| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of preparation and principles of consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Previously, the Company prepared its consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"). At the end of the second quarter of 2022, the Company determined that it no longer qualified as a Foreign Private Issuer under SEC rules. As a result, beginning January 1, 2022, the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Company’s inception. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Liquidity and capital resources As of December 31, 2022, the Company had approximately $8.4 million in cash and cash equivalents. The Company believes that its current cash and cash equivalents are only sufficient to fund its operating expenses into the fourth quarter of 2023 and this raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of the issuance of these consolidated financial statements. The future viability of the Company is dependent upon earning milestone payments under its licensing agreements and/or on its ability to raise additional debt and equity capital to finance its future operations. There can be no assurances that such funding sources will be available at terms acceptable to the Company, or at all. If the Company has insufficient funding to meet its working capital needs, it could be required to delay, limit, reduce, or terminate its drug development programs or limit or cease operations. Risks and Uncertainties The Company is subject to risks and uncertainties common to companies in the biotechnology and pharmaceutical industries, including, but not limited to, risks of failure or unsatisfactory results of nonclinical and clinical studies, the need for significant capital to fund the development of its product candidates and the commercialization of any product candidates that may obtain marketing approval, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of any of its product candidates that obtain regulatory approval, dependence on strategic relationships with collaboration and commercialization partners and on key personnel, securing and protecting proprietary technology, compliance with government regulations, development by competitors of technological innovations, ability to transition from pilot-scale manufacturing to large-scale production of products, and dependence on third-party service providers such as contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), other suppliers, and third-party logistics providers. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures of asset impairments, revenue recognition, depreciation and amortization, stock-based compensation, income taxes, the fair value of warrant and derivative liabilities, and accounting for project development and certain accruals. These estimates are sometimes complex, sensitive to changes in assumptions and require fair value determinations using Level 3 fair value measurements. Actual results may differ materially from those estimates. Cash, cash equivalents and restricted cash Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of 90 days or less. Restricted cash represents deposited amounts securing obligations under the Company’s convertible note financing arrangement with JGB Management, Inc. Restricted cash consists of $6.5 million held in a restricted depository account. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the statement of cash flows. As of December 31, in‘000 2022 2021 Cash and cash equivalents $ 8,424 $ 54,734 Restricted cash 6,534 — Total cash, cash equivalents and restricted cash $ 14,958 $ 54,734 Fair value measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value includes: Level 1 — Observable inputs for identical assets or liabilities such as quoted prices in active markets; Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 — Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use. The Company’s financial instruments include cash and cash equivalents, restricted cash, other receivables, prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities, convertible notes, and warrants. The carrying amounts of cash and cash equivalents, restricted cash, other receivables, prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities approximates their fair value due to the short-term nature of these instruments. The convertible notes issued in conjunction with the Securities Purchase Agreement with JGB Management Inc. (“JGB”) is carried at amortized cost, which management believes approximates fair value. Additionally, the derivative liability related to certain embedded features contained within the convertible notes is carried at fair value. The warrant liability is also carried at fair value. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, restricted cash, and other receivables. As of December 31, 2022, the Company’s cash is held by one institution in the U.S. and two institutions in Switzerland. Periodically, the Company maintains deposits in financial institutions in excess of government insured limits. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by California and federal regulatory agencies. As a result of these actions, the Federal Deposit Insurance Corporation (FDIC) established Silicon Valley Bridge Bank, N.A. (the “Bridge Bank”) as successor to SVB. On March 12, 2023, the U.S. Treasury, Federal Reserve and FDIC rolled out emergency measures to fully protect all depositors of SVB and, on March 13, 2023, we had full access to our cash on deposit with SVB. As a result, we do not anticipate any losses with respect to such balances. As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions. The Company manages its accounts receivable credit risk through ongoing credit evaluation of its customers' financial conditions. Leases In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019. The Company has leases for its corporate offices, which are accounted for as operating leases under ASC 842. The Company has no finance or sales-type leases. The Company determines if an arrangement is a lease at inception. Operating leases are recorded as a current and long-term lease obligation, with a corresponding right of use asset (“ROU asset”). ROU 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. Operating lease ROU assets and liabilities are recognized at commencement The