Organization, Description of Business, and Summary of Significant Accounting Policies | 12 Months Ended |
Sep. 30, 2014 |
Organization, Description of Business, and Summary of Significant Accounting Policies | |
Organization, Description of Business, and Summary of Significant Accounting Policies | 1. Organization, Description of Business, and Summary of Significant Accounting Policies |
Organization |
        Corium International, Inc., a Delaware corporation (the "Company"), is a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products that leverage its broad experience in transdermal and transmucosal delivery systems. |
        In the normal course of business, the Company enters into collaboration agreements with partners to develop and manufacture products based on the Company's drug delivery technologies. Revenues consist of net sales of products manufactured, royalties and profit-sharing payments based on sales of such products by partners, and fees for research and development activities under collaboration agreements with our partners. The Company is also engaged in the research and development of its own proprietary transdermal drug delivery products. |
        The Company's fiscal year ends on September 30. References to "fiscal" refer to the years ended September 30. |
Basis of Presentation |
        The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. |
Reverse Stock Split |
        On March 20, 2014, the Company effected a 1-for-10.1 reverse stock split of the Company's outstanding common stock resulting in a reduction of the Company's total common stock issued and outstanding from 19,032,056 shares to 1,884,362 shares. The reverse stock split affected all stockholders of the Company's common stock uniformly, and did not materially affect any stockholder's percentage of ownership interest. The par value of the Company's common stock remained unchanged at $0.001 per share and the number of authorized shares of common stock remained the same after the reverse stock split. |
        In connection with this reverse stock split, the number of shares of common stock reserved for issuance under the Company's equity incentive, stock option and employee stock purchase plans, as well as the shares of common stock underlying outstanding stock options, restricted stock units and warrants, were also proportionately reduced while the exercise prices of such stock options and warrants were proportionately increased. All references to shares of common stock and per share data for all periods presented in the accompanying financial statements and notes thereto have been adjusted to reflect the reverse stock split on a retroactive basis. |
Initial Public Offering |
        On April 2, 2014, the Company's registration statements on Form S-1 (File No. 333-194279 and File No. 333-195002) relating to the Initial Public Offering (the "IPO") of its common stock were declared effective by the SEC. The IPO closed on April 8, 2014 at which time the Company sold 6,500,000 shares of its common stock at a price of $8.00 per share. The Company also granted the underwriters a 30-day option to purchase up to 975,000 additional shares of common stock at the IPO price. The underwriters exercised this option to purchase 374,997 shares on May 2, 2014. The Company received cash proceeds of $48.5 million from the IPO, including proceeds from the partial exercise of the underwriters' option, net of underwriting discounts, commissions and issuance costs paid by the Company, which totaled $2.7 million. |
        On April 8, 2014, immediately prior to the closing of the IPO, all outstanding shares of convertible preferred stock converted into 3,567,807 shares of common stock, and the related carrying value of $57.3 million was reclassified to common stock and additional paid-in capital. In addition, certain warrants to purchase convertible preferred stock and common stock were also converted and net exercised into 971,440 shares of common stock. Upon the closing of the IPO, Corium also repurchased 1,077,809 shares of common stock from its founders, for an aggregate purchase price of $5.2 million. |
        Following the filing of the Restated Certificate of Incorporation of the Company on April 8, 2014, the number of shares of capital stock the Company is authorized to issue is 155,000,000 shares, of which 150,000,000 shares may be common stock and 5,000,000 shares may be preferred stock. Both the common stock and preferred stock have a par value of $0.001 per share. |
Use of Estimates |
        Estimates and assumptions are required to be used by management in the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of operating revenues and operating expenses during the reporting period. Those estimates and assumptions affect revenue recognition and deferred revenues, impairment of long-lived assets, determination of fair value of stock-based awards and other debt and equity related instruments, and accounting for income taxes. As future events and their effects cannot be determined with precision, actual results could differ from those estimates. |
Concentration of Credit Risk |
        Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with a single domestic financial institution that is well capitalized. The Company provides credit, in the normal course of business, to its partners and performs credit evaluations of such partners. |
        Four partners accounted for 95%, 99% and 94% of the Company's revenues for fiscal 2014, 2013 and 2012. These same partners accounted for 95% and 100% of accounts receivable as of September 30, 2014 and 2013. |
Revenue Recognition |
        The Company generates revenues from agreements for the development and commercialization of its products. The terms of the agreements may include nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales, and profit sharing and royalties on product sales made by the partners. The Company recognizes revenues when the following criteria are met: persuasive evidence of a sales or service arrangement exists; delivery has occurred; the price is fixed or determinable; and collectability is reasonably assured. |
        Revenue related to multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This determination is generally based on whether any deliverable has stand-alone value to the partner. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement consideration to identified units of accounting. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. Typically, the Company has not granted licenses to partners at the beginning of its arrangements and, thus, there are no delivered items separate from the research and development services provided. As such, upfront payments are recorded as deferred revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance that is consistent with the terms of the research and development obligations contained in the agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement. |
        Amounts related to research and development funding are generally recognized as the related services or activities are performed in accordance with the contract terms. To the extent that agreements specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified rates in the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally, all of the agreements provide for reimbursement of third-party expenses, and such reimbursable expenses are billed as revenues as incurred. |
        The arrangements may include contractual milestones, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events contained in the Company's arrangements coincide with the progression of the Company's product candidates from research and development, to regulatory approval and through to commercialization. The process of successfully developing a new product, having it approved from a regulatory perspective and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn from its partners involve a significant degree of risk to achieve. Research and development milestones in the Company's strategic alliances may include the following types of events: completion of pre-clinical research and development work, completion of certain development events and initiation of clinical trials. Regulatory milestones may include the following types of events: filing of regulatory applications with the Food and Drug Administration and approval of the regulatory applications by the Food and Drug Administration. Commercialization milestones may include product launch. The Company recognizes milestone payments in the period in which the performance obligation underlying the milestone is achieved. |
        Upon commercialization, revenues are generated from product sales, royalties and profit sharing. Product sales are generally recognized as products are shipped and title and risk of loss pass to the partner. Royalties and profit sharing are generally recognized when the Company's partners sell the product to their customers and are based on a percentage of the Company's partners' net sales or net profits for products subject to our agreements. Product sales and royalty income are presented collectively as product revenues. Royalties and profit sharing totaled $6.7 million, $7.8 million and $6.4 million for fiscal 2014, 2013 and 2012. |
        Other revenues consists of income derived from the Company's arrangements with its partners, whereby a portion of the revenues received under these agreements relates to rental income from embedded leases associated with manufacturing equipment and facilities specific to these relationships, as well as revenues associated with licenses granted to a third party for intellectual property related to a discontinued product. |
Research and Development |
        Research and development expenses primarily comprise salaries and benefits associated with research and development personnel, overhead and facility costs, pre-clinical and non-clinical development costs, clinical trial, and related clinical manufacturing costs, contract services, and other outside costs. Research and development costs, including costs to be subsequently reimbursed under development contracts, are charged to expense when incurred. |
Advertising Costs |
        The Company's advertising expenses were immaterial for fiscal 2014, 2013 and 2012. |
Stock-Based Compensation |
        The Company accounts for stock-based compensation for all share-based awards made to employees and directors, including employee stock options and employee stock purchases related to the employee stock purchase plan, by measuring the cost of awards of equity instruments based on the grant-date fair value of the award. The Company determines the fair value of such awards using the Black-Scholes option-pricing model (the "Black-Scholes model"), which incorporates certain assumptions as follows: |
Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding before exercise or cancellation. As the Company's historical share exercise experience did not provide a reasonable basis upon which to estimate expected term because of a lack of sufficient data points, the Company estimated the expected term by using the simplified method. |
Risk-Free Interest Rate—The risk-free interest rate is based on the implied constant maturity yield currently available on U.S. Treasury issues with a maturity consistent with the expected term. |
Expected Volatility—Because the Company has limited information on the volatility of its common stock due to a lack of significant trading history and limited historical data regarding the volatility of its common stock, the expected volatility used is based on volatility of a group of comparable publicly traded companies. In evaluating comparability, the Company considered factors such as industry, stage of life cycle and size. The Company will continue to analyze the historical stock price volatility and term assumptions as more historical data for the Company's common stock becomes available. |
Expected Dividend—The Company does not anticipate declaring dividends in the foreseeable future. |
        The Company recognizes compensation expense for the portion of share-based awards that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. |
Income Taxes |
        The Company accounts for income taxes based on the liability method. Under the liability method, deferred tax assets and deferred tax liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and deferred tax liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and deferred tax liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. |
Comprehensive Income (Loss) |
        During fiscal 2014, 2013 and 2012, the Company did not recognize any other comprehensive income (loss) and, therefore, the net income (loss) and comprehensive income (loss) was the same for all periods presented. |
Net Loss per Share Attributable to Common Stockholders |
