| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying interim condensed consolidated financial statements of the Company include the operations of all its wholly‑owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Such operations include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on June 30, and references to any fiscal year are to the Company’s year ended June 30 in that year. Unaudited Interim Financial Information The accompanying interim condensed consolidated financial statements and related disclosures as of September 30, 2016 and for the three months ended September 30, 2016 and 2015 are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2016 and the results of its operations, comprehensive loss and cash flows for the three months ended September 30, 2016 and 2015. The financial data and other information disclosed in these notes related to the three months ended September 30, 2016 and 2015 are unaudited. The results for the three months ended September 30, 2016 and 2015 are not necessarily indicative of results to be expected for a full year, any other interim periods or any future year or period. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of, and for the year ended June 30, 2016 included in the Company’s annual report on Form 10‑K filed with the SEC on September 2, 2016. The condensed consolidated balance sheet data as of June 30, 2016 was derived from audited consolidated financial statements. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant items subject to such estimates and assumptions include research and development income, research and development accruals, government grant income, share-based payments, valuation of ordinary share options and restricted share units and deferred income taxes. Actual results could differ from those estimates. Net Loss Per Share Net loss per share information is determined using the two-class method, which includes the weighted-average number of ordinary shares outstanding during the period and other securities that participate in dividends (a participating security). The Company’s convertible preference shares are participating securities as defined by Accounting Standards Codification (“ASC”) Topic 260-10, Earnings Per Share Under the two-class method, basic net loss per share applicable to ordinary shareholders is computed by dividing the net loss applicable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the reporting period. Diluted net loss per share gives effect to all potentially dilutive securities, including convertible preference shares and shares issuable upon the exercise or conversion, as applicable, of outstanding warrants, ordinary share options and restricted share units, using the treasury shares method. The Company has excluded the effects of all potentially dilutive shares, which include warrants to purchase ordinary shares, ordinary share options and restricted share units from the weighted-average number of ordinary shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses. Cash As of September 30, 2016 and June 30, 2016, the Company’s unrestricted cash consisted of cash deposited in a business operating account or in short-term deposit accounts of less than 90 days’ original duration. Concentration of Credit Risk and Other Risks and Uncertainties The Company receives research and development income and grants from two sources, the Australian government and the Irish government. The Company’s cash is deposited with several large commercial banks located in the U.S., Australia and Ireland, limiting the amount of credit exposure to any one financial institution. The deposits with the financial institutions are federally insured or guaranteed, however, the Company’s cash balances with these financial institutions often exceed the amount insured. The Company is subject to risks common to companies in the biotechnology industry. The Company’s research and development may not be successfully completed, adequate protection for the Company’s technology may not be obtained, any products developed may not obtain necessary government regulatory approval and any approved products may not be commercially viable. The Company operates in an environment of competition from other animal health companies, some of which have substantially more resources at their disposal. In addition, the Company is dependent upon the services of its employees and consultants, as well as third‑party contract research organizations and manufacturers. Fair Value Measurements The Company records certain assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements
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Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.
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Level 2—Other inputs that are directly or indirectly observable in the marketplace.
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Level 3—Unobservable inputs that are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s material financial instruments comprise cash and short-term deposits. Other Income Receivable Other income receivable is recorded at the invoiced amount where available. Research and Development Income Australia Nexvet Australia is eligible under the AusIndustry research and development incentive program to obtain a cash amount from the Australian Taxation Office (“ATO”). The incentive is available to Nexvet Australia on the basis of specific criteria with which Nexvet Australia must comply. Specifically, Nexvet Australia must have revenue of less than A$20 million and cannot be controlled by income tax exempt entities. Ireland Nexvet Ireland and BioNua are both eligible under the Research and Development Tax Credit (“R&D Tax Credit”) Guidelines of Ireland to claim a tax credit, up to 25% of eligible research and development expenditure less expenditure already covered by the Industrial Development Agency (Ireland) (“IDA”) grant assistance. The tax credit is normally offset against corporation tax payable in Ireland. For companies at the same stage of development as Nexvet Ireland and BioNua, there is the ability to elect to receive the tax credit as a cash payment in three equal amounts, approximately 9, 21 and 33 months after the relevant fiscal year end, subject to meeting certain qualifying subject criteria. In this later situation, the relevant company will recognize the cash receivable as other income. Government Grant Income BioNua is eligible under an agreement with the IDA to receive cash as grant income based on a fixed percentage of eligible research and development expenditure in Ireland on a defined project, which includes the achievement of pre-agreed performance targets. Government grants are recognized at their fair value when there is reasonable assurance that the grant will be received and it is probable that all attaching conditions will be complied with. Property, Plant and Equipment Property, plant and equipment are recorded at acquisition cost, net of accumulated depreciation and impairment. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of machinery and equipment is three to 10 years. