| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Although actual
results could differ from those estimates, management does not
believe that such differences would be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less from the date of purchase to be cash
equivalents. Cash and cash equivalents consist of checking
accounts, money market accounts, money market mutual funds, and
certificates of deposit with a maturity date of three months or
less. Certificates of deposit, commercial paper, corporate notes
and corporate bonds with a maturity date of more than three months
are classified separately on the balance sheet. Their carrying
values approximate the fair market value.
Investment Securities
Investment securities consisted of the following (in
thousands):
June 30, 2015
Amortized Unrealized Unrealized Estimated Value
(unaudited)
U.S. Government Agency Securities $ 14,291 $ 1 $ (4 ) $ 14,288
FDIC Certificates of Deposit (1) 20,977 10
— 20,987
Certificates of Deposit 47,000
—
— 47,000
Commercial Paper 2,237 1
— 2,238
Corporate Notes/Bonds 48,118 2 (62 ) 48,058
$ 132,623 $ 14 $ (66 ) $ 132,571
December 31, 2014
Amortized Unrealized Unrealized Estimated Value
U.S. Government Agency Securities $ 4,316 $
— $ (3 ) $ 4,313
FDIC Certificates of Deposit (1) 16,374
— (14 ) 16,360
Certificates of Deposit 2,000
—
— 2,000
Commercial Paper 9,743 1
— 9,744
Corporate Notes/Bonds 35,992
— (89 ) 35,903
$ 68,425 $ 1 $ (106 ) $ 68,320
(1) “FDIC Certificates of
Deposit” consist of deposits that are less than
$250,000.
The Company has classified all of its investment securities
available-for-sale, including those with maturities beyond one
year, as current assets on the consolidated balance sheets based on
the highly liquid nature of the investment securities and because
these investment securities are considered available for use in
current operations. As of June 30, 2015 and December 31,
2014, the Company held $44.7 million and $31.8 million,
respectively, of available-for-sale investment securities with
contractual maturity dates more than one year and less than two
years.
Fair Value Measurements
The Company applies the fair value method under ASC Topic
820, Fair Value
Measurements and Disclosures
• Level 1—Fair value is
determined by using unadjusted quoted prices that are available in
active markets for identical assets and liabilities.
• Level 2—Fair value is
determined by using inputs other than Level 1 quoted prices that
are directly or indirectly observable. Inputs can include quoted
prices for similar assets and liabilities in active markets or
quoted prices for identical assets and liabilities in inactive
markets. Related inputs can also include those used in valuation or
other pricing models, such as interest rates and yield curves that
can be corroborated by observable market data.
• Level 3—Fair value is
determined by inputs that are unobservable and not corroborated by
market data. Use of these inputs involves significant and
subjective judgments to be made by a reporting entity—e.g.,
determining an appropriate adjustment to a discount factor for
illiquidity associated with a given security.
The Company evaluates financial assets and liabilities subject to
fair value measurements on a recurring basis to determine the
appropriate level at which to classify them each reporting period.
This determination requires the Company to make subjective
judgments as to the significance of inputs used in determining fair
value and where such inputs lie within the ASC Topic 820
hierarchy.
The Company has no assets or liabilities that were measured using
quoted prices for significant unobservable inputs (Level 3 assets
and liabilities) as of June 30, 2015 and December 31,
2014. The carrying value of cash held in money market funds of
approximately $14.4 million as of June 30, 2015 and $8.5
million as of December 31, 2014, is included in cash and cash
equivalents and approximates market value based on quoted market
price or Level 1 inputs.
The fair value measurements of the Company’s cash equivalents
and available-for-sale investment securities are identified in the
following tables (in thousands):
Fair Value Measurements at Reporting Date Using
June 30, Quoted Prices (Level 1) Significant Significant
Money market funds $ 14,403 $ 14,403 $
— $
—
U.S. Government Agency Securities 14,288
— 14,288
—
FDIC certificates of deposit 20,987
— 20,987
—
Certificates of deposit 89,500
— 89,500
—
Commercial paper 2,238
— 2,238
—
Corporate Bonds/Notes 48,058
— 48,058
—
$ 189,474 $ 14,403 $ 175,071 $
—
Fair Value Measurements at Reporting Date Using
December 31, Quoted Prices (Level 1) Significant Significant
Money market funds $ 8,495 $ 8,495 $
— $
—
U.S. Government Agency Securities 4,313
— 4,313
—
FDIC certificates of deposit 16,360
— 16,360
—
Certificates of deposit 41,000
— 41,000
—
Commercial paper 9,744
— 9,744
—
Corporate Bonds/Notes 35,903
— 35,903
—
$ 115,815 $ 8,495 $ 107,320 $
—
Financial Instruments
The Company considers the recorded costs of its financial assets
and liabilities, which consist of cash equivalents, accounts
receivable, prepaid expenses, accounts payable and accrued
liabilities, to approximate their fair value because of their
relatively short maturities at June 30, 2015 and
December 31, 2014. Management believes that the risks
associated with its financial instruments are minimal as the
counterparties are various corporations, financial institutions and
government agencies of high credit standing.
Concentration of Credit Risk
Cash equivalents are held with major financial institutions in the
United States. Certificates of deposit held with banks may exceed
the amount of insurance provided on such deposits. Generally, these
deposits may be redeemed upon demand and, therefore, bear minimal
risk.
Accounts Receivable
Accounts receivable that management has the intent and ability to
collect are reported in the balance sheets at outstanding amounts,
less an allowance for doubtful accounts. The Company writes off
uncollectible receivables when the likelihood of collection is
remote.
The Company evaluates the collectability of accounts receivable on
a regular basis. The allowance, if any, is based upon various
factors including the financial condition and payment history of
customers, an overall review of collections experience on other
accounts and economic factors or events expected to affect future
collections experience. No allowance was recorded as of
June 30, 2015 and December 31, 2014, as the Company has a
history of collecting on all of its accounts, including government
agencies and collaborations funding its research.
Property and Equipment
Property and equipment is stated at cost and depreciated on a
straight-line basis over estimated useful lives ranging from three
to five years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful life
of the assets or the term of the related lease. Expenditures for
maintenance and repairs are charged to operations as incurred.
When indicators of possible impairment are identified, the Company
evaluates the recoverability of the carrying value of its
long-lived assets based on the criteria established in ASC
Topic 360, Property, Plant and
Equipment
Revenue Recognition
Revenue is recognized when all terms and conditions of the
agreements have been met, including that persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable and collectability is
reasonably assured. The Company is reimbursed for certain costs
incurred on specified research projects under the terms and
conditions of grants, collaboration agreements, and awards. The
Company records the amount of reimbursement as revenues on a gross
basis in accordance with ASC Topic 605-45, Revenue
Recognition/Principal Agent Considerations
The Company has entered into arrangements involving the delivery of
more than one element. Each required deliverable is evaluated to
determine whether it qualifies as a separate unit of accounting.
For the Company, this determination is generally based on whether
the deliverable has “stand-alone value” to the
customer. The Company adopted this accounting standard on a
prospective basis for all Multiple-Deliverable Revenue Arrangements
(“MDRAs”), entered into on or after January 1,
2011, and for any MDRAs that were entered into prior to
January 1, 2011, but materially modified on or after that
date.
The Company adopted ASC Topic 605-28, Milestone Method
• the milestone payments are
non-refundable;
• achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of
the arrangement;
• substantive effort on the
Company’s part is involved in achieving the milestone;
• the amount of the milestone payment
is reasonable in relation to the effort expended or the risk
associated with achievement of the milestone; and
• a reasonable amount of time passes
between the up-front license payment and the first milestone
payment, as well as between each subsequent milestone payment.
Determination as to whether a payment meets the aforementioned
conditions involves management’s judgment. If any of these
conditions are not met, the resulting payment would not be
considered a substantive milestone, and therefore, the resulting
payment would be considered part of the consideration for the
single unit of accounting and be recognized as revenue as such
performance obligations are performed under either the proportional
performance or straight-line methods, as applicable. In addition,
the determination that one such payment was not a substantive
milestone could prevent the Company from concluding that subsequent
milestone payments were substantive milestones and, as a result,
any additional milestone payments could also be considered part of
the consideration for the single unit of accounting and would be
recognized as revenue as such performance obligations are performed
under either the proportional performance or straight-line methods,
as applicable.
Research and Development
Except for payments made in advance of services, which at the
commencement of a clinical trial are generally significant, the
Company expenses its research and development costs as incurred.
For payments made in advance, the Company recognizes research and
development expense as the services are rendered. Research and
development costs primarily consist of the costs of clinical trials
and salaries and related expenses for personnel and resources.
