| Summary of Significant Accounting Policies | Basis of Presentation The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Use of Estimates The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Reported amounts and footnote disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ materially from those estimates. Estimates and assumptions are reviewed quarterly. Any revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Cash, Cash Equivalents and Short-term Investments Cash and cash equivalents consist of cash and highly liquid securities with original maturities at the date of acquisition of ninety days or less. Investments with an original maturity of more than ninety days are considered short-term investments and have been classified by management as available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current consolidated balance sheet date, which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, and the unrealized gains and losses are reported as a component of accumulated other comprehensive income in shareholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. Concentration of Credit Risk The Company invests its excess cash in accordance with its investment policy. The Company’s investments are comprised primarily of commercial paper and debt instruments of financial institutions, corporations, U.S. government-sponsored agencies and the U.S. Treasury. The Company mitigates credit risk by maintaining a diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type. Financial instruments that potentially subject the Company to significant credit risk consist principally of cash equivalents and short-term investments. Accounts Receivable, net Accounts receivable, net consists of trade receivables which are amounts due from customers related to product sales. The Company records trade receivables net of chargebacks, invoice discounts, distribution service fees and any allowances for doubtful accounts for potential credit losses. An allowance for doubtful accounts is determined based on the financial condition and creditworthiness of customers and the Company considers economic factors and events or trends expected to affect future collections experience. Any allowance would reduce the net receivables to the amount that is expected to be collected. The payment history of the Company’s customers will be considered in future assessments of collectability as these patterns are established over a longer period. As of March 31, 2023 and December 31, 2022, the Company determined an allowance for doubtful accounts was not required. Inventory The Company began capitalizing inventory for KRAZATI, which received approval by the U.S. Food and Drug Administration (“FDA”) and launched commercially in the U.S. in December 2022. KRAZATI (adagrasib) is approved for the treatment of adult patients with KRAS G12C-mutated non-small cell lung cancer (“NSCLC”) who have received at least one prior systemic therapy. Prior to regulatory approval, all direct and indirect manufacturing costs were charged to research and development expense in the period incurred. Inventory is comprised of raw materials, work-in-process and finished goods, and includes costs related to third-party contract manufacturing, packaging, freight-in and overhead. Inventory is stated at the lower of cost or net realizable value with cost based on the first-in-first-out method. The Company performs an assessment of recoverability of capitalized inventory during each reporting period based on an analysis of forecasted demand compared to quantities on hand and any firm purchase orders, as well as product shelf life, and writes down any excess, obsolete or unsaleable inventory to its estimated realizable value in the period which the impairment is first identified. Such write downs, should they occur, are charged to cost of product revenue in the condensed consolidated statements of operations and comprehensive loss. As of March 31, 2023 and December 31, 2022, the Company did not identify any impaired inventory. Revenue Recognition The Company recognizes revenue in accordance with the guidance of Revenue From Contracts With Customers , Accounting Standards Codification (“ASC”) Topic 606 (“Topic 606”). Under Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements the Company determines are within the scope of Topic 606, the Company 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 Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company 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. Product revenue, net The Company’s product revenue consists of sales of KRAZATI. The Company sells KRAZATI principally to specialty pharmacies and specialty distributors, which are referred to as the Company’s customers. These customers subsequently resell the product to healthcare providers and patients. 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. The Company records revenues from product sales at the net sales price, or transaction price, which includes estimates of variable consideration for which reserves are established primarily from chargebacks, government and commercial rebates, incentives, product returns, trade discounts and other allowances that are offered in contracts between the Company and its customers, healthcare providers and other third-party payors relating to the sales of its product. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of trade receivables, if the amount is deductible by the customer from payments to the Company, which is included within accounts receivable, net on the condensed consolidated balance sheets, or a current liability, if the amount is payable by the Company to a customer or third-party, which is included within accrued liabilities on the condensed consolidated balance sheets. The Company estimates the amount of variable consideration to include in the transaction price using the expected value method. These estimates take into consideration relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted customer buying and payment patterns, and the Company’s historical experience that will develop over time as KRAZATI is the Company’s first commercial product. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts. The amount of variable consideration may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal of the amount of 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 will adjust these estimates, which would affect net product revenues and earnings in the period such variances become known. The following are the components of variable consideration related to product revenue: Chargebacks. Chargebacks relate to contracts with various third-party payors, including governmental healthcare programs, managed care providers, group purchasing organizations and other organizations, that generally purchase the product from a specialty distributor at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by its contracted customer. The allowance for chargebacks is based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue and a reduction of trade receivables. Government rebates. The Company is subject to discount obligations under Medicare, Medicaid, and other governmental healthcare programs in the U.S. The Company’s estimates of rebates are based on the government-mandated discounts, which are statutorily-defined and applicable to these government funded programs. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue and the accrual of an estimated liability. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. Commercial rebates. The Company contracts with various private payor organizations and group purchasing organizations for the payment of rebates with respect to the utilization of its product. The Company’s estimates for the expected utilization of rebates are based on customer and payor data received from the specialty pharmacies and specialty distributors and historical utilization rates that will develop over time as KRAZATI is the Company’s first commercial product. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue and the accrual of an estimated liability. Incentives. The Company offers incentives such as co-payment assistance to commercially insured patients in the U.S. who meet certain eligibility requirements. The Company may provide financial assistance to participating patients with prescription drug co-payments required by the patients’ insurance provider, up to a specified dollar amount. These reserves are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue and the accrual of an estimated liability. Product returns. Generally, the Company’s customers have the right to return product for a limited time before and after its expiration date. Since the Company does not have its own returns experience, it estimates returns based on available industry data for comparable products in the market as well as other information, such as visibility into the inventory remaining in the distribution channel and expiration date. As the Company distributes its product and establishes historical sales over a longer period of time, the Company will be able to place more reliance on historical purchasing, demand and return patterns of its customers when evaluating its reserves for product returns. The estimate for product returns is recorded as an accrued liability and a reduction of revenue in the period the related product sales are recognized. Trade allowances. The Company may provide invoice discounts on product sales to its customers for prompt payment based on contractual terms. These discounts are recorded as a reduction of revenue in the period the related product revenue is recognized. Trade receivables are recorded net of the allowance for these discounts. The Company also pays fees to its distributors for their services. The Company has determined such services are not distinct from the Company’s sale of product to its customers and therefore records these payments as a reduction of revenue and a reduction of trade receivables in the period the related product revenue is recognized. To the extent the services received are distinct from the Company’s sale of product to its customers, these payments will be recorded within selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. License and collaboration revenues The Company’s license and collaboration revenues have been generated primarily through collaborative research, development, manufacture and commercialization agreements. The terms of these agreements generally include the license of intellectual property and associated know-how and the provision of other goods and services. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; manufacturing supply services; milestone payments; and royalties on future product sales. License of Intellectual Property . If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue 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 associated with the bundled performance obligation. Manufacturing Supply Services . The Company’s obligation under the agreements may include the initial supply of material for clinical development. If determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to this performance obligation when the collaborative partner obtains control of the goods. If determined not to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the combined performance obligation as the related performance obligations are satisfied. Milestone Payments. At the inception of each arrangement that includes milestone payments based upon the achievement of specified clinical development, regulatory and/or sales milestones, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price. If it is probable that a significant revenue reversal would not occur, the associated milestone amount is included in the transaction price. Milestone payments that are dependent on factors outside of the Company’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. These payments are fully constrained and therefore are not included in the transaction price. At the end of each reporting period, the Company re-evaluates the probability of achievement of each milestone 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 the reported amount of license and collaboration revenues in the period of adjustment. 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). Intangible Asset, Net The Company’s finite-lived intangible asset resulted from the capitalization of a milestone payment due under a license and collaboration agreement in connection with the first commercial sale of KRAZATI in the U.S. in December 2022. The intangible asset will be amortized on a straight-line basis over its remaining useful life, which is estimated to be the remaining patent life of KRAZATI. Amortization expense is recorded as cost of product revenue in the condensed consolidated statements of operations and comprehensive loss. Cost of Product Revenue Cost of product revenue includes direct and indirect costs related to the manufacturing and distribution of KRAZATI, including materials, third-party manufacturing costs, packaging services, freight-in, overhead, royalties payable on net sales of KRAZATI and inventory reserves. All product costs incurred prior to FDA approval of KRAZATI in December 2022 were charged to research and development expense. Leases The Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company’s operating leases, if the interest rate used to determine the present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components. Net Loss per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents as they are anti-dilutive. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and common share equivalents outstanding for the period, as well as certain shares that are contingently issuable. Common share equivalents outstanding, determined using the treasury stock method, are comprised of shares that may be issued under the Company’s stock option and warrant agreements, as well as restricted stock units and performance stock units. The following table presents the weighted-average number of common share equivalents, calculated using the treasury stock method, as well as certain shares that are contingently issuable, not included in the calculation of diluted net loss per share due to the anti-dilutive effect of the securities: Three Months Ended March 31, 2023 2022 Common stock options 698,734 1,531,327 Common stock warrants 7,605,642 7,605,737 Unvested restricted stock units and performance stock units 3,144,464 1,066,872 Total 11,448,840 10,203,936 Recently Issued and Recently Adopted Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and does not believe any will have a material impact on the Company’s condensed consolidated financial statements or related financial statement disclosures. |
