| Nature of Business and Summary of Significant Accounting Policies | 1. NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Spring Bank Pharmaceuticals, Inc. (the “Company”) is a
clinical-stage biopharmaceutical company engaged in the discovery
and development of a novel class of therapeutics using a
proprietary small molecule nucleic acid hybrid, or SMNH, chemistry
platform. Since inception in 2002 and prior to its initial public
offering in May 2016, the Company built its technology platform and
product candidate pipeline using a semi-virtual business model,
supported by grants and direct funding from the United States
National Institutes of Health (“NIH”) as well as
through private financings. In September 2015, the Company formed a
wholly owned subsidiary, Sperovie Biosciences, Inc.
On May 11, 2016 the Company completed its initial public
offering of 920,000 shares of common stock at a price to the public
of $12.00 per share, resulting in net proceeds of approximately
$10.2 million, after underwriting discounts and commissions, but
before deducting offering-related expenses. In addition, on
June 3, 2016, the Company issued and sold an additional 24,900
shares of common stock at the initial public offering price of
$12.00 per share pursuant to the underwriter’s partial
exercise of their option to purchase additional shares of common
stock, resulting in net proceeds of approximately $275,000, after
underwriting discounts and commissions, but before deducting
offering-related expenses. In connection with the initial closing
of the initial public offering, the Company received approximately
$5.3 million in proceeds upon the exercise of previously issued
warrants to purchase 641,743 shares of common stock of the
Company.
The Company’s success is dependent upon its ability to
successfully complete clinical development and obtain regulatory
approval of its product candidates, successfully commercialize
approved products, generate revenue, and, ultimately, attain
profitable operations.
Basis of Presentation and Liquidity
The accompanying consolidated financial statements have been
prepared in accordance with United States (“U.S.”)
generally accepted accounting principles (“U.S.
GAAP”).
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has
incurred losses from operations and negative operating cash flows
since inception, and expects to incur additional operating losses.
The Company’s current resources include cash resources of
approximately $5,332,000 and marketable securities of $10,313,000
at September 30, 2016. The Company believes that its cash,
cash equivalents and marketable securities will be sufficient to
allow the Company to fund its current operating plan and continue
as a going concern.
The accompanying interim financial statements as of
September 30, 2016 and for the three and nine months ended
September 30, 2016 and 2015, and related interim information
contained within the notes to the financial statements are
unaudited. In management’s opinion, the unaudited interim
consolidated financial statements have been prepared on the same
basis as the audited financial statements and include all
adjustments (including normal recurring adjustments) necessary for
the fair presentation of the Company’s financial position as
of September 30, 2016, results of operations for the three and
nine months ended September 30, 2016 and 2015, and its cash
flows for the nine months ended September 30, 2016 and 2015.
These interim financial statements should be read in conjunction
with the audited financial statements and accompanying notes for
the year ended December 31, 2015 filed with the Securities and
Exchange Commission on May 6, 2016. The results for the three
and nine months ended September 30, 2016 are not necessarily
indicative of the results expected for the full fiscal year or any
interim period.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Sperovie Biosciences, Inc.
Sperovie did not have any assets, liabilities or operations for any
period presented.
Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities
(including clinical trial accruals), the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. The Company bases estimates and assumptions
on historical experience when available and on various factors that
it believes to be reasonable under the circumstances. Significant
estimates relied upon in preparing the accompanying financial
statements related to the fair value of common stock and other
equity instruments, accounting for stock-based compensation, income
taxes, useful lives of long-lived assets, and accounting for
certain accruals. The Company evaluates its estimates and
assumptions on an ongoing basis. The Company’s actual results
may differ from these estimates.
Cash and Cash Equivalents
Cash equivalents are stated at fair value and include short-term,
highly liquid investments with remaining maturities of 90 days or
less at the date of purchase.
Included in cash and cash equivalents as of September 30, 2016
and December 31, 2015 are money market fund investments of
$3,993,000 and $2,422,000 as of September 30, 2016 and
December 31, 2015, respectively, and commercial paper of
$450,000 as of December 31, 2015, which are reported at fair
value (Note 4).
Concentration of Credit Risk
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash, cash
equivalents and marketable securities. Substantially all of the
Company’s cash is held at financial institutions that
management believes to be of high-credit quality. Deposits with
these financial institutions may exceed the amount of insurance
provided on such deposits; however, these deposits may be redeemed
upon demand and, therefore, bear minimal risk.