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Upon retirement or sale of an asset, its cost and related accumulated depreciation or accumulated amortization are removed from the property accounts and any gain or loss is included in the results of operations. Maintenance and repairs are expensed as incurred. Intangible Assets The Company accounts for intangible assets under ASC 350, Intangibles—Goodwill and Other Impairment of Long-Lived Assets The Company reviews its tangible and intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to the estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge will be recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairments of long-lived assets during the three months ended September 30, 2016 or 2015. Consumable Stores Consumable stores represent items that are used in the manufacturing process of clinical or commercial batches of our product candidates. As these items have alternative future uses in other development projects, consumables are recorded in prepaid and other assets and are subsequently expensed as consumed. Consumable stores are recorded at the lower of cost and net realizable value. Foreign Currency The Company’s functional currency is U.S. dollars, and the functional currency for most subsidiaries is their local currency. Foreign currency transactions are translated into the functional currency using the current exchange rate as of the date of the transaction. At period end, monetary items denominated in a foreign currency are translated into the functional currency of the relevant entity using the period-end spot rate. In preparing the Company’s consolidated financial statements, the financial statements of the subsidiaries are translated at period‑end exchange rates as to assets and liabilities and weighted-average rates as to revenue and expenses. The resulting translation adjustments are recognized in other comprehensive income (loss) (“OCI”). Income Taxes The Company has historically filed income tax returns in the U.S., Australia and Ireland. The Company applies ASC Topic 740, Income Taxes When the Company determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that the Company determines is more likely than not to be realized. The income tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on technical merits of the position. The Company evaluates and adjusts these accruals based on changing facts and circumstances. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. License and Collaboration Agreement Revenue Recognition Future revenue under a license and collaboration agreement is expected to consist of fees for services, royalties for product sales or payments when specific milestones are met and match underlying activities occurring during the term of the arrangement. In fiscal year 2013, the Company entered into a license and collaboration agreement with a third party for the research and development of animal health products in Japan. The terms of the agreement include non-refundable signing and license fees, development milestone payments, the potential for manufacturing and supply services and royalties on any product sales derived from the collaboration. The Company analyzed this arrangement to determine whether the deliverables, which included license and performance obligations such as research and steering committee services, can be separated or whether these must be accounted for as a single unit of accounting. The Company recognizes license payments as revenue upon delivery of the license only if the license has stand-alone value and there are no undelivered performance obligations related to the license. If the license is considered not to have stand-alone value, the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations would be recognized as revenue over the estimated period of when the performance obligations are performed. When the Company determines that an arrangement should be accounted for as a single unit of accounting, it determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a proportional performance or straight-line method. The Company recognizes revenue using the proportional performance method when the level of effort required to complete its performance obligations under an arrangement can be reasonably estimated, and such performance obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measurement of performance. If the Company cannot reasonably estimate the level of effort to complete its performance obligations under an arrangement, then revenue under the arrangement would be recognized on a straight-line basis over the period the Company is expected to complete its performance obligations. The Company’s license and collaboration agreement entitles it to additional payments upon the achievement of performance-based milestones. Milestones that involve substantial effort on the Company’s part are considered “substantive milestones.” A substantive milestone is included in the Company’s revenue model when the milestone is achieved. To date, no milestone payments have been received. Royalty revenue is recognized upon the sale of the related products, provided the Company has no remaining performance obligations under the arrangement. Research and Development Expense Research and development costs are expensed as incurred and consist primarily of (i) payroll and related expense for all employees engaged in scientific research and development functions, including wages, related benefits and share-based compensation, (ii) fees for regulatory, professional and other consultants and (iii) development costs, including costs of drug discovery, safety, proof‑of‑concept, pilot and pivotal safety and efficacy studies, development of biological materials and service providers. The Company uses its employee and infrastructure resources across multiple development programs. The Company allocates outsourced development costs by lead product candidates but does not allocate personnel or other internal costs related to development to specific product candidates. General and Administrative Expense General and administrative expense consists primarily of non-research and development-related payroll and related expense for employees, consultants and directors, including wages, related benefits and share-based compensation. General and administrative expense also includes professional and consulting fees for legal, accounting, tax services and other general business services, as well as other expenses such as travel, rent and facilities costs. Other Income (Expense) Research and Development Income Australia Nexvet Australia is eligible under the AusIndustry research and development incentive program to obtain a cash amount from the ATO. The incentive is available to Nexvet Australia on the basis of specific criteria with which Nexvet Australia must comply. Although the incentive is administered through the ATO, the Company has accounted for the incentive outside the scope of ASC Topic 740, Income Taxes Ireland Nexvet Ireland and BioNua are both eligible under the R&D Tax Credit Guidelines of Ireland to claim a tax credit, up to 25% of eligible research and development expenditure less expenditure already covered by the IDA grant assistance. The tax credit is normally offset against corporation tax payable in Ireland. For companies at the same stage of development as Nexvet Ireland and BioNua, there may be the ability to elect to receive the tax credit as a cash payment in three equal amounts, approximately 9, 21 and 33 months after the relevant fiscal year end, subject to meeting certain qualifying subject criteria. In this later situation the relevant company will recognize the cash receivable as other income. Government Grant Income BioNua is eligible, under an agreement with the IDA, to receive cash as grant income based on a fixed percentage of eligible research and development expenditure in Ireland on a defined project, which includes the achievement of pre-agreed performance targets. Any expenditure eligible under this agreement cannot be claimed under the R&D Tax Credit program. The maximum grant available to the Company is €2.4 million over the life of the agreement. The Company recognizes government grant income at fair value when there is reasonable assurance that the grant will be received and it is probable that all attaching conditions will be complied with. When the grant relates to an asset, the fair value is included in the balance sheet as deferred grant income, which is released to income over the expected useful life in a manner consistent with the depreciation method for the relevant asset and subject to meeting other relevant conditions, and it is recorded on the balance sheet as other income receivable until cash is received. When the grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate, and it is recorded on the balance sheet as other income receivable until cash is received. Exchange (Loss) Gain Exchange (loss) gain consists primarily of losses or gains due to foreign exchange translation, primarily reflecting changes in Australian and U.S. foreign exchange rates. Under U.S. GAAP, these (losses) gains relate to a translation of U.S. dollar-denominated bank accounts into Nexvet Australia’s Australian dollar functional currency and represent a non-cash item. Interest Income The Company earns interest on the cash balances held with financial institutions and recognizes interest when earned on an accrual basis over time. Comprehensive Loss Comprehensive loss represents the total change in shareholders’ equity during the period other than from transactions with shareholders, which for the Company includes net change in foreign currency translation adjustments. Share-Based Compensation The Company’s share-based compensation plan (see Note 10) provides for the grant of ordinary share options, restricted share units and other share-based awards. The fair value of share options is determined as of the date of grant using the binomial option-pricing model. This method incorporates the fair value of the Company’s ordinary shares on the date of each grant and various assumptions such as the risk-free interest rate, actual volatility or expected volatility based on the historic volatility of peer companies, expected dividend yield, and expected term of the share option. Restricted share units are valued at the fair value of the underlying ordinary shares as of the date of grant. The Company classifies share-based compensation expense in the statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified. The Company recognizes share-based compensation expense based on the grant date fair value of the entire award over the total period during which an employee is required to provide service in exchange for the award. In accordance with ASC 718, the amount of compensation expense recognized at each balance date is at least equal to the grant date fair value of the vested portion of the award on that date. Where performance conditions are attached to the awards, compensation expense is recognized in the period in which it becomes probable that the performance target will be achieved, net of estimated pre-vesting forfeitures over the requisite service period. The probability of vesting is reassessed at each reporting period for awards with performance conditions and compensation expense is adjusted based on this probability assessment. Equity instruments issued to non-employees, including consultants, are accounted for in accordance with Financial Accounting Standards Board (“FASB”) guidance. All transactions in which services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date on which it is probable that performance will occur. For transactions where the fair value of the equity instrument issued to non-employees is the more reliable measurement and a measurement date has not been reached, the fair value is re-measured at each balance sheet date using the binomial option-pricing model. Compensation expense for these share-based awards is recognized over the term of the consulting agreement or until the award is approved and settled. Segment Data The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company is a clinical-stage biopharmaceutical company focusing on developing therapies for companion animals. Total assets, property and equipment, net and total property and equipment additions by geography, reconciled to the consolidated amounts, were as follows as of the dates indicated:
September
June
2016
2016
United States
(in thousands)
Total assets
$
24,305
$
30,809
Property and equipment, net
7
8
Total property and equipment additions
-
7
Australia
Total assets
$
3,926
$
3,404
Property and equipment, net
1,210
1,186
Total property and equipment additions
20
975
Ireland
Total assets
$
6,201
$
6,111
Property and equipment, net
4,124
3,714
Total property and equipment additions
523
3,945
Consolidated
Total assets
$
34,432
$
40,324
Property and equipment, net
5,341
4,908
Total property and equipment additions
543
4,927
Recently Issued Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606).
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Contracts with customers —including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations).
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Significant judgments and changes in judgments —determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations.
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Certain assets —assets recognized from the costs to obtain or fulfill a contract. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing This guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated results of operations, financial position or cash flows. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842) In March 2016, the FASB issued ASU 2016-05, Liabilities—Derivative and Hedging (Topic 815) In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing Revenue from Contracts with Customers (Topic 606 Narrow-Scope Improvements and Practical Expedients. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. |