        The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of the diluted calculation, convertible preferred stock, options to purchase common stock and common stock warrants are considered common stock equivalents but are excluded from the calculation of diluted net loss per share attributable to common stockholders if their effect is antidilutive. |
Cash and Cash Equivalents |
        The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company generally invests funds that are in excess of current needs in high-credit-quality instruments, such as obligations of U.S. government agencies and money market funds. |
Accounts Receivable and Allowance for Doubtful Accounts |
        Accounts receivable are stated at invoiced amounts. An allowance for doubtful accounts is established as needed based on a specific assessment of all invoices that remain unpaid following normal partner payment periods. All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that the determination is made. The allowance for doubtful accounts was $0 as of September 30, 2014 and 2013.  |
Inventories |
        Inventories are stated at the lower of cost, on a first-in, first-out basis, or market. The Company records an allowance for excess and obsolete inventory based on anticipated obsolescence, usage, and historical write-offs. |
Property and Equipment |
        Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Equipment is depreciated over its useful life, ranging from 3 to 8 years using the straight-line method. Leasehold improvements are depreciated or amortized over the shorter of the lease term or their useful lives ranging from 3 to 15 years using the straight-line method. Expenditures for maintenance and repairs are charged to expense as incurred. |
Capital Leases |
        The Company leases several pieces of equipment under capital lease arrangements. During the year ended September 30, 2011, the Company completed two transactions, whereby existing manufacturing equipment was sold to and leased back from the lessor. Under these transactions, a gain on the sale was deferred and is being amortized over the life of the lease. Equipment leased under capital leases is amortized over the life of the lease term using the straight-line method. |
Intangible Assets |
        Intangible assets consist primarily of the cost of acquired patents and legal costs associated with patent development and contract acquisition costs. These costs are capitalized and amortized on a straight-line basis over the lesser of the estimated economic lives of the patents or the underlying contracts and the remaining legal lives of the patents, which approximates the consumption over the estimated useful lives of the assets, once a patent is granted. The Company periodically reevaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of these assets. |
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 such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. No impairment was recorded for fiscal 2014, 2013 or 2012. |
Fair Value of Financial Instruments |
        Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows: |
Level I—Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
Level II—Inputs (other than quoted prices included in Level I) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life. |
Level III—Unobservable inputs that are supported by little or no market activity, but are significant to the fair value of the assets or liabilities. They reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
Convertible Preferred Stock Warrants |
        Prior to their conversion into common stock on April 8, 2014 in connection with the Company's IPO, the Company accounted for certain warrants to purchase shares of convertible preferred stock as liabilities at fair value, as it had determined that some of these warrants were derivative instruments because they contained antidilution provisions that protected the holders from certain equity issuances at a price below the original issue price of the underlying security. The Company remeasured these warrants to fair value at each balance sheet date, and recognized any change in the fair value as a change in the warrant liability in its statements of operations and comprehensive loss. The Company estimated the fair value of these warrants at the respective balance sheet dates using the Option Pricing Model, or OPM, in fiscal 2012 and the Probability-Weighted Expected Return Model, or PWERM, thereafter. The Company used a number of assumptions to estimate the fair value, including the likelihood of various scenarios, the expected volatility, and the fair value of the underlying stock under each scenario. |
Subordinated Note Embedded Derivative Liability |
        Prior to its conversion into common stock on April 8, 2014 in connection with the Company's IPO, the Company had an outstanding subordinated note that the Company had determined contained an embedded derivative instrument related to redemption and conversion features of the note. These features required bifurcation and separate accounting, and were accounted for as a liability. The embedded derivative liability was remeasured to fair value at each balance sheet date, with the corresponding gain or loss from the adjustment recorded in the statements of operations and comprehensive loss. The fair value of the embedded derivative was measured with the PWERM valuation methodology. Under this methodology, fair value is primarily driven by the assessment of the probability and timing of scenarios that could result in the redemption of the note prior to the note's maturity, which would trigger the payment of the additional amount equal to the outstanding principal of the subordinated note. |
Recent Account Pronouncements |
        In February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial reporting requirements. Instead, an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December 15, 2013. This new guidance impacts how the Company reports comprehensive income only, and had no effect on the Company's results of operations, financial position or liquidity during fiscal 2014 and 2013. |
        In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, "Revenue from Contracts with Customers", Topic 606. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization's contracts with customers. This ASU is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016 for public companies. The Company is evaluating the effect, if any, on the Company's financial position and results of operations. |
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