Other research and development expenses include pre-clinical
analytical testing, outside services, providers, materials and
consulting fees.
Income Taxes
Income taxes are accounted for using the liability method. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
its respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are
expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary
to reduce net deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and
the change during the period in deferred tax assets and
liabilities.
The Company accounts for uncertain tax positions pursuant to ASC
Topic 740 (previously included in FASB Interpretation
No. 48, Accounting for Uncertainty in
Income Taxes–an Interpretation of FASB Statement
No. 109)
Comprehensive Income (Loss)
All components of comprehensive income (loss), including net income
(loss), are reported in the financial statements in the period in
which they are incurred. Comprehensive income (loss) is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. In accordance with accounting guidance, the Company
presents the impact of any unrealized gains or (losses) on its
investment securities in a separate statement of comprehensive
income (loss) for each period.
Share-Based Compensation
Share-based payments are accounted for in accordance with the
provisions of ASC Topic 718, Compensation—Stock
Compensation
For all awards granted with time-based vesting conditions, expense
is amortized using the straight-line attribution method. For awards
that contain a performance-based vesting condition, expense is
amortized using the accelerated attribution method. Share-based
compensation expense recognized in the statements of operations for
the three and six months ended June 30, 2015 and 2014 is based
on share-based awards ultimately expected to vest, and this amount
has therefore been reduced for estimated forfeitures. ASC Topic 718
requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Pre-vesting forfeitures were estimated
based on the Company’s historical experience and have not
been material.
The Company utilizes the Black-Scholes model for estimating fair
value of its stock options granted. Option valuation models,
including the Black-Scholes model, require the input of subjective
assumptions, and changes in the assumptions used can materially
affect the grant date fair value of an award. These assumptions
include the risk-free rate of interest, expected dividend yield,
expected volatility and the expected life of the award.
Expected volatility rates are based on historical volatility of the
common stock of comparable publicly traded entities and other
factors due to the limited historical information of the
Company’s common stock. The expected life of stock options is
the period of time for which the stock options are expected to be
outstanding. Given the limited historical exercise data, the
expected life is determined using the “simplified
method,” which is defined as the midpoint between the vesting
date and the end of the contractual term.
The risk-free interest rates are based on the U.S. Treasury yield
for a period consistent with the expected term of the option in
effect at the time of the grant. The Company has not paid dividends
to its stockholders since its inception and does not plan to pay
cash dividends in the foreseeable future. Therefore, the Company
has assumed an expected dividend rate of zero.
Prior to January 1, 2014, given that there was no active
market for the Company’s common stock, the exercise price of
the stock options on the date of grant was determined and approved
by the board of directors using several factors, including progress
and milestones achieved in the Company’s business development
and performance, the price per share of its convertible preferred
stock offerings and general industry and economic trends. In
establishing the estimated fair value of the common stock, the
Company considered the guidance set forth in American Institute of
Certified Public Accountants Practice Guide, Valuation of
Privately-Held-Company Equity Securities Issued as
Compensation
Under ASC Topic 718, the cumulative amount of compensation cost
recognized for instruments classified as equity that ordinarily
would result in a future tax deduction under existing tax law shall
be considered to be a deductible difference in applying ASC
Topic 740, Income Taxes
Since the Company had net operating loss carryforwards as of
June 30, 2015 and 2014, no excess tax benefits for the tax
deductions related to share-based awards were recognized in the
statements of operations.
Equity instruments issued to non-employees are accounted for under
the provisions of ASC Topic 718 and ASC Topic
505-50, Equity/Equity-Based
Payments to Non-Employees
Loss Per Share
Basic net loss per common share is determined by dividing the net
loss allocable to common stockholders by the weighted-average
number of common shares outstanding during the period, without
consideration of common stock equivalents. Diluted net loss per
share is computed by dividing the net loss allocable to common
stockholders by the weighted-average number of common stock
equivalents outstanding for the period. The treasury stock method
is used to determine the dilutive effect of the Company’s
stock option grants.
The following common stock equivalents were excluded in the
calculation of diluted loss per share because their effect would be
anti-dilutive as applied to the loss from operations for the three
and six months ended June 30, 2015 and 2014:
Three Months Ended June 30,
Six Months Ended June 30,
2015 2014 2015 2014
Stock options 1,491,457 1,102,945 1,485,991 1,102,945 |