The Company had one source of revenue, grants from the NIH, during
all periods presented, representing 100% of total revenue for each
period.
Investments in Marketable Securities
The Company invests excess cash balances in short-term and
long-term marketable securities. The Company classifies investments
in marketable securities as either held-to-maturity or
available-for-sale based on facts and circumstances present at the
time of purchase. At each balance sheet date presented, all
investments in securities are classified as available-for-sale. The
Company reports available-for-sale investments at fair value at
each balance sheet date and includes any unrealized holding gains
and losses (the adjustment to fair value) in accumulated other
comprehensive income (loss), a component of stockholders’
equity. Realized gains and losses are determined using the specific
identification method and are included in other income (expense).
If any adjustment to fair value reflects a decline in the value of
the investment, the Company considers all available evidence to
evaluate the extent to which the decline is “other than
temporary,” including the intention to sell and, if so, marks
the investment to market through a charge to the Company’s
consolidated statements of operations and comprehensive loss.
Property and Equipment, Net
Property and equipment are recorded at cost. Costs associated with
maintenance and repairs are expensed as incurred. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives:
Asset Category
Useful Life
Equipment 5-7 years
Furniture and fixtures 5 years
Leasehold improvements
10 years or the remaining term of respective lease, if shorter
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. When such
events occur, the Company compares the carrying amounts of the
assets to their undiscounted expected future cash flows. If the
undiscounted cash flows are insufficient to recover the carrying
value, an impairment loss is recorded for the difference between
the carrying value and fair value of the asset. Through
September 30, 2016, no such impairment has occurred.
Deferred Public Offering Costs
Deferred public offering costs, which primarily consist of direct
and incremental legal and accounting fees relating to the
Company’s initial public offering, are capitalized. As of
December 31, 2015, deferred public offering costs were
$966,000, and recorded in other assets in the accompanying
consolidated balance sheet. In May 2016, in connection with the
consummation of the Company’s initial public offering, total
deferred public offering costs of $2.1 million were fully offset
against proceeds received by the Company in the initial public
offering. There were no deferred public offering costs as of
September 30, 2016.
Deferred Rent
The Company’s operating leases include rent escalation
payment terms and other incentives received from landlords.
Deferred rent represents the difference between actual operating
lease payments due and straight-line rent expense over the term of
the lease, which is recorded in accrued expenses and other current
liabilities. The Company had deferred aggregate rent for its
research and development facility in Milford, Massachusetts and its
headquarters in Hopkinton, Massachusetts of $33,000 and $6,000 as
of September 30, 2016 and December 31, 2015,
respectively.
Revenue Recognition
The Company recognizes revenue when all of the following criteria
are met: there is persuasive evidence of an arrangement, the fee is
fixed or determinable, delivery has occurred or services we
recognized have been rendered and collection of the related
receivable is reasonably assured. Generally, these criteria were
met and revenue from grants from the NIH, which subsidized certain
of our research projects, as efforts were expended and as eligible
project costs were incurred.
Research and Development Costs
Research and development expenses consist primarily of costs
incurred for the Company’s research activities, including
discovery efforts, and the development of product candidates, which
include:
• expenses incurred under agreements
with third parties, including contract research organizations, or
CROs, that conduct research, preclinical activities and clinical
trials on the Company’s behalf as well as contract
manufacturing organizations, or CMOs, that manufacture drug
products for use in the Company’s preclinical and clinical
trials;
• salaries, benefits and other related
costs, including stock-based compensation expense, for personnel in
the Company’s research and development functions;
• costs of outside consultants,
including their fees, stock-based compensation and related travel
expenses;
• the cost of laboratory supplies and
acquiring, developing and manufacturing preclinical study and
clinical trial materials;
• costs related to compliance with
regulatory requirements; and
• facility-related expenses, which
include direct depreciation costs and allocated expenses for rent
and maintenance of facilities and other operating costs.
The Company expenses research and development costs as incurred.
The Company recognizes external development costs based on an
evaluation of the progress to completion of specific tasks using
information provided to the Company by its vendors and its clinical
investigative sites. Payments for these activities are based on the
terms of the individual agreements, which may differ from the
pattern of costs incurred, and are reflected in the Company’s
consolidated financial statements as prepaid or accrued research
and development expenses.
Warrants
The Company reviews the terms of all warrants issued and classifies
the warrants as a component of permanent equity if they are
freestanding financial instruments that are legally detachable and
separately exercisable, contingently exercisable, do not embody an
obligation for the Company to repurchase its own shares, and permit
the holders to receive a fixed number of shares of common stock
upon exercise. In addition, the warrants must require physical
settlement and may not provide any guarantee of value or return.
Warrants that meet these criteria are initially recorded at their
grant date fair value and are not subsequently remeasured.
Stock-Based Compensation
The Company accounts for all stock-based payment awards granted to
employees and nonemployees using a fair value method. The
Company’s stock-based payments include stock options and
grants of common stock, including common stock subject to vesting.
The measurement date for employee awards is the date of grant, and
stock-based compensation costs are recognized as expense over the
employees’ requisite service period, which is the vesting
period, on a straight-line basis. The measurement date for
nonemployee awards is the date the services are completed,
resulting in periodic adjustments to stock-based compensation
during the vesting period for changes in the fair value of the
awards. Stock-based compensation costs for nonemployees are
recognized as expense over the vesting period on a straight-line
basis. Stock-based compensation is classified in the accompanying
consolidated statements of operations and comprehensive loss based
on the department to which the related services are provided.
Financial Instruments
The Company’s financial instruments consist of cash
equivalents, marketable securities, and accounts payable. The
carrying amounts of cash and cash equivalents and accounts payable
approximate their fair value due to the short-term nature of those
financial instruments. The fair value of the marketable securities
are remeasured each reporting period as described in Note 4.
Fair Value Measurements
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. ASC
820, Fair Value
Measurements and Disclosures
Level 1—Valuations based on unadjusted quoted prices in
active markets for identical assets or liabilities that the Company
has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets
or liabilities in markets that are not active or for which all
significant inputs are observable, either directly or
indirectly.
Level 3—Valuations that require inputs that reflect the
Company’s own assumptions that are both significant to the
fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are
less observable or unobservable in the market, the determination of
fair value requires more judgment. Accordingly, the degree of
judgment exercised by the Company in determining fair value is
greatest for instruments categorized in Level 3. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair
value measurement. The Company’s assets and liabilities
measured at fair value on a recurring basis include cash
equivalents and marketable securities.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss attributable to common stockholders per share is
computed by dividing the net loss attributable to common
stockholders by the weighted-average number of shares of common
stock outstanding for the period. Diluted net loss attributable to
common stockholders per share is computed by dividing the net loss
attributable to common stockholders by the weighted-average number
of shares of common stock and dilutive common stock equivalents
outstanding for the period, determined using the treasury-stock
method and the as if-converted method, for convertible securities,
if inclusion of these instruments is dilutive.
In May and June 2016, the Company issued 944,900 shares of common
stock in connection with its initial public offering and 641,743
shares of common stock upon the exercise of outstanding warrants to
purchase common stock of the Company. Additionally, upon the
closing of the initial public offering, all outstanding shares of
the Company’s preferred stock automatically converted into
250,000 shares of the Company’s common stock. The issuance of
these shares resulted in a significant increase in the
Company’s shares outstanding, to 7,767,981 shares as of
September 30, 2016, and weighted average shares outstanding
for the three and nine months ended September 30, 2016, when
compared to the comparable prior year period, is expected to
continue to impact the year-over-year comparability of the
Company’s loss per share calculations through 2017.
Income Taxes
Deferred tax assets and liabilities are determined based upon the
differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities and for loss and
credit carryforwards using enacted tax rates expected to be in
effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance
if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
The Company assesses its income tax positions and records tax
benefits based upon management’s evaluation of the facts,
circumstances and information available at the reporting date. For
those tax positions where it is more likely than not that a tax
benefit will be sustained, the Company records the largest amount
of tax benefit with a greater than 50% likelihood of being realized
upon ultimate settlement with a taxing authority having full
knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax benefit
will be sustained, no tax benefit is recognized in the consolidated
financial statements. The Company classifies interest and penalties
associated with such uncertain tax positions as a component of
interest expense. As of September 30, 2016 and
December 31, 2015, the Company has not identified any material
uncertain tax positions.
Guarantees and Indemnifications
As permitted under Delaware law, the Company indemnifies its
officers and directors for certain events or occurrences while the
officer or director is, or was, serving at the Company’s
request in such capacity.
The Company leases office and laboratory space in Hopkinton,
Massachusetts and Milford, Massachusetts, under non-cancelable
operating leases. The Company has standard indemnification
arrangements under these leases that require it to indemnify the
landlords against any liability for injury, loss, accident, or
damage from any claims, actions, proceedings, or costs resulting
from certain acts, breaches, violations, or nonperformance under
the Company’s lease.
Through September 30, 2016, the Company had not experienced
any losses related to these indemnification obligations and no
material claims were outstanding. The Company does not expect
significant claims related to these indemnification obligations,
and consequently, concluded that the fair value of these
obligations is negligible, and no related reserves were
established.
Segment Information
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision maker, the
Company’s Chief Executive Officer, in making decisions
regarding resource allocation and assessing performance. The
Company views its operations and manages its business in one
operating segment and does not track expenses on a
program-by-program basis.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09- Revenue from Contracts
with Customers (Topic 606) Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going
Concern
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting Compensation—Stock
Compensation | 1. NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Spring Bank Pharmaceuticals, Inc. (the “Company”) is a
clinical-stage biopharmaceutical company engaged in the discovery
and development of a novel class of therapeutics using a
proprietary small molecule nucleic acid hybrid, or SMNH, chemistry
platform. Since inception in 2002, the Company built the technology
platform and product pipeline using a capital-efficient,
semi-virtual business model, supported by grants and direct funding
from the United States National Institutes of Health
(“NIH”) as well as through private financings. In
September 2015, the Company formed a wholly owned subsidiary,
Sperovie Biosciences, Inc.
The Company’s success is dependent upon its ability to
successfully complete clinical development and obtain regulatory
approval of its product candidates, successfully commercialize
approved products, generate revenue, and, ultimately, attain
profitable operations.
Basis of Presentation and Liquidity
The accompanying consolidated financial statements have been
prepared in accordance with United States (“U.S.”)
generally accepted accounting principles (“U.S. GAAP”)
and include all adjustments necessary for the fair presentation of
the Company’s financial position for the periods
presented.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has
incurred losses from operations and negative operating cash flows
since inception, and expects to incur additional operating losses.
The Company believes that its cash resources of approximately
$4,347,000 at December 31, 2015, together with $8,524,000 of
marketable securities at December 31, 2015, will be sufficient
to allow the Company to fund its current operating plan and
continue as a going concern through at least December 31,
2016.
Unaudited Pro Forma Presentation
In July 2015, the Company’s board of directors authorized the
Company to submit a draft registration statement to the Securities
and Exchange Commission (the “SEC”) permitting the
Company to sell shares of its common stock to the public. The
unaudited pro forma balance as of December 31, 2015 on the
consolidated statement of stockholders’ equity, reflects the
automatic conversion of all of the shares of Series A Convertible
Preferred Stock (the “Preferred Stock”) (Note 7) into
250,000 shares of common stock as if it occurred on
December 31, 2015.
Unaudited pro forma net loss per share is computed using the
weighted-average number of shares of common stock outstanding after
giving effect to the conversion of all Preferred Stock for the year
ended December 31, 2015 into shares of the Company’s
common stock as if such conversion had occurred at the beginning of
the applicable period.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Sperovie Biosciences, Inc.
The entity did not have any assets, liabilities or operations as of
December 31, 2015.
Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities
(including clinical trial accruals), the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. The Company bases estimates and assumptions
on historical experience when available and on various factors that
it believes to be reasonable under the circumstances. Significant
estimates relied upon in preparing the accompanying financial
statements related to the fair value of common stock and other
equity instruments, accounting for stock-based compensation, income
taxes, useful lives of long-lived assets, and accounting for
certain accruals. The Company evaluates its estimates and
assumptions on an ongoing basis. The Company’s actual results
may differ from these estimates.
Cash and Cash Equivalents
Cash equivalents are stated at fair value and include short-term,
highly liquid investments with remaining maturities of 90 days or
less at the date of purchase.
Included in cash and cash equivalents as of December 31, 2014
and 2015, are money market fund investments of $650,000 and
$2,422,000, respectively, and commercial paper of $0 and $450,000,
respectively, which are reported at fair value (Note 4).
Concentration of Credit Risk
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash
equivalents. Substantially all of the Company’s cash is held
at financial institutions that management believes to be of
high-credit quality. Deposits with these financial institutions may
exceed the amount of insurance provided on such deposits; however,
these deposits may be redeemed upon demand and, therefore, bear
minimal risk.
The Company had one source of revenue, grants from the NIH, during
all periods presented, representing 100% of total revenue for each
period.
Investments in Marketable Securities
The Company invests excess cash balances in short-term and
long-term marketable securities. The Company classifies investments
in marketable securities as either held-to-maturity or
available-for-sale based on facts and circumstances present at the
time of purchase. At each balance sheet date presented, all
investments in securities are classified as available-for-sale. The
Company reports available-for-sale investments at fair value at
each balance sheet date and includes any unrealized holding gains
and losses (the adjustment to fair value) in accumulated other
comprehensive income (loss), a component of stockholders’
equity. Realized gains and losses are determined using the specific
identification method and are included in other income. If any
adjustment to fair value reflects a decline in the value of the
investment, the Company considers all available evidence to
evaluate the extent to which the decline is “other than
temporary,” including the intention to sell and, if so, marks
the investment to market through a charge to the Company’s
consolidated statements of operations and comprehensive loss.
Property and Equipment, Net
Property and equipment are recorded at cost. Costs associated with
maintenance and repairs are expensed as incurred. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives:
Asset Category
Useful Life
Equipment 5-7 years
Furniture and fixtures 5 years
Leasehold improvements
10 years or the remaining term of respective lease, if shorter
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. When such
events occur, the Company compares the carrying amounts of the
assets to their undiscounted expected future cash flows. If the
undiscounted cash flows are insufficient to recover the carrying
value, an impairment loss is recorded for the difference between
the carrying value and fair value of the asset. To date, no such
impairment has occurred.
Deferred Financing and Public Offering Costs
Financing costs incurred in connection with the issuance and sale
of the Company’s convertible notes and warrants (see Note 6)
were capitalized and amortized to interest expense over the term of
the convertible notes issued using the effective interest method.
Amortization of deferred financing costs were $704,000 and $0 in
the years ended December 31, 2014 and 2015, respectively. As
of December 31, 2014 and 2015, there were no such costs
remaining on the consolidated balance sheets.
Deferred public offering costs, which primarily consist of direct
and incremental legal and accounting fees relating to the public
offering, are capitalized. The deferred public offering costs will
be offset against public offering proceeds upon the consummation of
the offering. In the event the offering is terminated, or
significantly delayed, deferred costs will be expensed. No amounts
were deferred as of December 31, 2014. As of December 31,
2015, $966,000 of deferred public offering costs were recorded in
other assets in the accompanying consolidated balance sheet.
Deferred Rent
The Company’s operating lease includes rent escalation
payment terms and other incentives received from landlords.
Deferred rent represents the difference between actual operating
lease payments due and straight-line rent expense over the term of
the lease, which is recorded in accrued expenses and other current
liabilities. Deferred rent was $7,000 and $6,000 as of
December 31, 2014 and 2015, respectively.
Revenue Recognition
The Company recognizes revenue when all of the following criteria
are met: there is persuasive evidence of an arrangement, the fee is
fixed or determinable, delivery has occurred or services have been
rendered and collection of the related receivable is reasonably
assured. Generally, these criteria are met and revenue from grants
from the NIH, which subsidizes certain of our research projects, is
recognized as efforts are expended and as eligible project costs
are incurred.
Research and Development Costs
Research and development expenses consist primarily of costs
incurred for the Company’s research activities, including
discovery efforts, and the development of product candidates, which
include:
• expenses incurred under agreements
with third parties, including contract research organizations, or
CROs, that conduct research, preclinical activities and clinical
trials on the Company’s behalf as well as contract
manufacturing organizations, or CMOs, that manufacture drug
products for use in the Company’s preclinical and clinical
trials;
• salaries, benefits and other related
costs, including stock-based compensation expense, for personnel in
the Company’s research and development functions;
• costs of outside consultants,
including their fees, stock-based compensation and related travel
expenses;
• the cost of laboratory supplies and
acquiring, developing and manufacturing preclinical study and
clinical trial materials;
• costs related to compliance with
regulatory requirements; and
• facility-related expenses, which
include direct depreciation costs and allocated expenses for rent
and maintenance of facilities and other operating costs.
The Company expenses research and development costs as incurred.
The Company recognizes external development costs based on an
evaluation of the progress to completion of specific tasks using
information provided to the Company by its vendors and its clinical
investigative sites. Payments for these activities are based on the
terms of the individual agreements, which may differ from the
pattern of costs incurred, and are reflected in the Company’s
consolidated financial statements as prepaid or accrued research
and development expenses.
Warrants
The Company reviews the terms of all warrants issued and classifies
the warrants as a component of permanent equity if they are
freestanding financial instruments that are legally detachable and
separately exercisable, contingently exercisable, do not embody an
obligation for the Company to repurchase its own shares, and permit
the holders to receive a fixed number of shares of common stock
upon exercise. In addition, the warrants must require physical
settlement and may not provide any guarantee of value or return.