Company has elected to combine lease and non-lease components as a single component for all leases in which it is a lessee or a lessor. The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current. Borrowings Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method. Borrowings that are due within 12 months after the end of the reporting period are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability until more than 12 months after the reporting period. The Company recognizes debt extinguishment in other income (expense), net as the difference between the extinguishment payment and the carrying value of the loan. Warrants to purchase common shares The Company accounts for the issuance of warrants to purchase common shares in accordance with the provisions of ASC 815, Derivatives and Hedging settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of comprehensive loss. The fair values of these warrants have been determined using the Black-Scholes valuation method. These values are subject to a significant degree of the Company’s judgment. The estimated fair value of the warrants is determined with Level 3 inputs using the Black-Scholes model. The significant inputs and assumptions in this method are the share price, exercise price, expected volatility, risk-free rate and term or maturity. The underlying share price input is the closing share price as of each valuation date and the exercise price is the price as stated in the warrant agreement. The volatility input was determined using the historical volatility of Company common shares, adjusted for transaction specific factors. The Black-Scholes analysis is performed in a risk-neutral framework, which requires a risk-free rate assumption based upon constant-maturity treasury yields, which are interpolated based on the remaining term of the warrants as of each valuation date. Derivative Liability The Company analyzes the conversion feature of convertible notes for derivative accounting consideration under ASC 815-15, Derivatives and Hedging Upon conversion of a convertible note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives and debt discounts and recognizes a net gain or loss on debt extinguishment. Post-employment benefits The Company sponsors a defined benefit pension plan in Switzerland, covering all local Obseva SA employees. The Company recognizes the overfunded or underfunded status of its defined benefit pension plan as an asset or a liability, measured as the difference between the fair value of plan assets and the benefit obligation, in the consolidated balance sheets, with changes in the funded status recorded through other comprehensive income (loss) in the year in which those changes occur. The Company uses the corridor approach in the valuation of the defined benefit pension plan. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. Those unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period of plan participants. Prior service costs, credits and transition costs are charged or credited to accumulated other comprehensive income and subsequently amortized over the average remaining service period of employees expected to receive benefits under the plan. The Company also sponsors a 401K defined contribution plan in the U.S. All U.S. employees are immediately eligible to participate in the plan. Participants are eligible for 401K matching contributions based upon the employee’s contribution to the plan. The plan assets are held by a third-party custodian. ObsEva USA, Inc. contributions to the defined contribution plan are charged to the consolidated statement of comprehensive loss as incurred. The Company has no further obligation once the contributions have been paid. Collaborative Arrangements The Company may enter into collaboration arrangements with biotechnology partners. The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, to determine whether such arrangements involve joint operating activities performed by the parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple units of account, the Company first determines which units of account of the collaboration are deemed to be within the scope of ASC 808 and those that are reflective of a vendor-customer relationship and, therefore, within the scope of ASC 606, Revenue from Contracts with Customers. While ASC 808 defines collaboration arrangements and provides guidance on income statement presentation, classification, and disclosures related to such arrangements, it does not address recognition and measurement matters, such as (1) determining the appropriate unit of account or (2) when the recognition criteria are met. Therefore, the accounting for these arrangements is either based on an analogy to other accounting literature, such as ASC 606, or an accounting policy election by management. For units of account within collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate revenue recognition method is determined and applied consistently. The Company evaluates the presentation of amounts due from its collaborative partners associated with activities in the collaborative arrangements based on the nature of each activity. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. If the related efforts underlying the deferred revenue are expected to be satisfied within the next twelve months, the deferred revenue is classified in current liabilities, otherwise it is classified as a non-current liability. Revenue Recognition For units of account under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 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 ASC 606, the Company assesses the goods or services promised within each contract, 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. License, milestone, and other revenue For units of account under ASC 606, the Company applies significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to performance obligations within a contract, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration, and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time. These judgments are discussed in more detail below. ● Licenses of intellectual property rights: If the licenses to intellectual property are determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, the Company applies 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 from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly. ● Milestone payments: At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price on a cumulative catch-up basis in earnings in the period of the adjustment. ● Royalties and sales-based milestone payments: For arrangements that include sales-based royalties, including sales-based milestone payments based on pre-specified level of sales, 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). Research and development Research expenses are charged to the consolidated statement of comprehensive loss as incurred. Research and development costs consist of salaries, share-based compensation and benefits of employees, costs related to the Company’s R&D activities, including contracts with clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), and allocated overhead expenditures, including depreciation and amortization, rent and utilities. As part of the process of preparing financial statements the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its R&D efforts. The Company’s objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company determines prepaid and accrual estimates through discussions with applicable personnel and outside service providers as to the progress of clinical trials, or other services completed. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Share-based compensation The Company accounts for share-based compensation plans using the fair value recognition and measurement provisions under U.S. GAAP. Share-based compensation awarded to employees is measured at the grant date fair value of stock option grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis. The Company recognizes forfeitures as they occur. The Company estimates the grant date fair value of stock options, and the resulting share-based compensation, using the Black-Scholes option-pricing model, which requires the use of subjective assumptions. These assumptions include: ● Share price. The share price represents the underlying price of the Company’s common shares which is based on the public share price quote on the grant date. ● Expected term. The expected term represents the period that the Company’s share-based awards are expected to be outstanding and is determined based on historical exercise data. ● Expected volatility. The expected volatility considers the Company’s historical volatility and weighted average measures of volatility of a peer group of companies for a period equal to the expected term of the stock options. The Company’s peer group of publicly traded biopharmaceutical companies was chosen based on their similar size, stage in the life cycle or area of specialty. ● Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the stock option. ● Expected dividend. The Company has never paid, and does not anticipate paying, cash dividends on its common shares. Therefore, the expected dividend yield was assumed to be zero . The fair value of stock options on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock, to determine the fair value of the award. The Company recognizes the expense associated with options using a single award approach over the requisite service period. Income taxes The Company is subject to income taxes in the United States and other foreign jurisdictions. Judgment is required in determining the Company’s expense (benefit) for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The Company records an expense (benefit) for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of enactment. The Company records a valuation allowance to reduce the Company’s deferred tax assets to the net amount that the Company believes is more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company recognizes tax benefits from uncertain tax positions if the Company believes that it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position as well as consideration of the available facts and circumstances. Interest and/or penalties related to income tax matters are recognized as a component of income tax expense as incurred. Net loss per share Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares and potentially dilutive shares of common shares outstanding during the period. Potential dilutive securities outstanding include common shares issuable upon conversion of debt, warrants to purchase common shares, and stock options. During all periods presented, the Company incurred net losses. Accordingly, the effect of any common share equivalents would have been anti-dilutive during those periods and are not included in the calculation of diluted weighted-average number of common shares outstanding. Foreign currencies The functional currency of the Company's operations is primarily the U.S. Dollar. The financial statements of the Company's subsidiaries whose functional currency is other than the U.S. Dollar are translated to U.S. Dollars using period-end rates of exchange for assets and liabilities and monthly average rates for sales, income and expenses. Cumulative translation gains and losses are included as a component of shareholders' equity in accumulated other comprehensive income (loss). Gains and losses arising from transactions denominated in currencies other than a subsidiary's functional currency are reported in other income (expense), net in the consolidated statements of comprehensive loss. Segment information The Company operates in one segment, which is the research and development of innovative women’s reproductive, health and pregnancy therapeutics. The Chief Executive Officer of the Company (Chief Operating Decision Maker) reviews the consolidated statement of operations of the Company on an aggregated basis and manages the operations of the Company as a single operating segment. The Company currently generates no revenue from the sales of therapeutics products. The Company’s activities are not affected by any significant seasonal effect. The geographical analysis of total assets is as follows (in thousands): As of December 31, 2022 2021 Switzerland $ 1,507 $ 9,564 USA 79 238 Total assets $ 1,586 $ 9,802 The geographical analysis of total net revenues is as follows (in thousands): Year ended December 31, 2022 2021 Switzerland $ 19,637 $ 22,200 USA — — Total net revenues $ 19,637 $ 22,200 Recently issued accounting pronouncements Issued but not yet adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments |
