 2017	Mar. 31, 2016	May 14, 2015	Apr. 27, 2012
Restricted Common Stock
Allocated Share-based Compensation Expense				$ 18,401	$ 9,461
Outstanding stock awards and Employee Stock Purchase Plan
Restricted Common Stock
Weighted average period over which unrecognized compensation costs are expected to be recognized				2 years 7 months 6 days
Director Incentive Plan 2015 | Maximum
Stock-Based Compensation
Number of shares authorized for grant under the plan		500,000
Common Stock | Omnibus Incentive Plan 2012
Stock-Based Compensation
Number of shares authorized for grant under the plan							1,428,571
Number of shares available for future grants that were added to the total number of shares reserved for issuance							6,857
Annual increase in common stock available for grant as a percentage of common stock outstanding				4.00%
Number of additional shares authorized under the plan	2,144,867		1,611,191
Common Stock | Director Incentive Plan 2015 | Maximum
Stock-Based Compensation
Number of shares authorized for grant under the plan						500,000
Common Stock | Director Incentive Plan 2015 | Non-employee director | Maximum
Stock-Based Compensation
Maximum Number of shares granted to non-employee director per year		50,000

Stock-Based Compensation - St33

Stock-Based Compensation - Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock-based compensation expense
Total stock-based compensation expense	$ 18,401	$ 9,461
Research and development
Stock-based compensation expense
Total stock-based compensation expense	7,125	3,743
Selling, general and administrative
Stock-based compensation expense
Total stock-based compensation expense	$ 11,276	$ 5,718

Stock-Based Compensation - St34

Stock-Based Compensation - Stock Options (Details) - Outstanding stock awards and Employee Stock Purchase Plan $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2017USD ($)$ / sharesshares
Shares
Outstanding at the beginning of the period (in shares) | shares	6,978,621
Granted (in shares) | shares	491,590
Exercised (in shares) | shares	(78,251)
Cancelled (in shares) | shares	(44,280)
Outstanding at the end of the period (in shares) | shares	7,347,680
Vested at the end of the period (in shares) | shares	3,634,361
Weighted-average price per share
Outstanding at the beginning of the period (in dollars per share) | $ / shares	$ 40.65
Granted (in dollars per share) | $ / shares	167.45
Exercised (in dollars per share) | $ / shares	42.59
Cancelled (in dollars per share) | $ / shares	45.22
Outstanding at the end of the period (in dollars per share) | $ / shares	49.09
Vested at the end of the period (in dollars per share) | $ / shares	$ 26.90
Total unrecognized compensation cost related to unvested stock options (in dollars) | $	$ 143.4
Weighted average period over which unrecognized compensation costs are expected to be recognized	2 years 7 months 6 days

Stock-Based Compensation - Rest

Stock-Based Compensation - Restricted Stock Units (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Weighted-average grant date fair value per share
Stock-based compensation expense	$ 18,401	$ 9,461
Restricted Stock Units
Shares
Unvested RSUs at the beginning of the period (in shares)	760,123
Granted (in shares)	455,975
Vested (in shares)	(116,006)
Forfeited (in shares)	(7,075)
Unvested RSUs at the end of the period (in shares)	1,093,017
Weighted-average grant date fair value per share
Unvested RSUs at the beginning of the period (in dollars per share)	$ 58.55
Granted (in dollars per share)	173.77
Vested (in dollars per share)	43.88
Forfeited (in dollars per share)	56.54
Unvested RSUs at the end of the period (in dollars per share)	$ 108.19
Unrecognized compensation costs	$ 111,400
Weighted average period over which unrecognized compensation costs are expected to be recognized	3 years 4 months 24 days
PBRSUs
Shares
Granted (in shares)	15,000
Vested (in shares)	0
Weighted-average grant date fair value per share
Stock-based compensation expense	$ 500

Stock-Based Compensation - Empl

Stock-Based Compensation - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
ESPP
Stock-based compensation expense	$ 18,401	$ 9,461
2012 ESPP
ESPP
Shares reserved for issuance under ESPP	275,000
Number of shares remaining available for grant	194,245
Stock-based compensation expense	$ 500	$ 300

Common Stock Transactions (Deta

Common Stock Transactions (Details) - Common Stock - Private placement $ / shares in Units, $ in Millions	Mar. 17, 2017	Mar. 31, 2016USD ($)directoritem$ / sharesshares
Number of shares issued | shares		4,404,658
Price per share of common stock | $ / shares		$ 35.19
Number of directors | director		3
Proceeds from issuance of private placement | $		$ 155
Number of days for calculating weighted average price per share	10 days
Number of placement agents used | item		0

Income Taxes (Details)

Income Taxes (Details) $ in Millions	3 Months Ended
	Mar. 31, 2017USD ($)
Income Taxes
Current income tax provision (benefit)	$ 0.1

Intangible Assets (Details)

Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Intangible Assets
Intangible asset - Acquired and in-licensed rights	$ 40,000	$ 40,000		$ 15,000
Less: accumulated amortization	(2,613)	(2,613)		(2,123)
Total intangible asset, net	37,387	37,387		$ 12,877
Amortization expense		500	$ 500
Estimated future amortization expense
2,017	2,800	2,800
2,018	3,800	3,800
2,019	3,800	3,800
2,020	3,800	3,800
2,021	3,800	3,800
Thereafter	19,300	$ 19,300
Merck
Intangible Assets
Milestone payable	$ 25,000
Acquired and in-licensed rights | Minimum
Intangible Assets
Estimated useful life		8 years
Acquired and in-licensed rights | Maximum
Intangible Assets
Estimated useful life		13 years

Commitments and Contingencies (

Commitments and Contingencies (Details) $ in Millions	Mar. 31, 2017USD ($)ft²
Future minimum rental commitments
Remainder of 2017	$ 4
2,018	5.6
2,019	5.6
2,020	2.9
2,021	0.2
Thereafter	$ 0
Waltham Massachusetts
Commitments and Contingencies
Leased office space (in square feet) | ft²	124,000
Zug Switzerland
Commitments and Contingencies
Leased office space (in square feet) | ft²	7,100

Revenue Recognition - Product r

Revenue Recognition - Product revenue allowance and reserve categories (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Activity in each of the product revenue allowance and reserve categories
Balance at the beginning	$ 1,507	$ 1,243
Provision related to current period sales	1,306	132
Credit or payments made during the period	(1,913)	(33)
Balance at the end	900	1,342
Chargebacks, discounts and fees
Activity in each of the product revenue allowance and reserve categories
Balance at the beginning	177	813
Provision related to current period sales	736	82
Credit or payments made during the period	(756)	(9)
Balance at the end	157	886
Government and other rebates
Activity in each of the product revenue allowance and reserve categories
Balance at the beginning	1,312	422
Provision related to current period sales	562	50
Credit or payments made during the period	(1,157)	(24)
Balance at the end	717	448
Returns
Activity in each of the product revenue allowance and reserve categories
Balance at the beginning	18	8
Provision related to current period sales	8
Balance at the end	$ 26	$ 8

Revenue Recognition - contract

Revenue Recognition - contract assets and liabilities (Details) - Up-front payment arrangement - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Contract assets.
Contract assets	$ 1,000	$ 1,000	$ 1,000	$ 1,000
Contract liabilities:
Balance at Beginning of Period	399	92
Deductions	(23)	(15)
Balance at End of Period	$ 376	$ 77

Revenue Recognition - performan

Revenue Recognition - performance of obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Mar. 31, 2016
Out-licensing agreements
Performance of obligations
Amounts included in the contract liability in the beginning of the period	$ 23	$ 15

License and Collaboration Arr44

License and Collaboration Arrangements (Details) $ in Thousands

Sep. 30, 2016

Sep. 28, 2016item

Apr. 05, 2016USD ($)

Jul. 31, 2015USD ($)item

Mar. 31, 2017USD ($)

Dec. 31, 2016USD ($)

Sep. 30, 2016USD ($)

Jun. 30, 2016USD ($)

Mar. 31, 2016USD ($)

Sep. 30, 2015USD ($)

Mar. 31, 2017USD ($)

Dec. 31, 2016USD ($)

Dec. 31, 2015USD ($)

License Agreements

License revenue

$ 15,700

$ 15,700

Research and development expense

66,122

$ 52,709

Zai Lab (Shanghai) Co., Ltd.

License Agreements

Proceeds from License Fees Received

$ 15,000

Jiangsu Hengrui Medicine Co., Ltd.

License Agreements

Upfront payment received

$ 1,000

Proceeds from License Fees Received

$ 1,000

Number of novel, discovery-stage immuno-oncology programs for which the Company has option to negotiate licenses | item

2

License revenue

$ 1,000

Additional milestone payment

$ 1,000

Up-front payment arrangement

License Agreements

Deferred Revenue

376

$ 399

77

$ 376

399

$ 92

Deferred Revenue, Revenue Recognized

23

15

Up-front payment arrangement | Janssen

License Agreements

Upfront payment received

$ 35,000

Research Agreement | Merck

License Agreements

Research and development expense

2,100

800

Cost-sharing receivable

1,000

$ 400

Research Agreement | Other current assets | Merck

License Agreements

Cost-sharing receivable

1,100

Collaborative Arrangement

License Agreements

License revenue

$ 200

Transaction price

$ 14,800

Milestone payments required, if certain research and development milestone events are achieved

2,700

2,700

Collaborative Arrangement | Janssen

License Agreements

Upfront payment received

$ 35,000

Threshold period within which transaction price is recognized as revenue after entering into collaboration agreement

30 days

Collaborative Arrangement | Zai Lab (Shanghai) Co., Ltd.

License Agreements

Expiration period of collaborative arrangement

10 years

Number of clinical or regulatory milestones included in transaction price | item

2

Collaborative Arrangement | Achievement of clinical milestones | Janssen

License Agreements

Potential milestone payments

43,000

Collaborative Arrangement | Achievement of regulatory and sales milestones | Janssen

License Agreements

Potential milestone payments

372,000

Collaborative Arrangement | Achievement of clinical, regulatory and sales milestones | Janssen

License Agreements

Potential milestone payments

$ 0

Collaborative Arrangement | Minimum | Janssen

License Agreements

Termination period

90 days

Collaborative Arrangement | Maximum | Janssen

License Agreements

Period of time to provide electronic copies of know-how relating to development of product

30 days

Collaborative Arrangement | License arrangement | Janssen

License Agreements

Amount of deferred revenue allocated to arrangement

$ 34,500

Collaborative Arrangement | Joint Committee performance obligation arrangement | Janssen

License Agreements

License revenue

34,600

Period for recognizing performance obligation

5 years

Amount of deferred revenue allocated to arrangement

$ 500

Deferred Revenue

$ 400

$ 400

Period by which transaction price will be recognized as revenue

48 months

License Agreement

License Agreements

License revenue

$ 2,000

$ 2,000

Transaction price

$ 1,900

Milestone payments required, if certain research and development milestone events are achieved

$ 100