Warrants that meet these criteria are initially recorded at their
grant date fair value and are not subsequently remeasured.
Stock-Based Compensation
The Company accounts for all stock-based payment awards granted to
employees and nonemployees using a fair value method. The
Company’s stock-based payments include stock options and
grants of common stock, including common stock subject to vesting.
The measurement date for employee awards is the date of grant, and
stock-based compensation costs are recognized as expense over the
employees’ requisite service period, which is the vesting
period, on a straight-line basis. The measurement date for
nonemployee awards is the date the services are completed,
resulting in periodic adjustments to stock-based compensation
during the vesting period for changes in the fair value of the
awards. Stock-based compensation costs for nonemployees are
recognized as expense over the vesting period on a straight-line
basis. Stock-based compensation is classified in the accompanying
consolidated statements of operations and comprehensive loss based
on the department to which the related services are provided.
Financial Instruments
The Company’s financial instruments consisted of cash
equivalents, marketable securities, and accounts payable. The
carrying amounts of cash and cash equivalents and accounts payable
approximate their fair value due to the short-term nature of those
financial instruments. The fair value of the marketable securities
are remeasured each reporting period as described in Note 4.
Fair Value Measurements
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. ASC
820, Fair Value
Measurements and Disclosures
Level 1—Valuations based on unadjusted quoted prices in
active markets for identical assets or liabilities that the Company
has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets
or liabilities in markets that are not active or for which all
significant inputs are observable, either directly or
indirectly.
Level 3—Valuations that require inputs that reflect the
Company’s own assumptions that are both significant to the
fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are
less observable or unobservable in the market, the determination of
fair value requires more judgment. Accordingly, the degree of
judgment exercised by the Company in determining fair value is
greatest for instruments categorized in Level 3. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair
value measurement. The Company’s assets and liabilities
measured at fair value on a recurring basis include cash
equivalents and marketable securities.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss attributable to common stockholders per share is
computed by dividing the net loss attributable to common
stockholders by the weighted-average number of common stock
outstanding for the period. Diluted net loss attributable to common
stockholders per share is computed by dividing the net loss
attributable to common stockholders by the weighted-average number
of shares of common stock and dilutive common stock equivalents
outstanding for the period, determined using the treasury-stock
method and the as if-converted method, for convertible securities,
if inclusion of these instruments is dilutive.
Income Taxes
Deferred tax assets and liabilities are determined based upon the
differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities and for loss and
credit carryforwards using enacted tax rates expected to be in
effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance
if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
The Company assesses its income tax positions and records tax
benefits based upon management’s evaluation of the facts,
circumstances, and information available at the reporting date. For
those tax positions where it is more likely than not that a tax
benefit will be sustained, the Company records the largest amount
of tax benefit with a greater than 50% likelihood of being realized
upon ultimate settlement with a taxing authority having full
knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax benefit
will be sustained, no tax benefit is recognized in the consolidated
financial statements. The Company classifies interest and penalties
associated with such uncertain tax positions as a component of
interest expense. As of December 31, 2014 and 2015, the
Company has not identified any material uncertain tax
positions.
Guarantees and Indemnifications
As permitted under Delaware law, the Company indemnifies its
officers and directors for certain events or occurrences while the
officer or director is, or was, serving at the Company’s
request in such capacity. The term of the indemnification is for
the officer’s or director’s lifetime.
The Company leases laboratory and office space in Hopkinton,
Massachusetts and Milford, Massachusetts, under non-cancelable
operating leases. The Company has standard indemnification
arrangements under these leases that requires it to indemnify the
landlord against any liability for injury, loss, accident, or
damage from any claims, actions, proceedings, or costs resulting
from certain acts, breaches, violations, or nonperformance under
the Company’s lease.
Through December 31, 2015, the Company had not experienced any
losses related to these indemnification obligations and no material
claims were outstanding. The Company does not expect significant
claims related to these indemnification obligations, and
consequently, concluded that the fair value of these obligations is
negligible, and no related reserves were established.
Segment Information
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision maker, the
Company’s Chief Executive Officer, in making decisions
regarding resource allocation and assessing performance. The
Company views its operations and manages its business in one
operating segment and does not track expenses on a
program-by-program basis.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, Revenue from Contracts with
Customers
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going
Concern
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes |
