| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company’s consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements,
and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates. Significant
estimates and assumptions reflected in these consolidated financial
statements include, but are not limited to, the accrual for
research and development expenses, the valuation of common stock
and stock-based awards, the valuation of assets acquired and
liabilities assumed in business combinations, and the impairment of
identifiable intangible assets and goodwill. Estimates are
periodically reviewed in light of changes in circumstances, facts
and experience. Changes in estimates are recorded in the period in
which they become known. Actual results could differ from those
estimates.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheet as
of June 30, 2018, the unaudited condensed consolidated
statements of operations and of comprehensive loss for the three
and six months ended June 30, 2018 and 2017 and of cash flows
for the six months ended June 30, 2018 and 2017 have been
prepared by the Company, pursuant to the rules and regulations of
the SEC for the interim financial statements. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted
pursuant to rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented
not misleading. The accompanying unaudited interim condensed
consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements
and the notes thereto for the year ended December 31, 2017
included in the Company’s prospectus that forms a part of the
Company’s Registration Statement on
Form S-1 No. 333-225368).
The accompanying unaudited interim condensed consolidated financial
presentation has been prepared on the same basis as the audited
annual 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 June 30, 2018, the
results of its operations for the three and six months ended
June 30, 2018 and 2017, and its cash flows for the six months
ended June 30, 2018 and 2017. The financial data and other
information disclosed in these notes related to the three and six
months ended June 30, 2018 and 2017 are also unaudited. The
results for the six months ended June 30, 2018 are not
necessarily indicative of results to be expected for the year
ending December 31, 2018, any other interim periods, or any
future year or period.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity
date of three months or less at the date of purchase are considered
to be cash equivalents. Cash equivalents consisted of money market
funds as of June 30, 2018 and December 31, 2017.
Investments
The Company’s debt security investments are classified
as available-for-sale
The Company evaluates its investments with unrealized losses for
other-than-temporary impairment. When assessing investments for
other-than-temporary declines in value, the Company considers such
factors as, among other things, how significant the decline in
value is as a percentage of the original cost, how long the market
value of the investment has been less than its original cost, the
Company’s ability and intent to retain the investment for a
period of time sufficient to allow for any anticipated recovery in
fair value and market conditions in general. If any adjustment to
fair value reflects a decline in the value of the investment that
the Company considers to be “other than temporary,” the
Company reduces the investment to fair value through a charge to
the statement of operations. No such adjustments were necessary
during the periods presented.
The Company’s investments as of June 30, 2018 and
December 31, 2017 had original maturities of less than one
year.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents as well as short-term investments. Cash, cash
equivalents and short-term investments consist of demand deposits,
money market funds and U.S. government agency bonds. The Company
generally maintains balances in various operating accounts with
financial institutions that management believes to be of high
credit quality, in amounts that may exceed federally insured
limits. The Company has not experienced any losses related to its
cash, cash equivalents and short-term investments and does not
believe that it is subject to unusual credit risk beyond the normal
credit risk associated with commercial banking relationships.
Restricted Cash
In connection with its operating lease commitments, the Company
issued letters of credit collateralized by cash deposits that are
classified as restricted cash in the consolidated balance sheets.
Restricted cash amounts have been classified as current assets
based on the release dates of the restrictions under the letters of
credit, which occur annually.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and
other third-party fees that are directly associated
with in-process in-process
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization
expense is recognized using the straight-line method over the
estimated useful lives of each asset. Estimated useful lives are
periodically assessed to determine if changes are appropriate. Upon
retirement or sale, the related cost and accumulated depreciation
and amortization are removed from the accounts and any resulting
gain or loss is included in the consolidated statements of
operations. Repair and maintenance costs are expensed as incurred.
The estimated useful lives of the Company’s property and
equipment are as follows:
Estimated Useful Life
Laboratory equipment 5 years
Computer equipment 3 years
Office equipment 5 years
Leasehold improvements
Shorter of lease term or 10 years
Costs for capital assets not yet placed into service are
capitalized as construction-in-progress
Property and equipment are tested for recoverability whenever
events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. Factors
that the Company considers in deciding when to perform an
impairment review include significant underperformance of the
business in relation to expectations, significant negative industry
or economic trends and significant changes or planned changes in
the use of the assets. If an impairment review is performed to
evaluate an asset group for recoverability, the Company compares
the forecasted undiscounted cash flows expected to result from the
use and eventual disposition of the asset group to its carrying
value. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use and
eventual disposition of an asset group are less than its carrying
amount. The impairment loss would be based on the excess of the
carrying value of the impaired asset group over its fair value,
determined based on discounted cash flows using market participant
assumptions. The Company did not record any impairment losses on
property and equipment during the three and six months ended
June 30, 2018 and 2017.
Business Combinations
The Company accounts for business combinations using the
acquisition method of accounting. Application of this method of
accounting requires that (i) identifiable assets acquired
(including identifiable intangible assets) and liabilities assumed
generally be measured and recognized at fair value as of the
acquisition date and (ii) the excess of the purchase price
over the net fair value of identifiable assets acquired and
liabilities assumed be recognized as goodwill, which is not
amortized for accounting purposes but is subject to testing for
impairment at least annually.
Acquired in-process
Determining the fair value of assets acquired and liabilities
assumed in a business combination requires management to use
significant judgment and estimates, especially with respect to
intangible assets. Critical estimates in valuing certain
identifiable assets include, but are not limited to, the selection
of valuation methodologies, estimates of future revenue and cash
flows, expected long-term market growth, future expected operating
expenses, costs of capital and appropriate discount rates.
Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain and, as a result, actual results may differ materially
from estimates.
During the measurement period, which extends no later than one year
from the acquisition date, the Company may record certain
adjustments to the carrying value of the assets acquired and
liabilities assumed with the corresponding offset to goodwill.
After the measurement period, all adjustments are recorded in the
consolidated statements of operations as operating expenses or
income.
Acquisition-related contingent consideration, which consists of
potential milestone and earnout payment obligations as well as
anti-dilution rights provided to Shire (see Note 3), was recorded
in the consolidated balance sheets at its acquisition-date
estimated fair value, in accordance with the acquisition method of
accounting. The fair value of the acquisition-related contingent
consideration is remeasured each reporting period, with changes in
fair value recorded in the consolidated statements of operations.
The fair value measurement is based on significant inputs not
observable by market participants and thus represents a
Level 3 input in the fair value hierarchy (see Note 4).
Asset Acquisitions
The Company measures and recognizes asset acquisitions that are not
deemed to be business combinations based on the cost to acquire the
assets, which includes transaction costs. Goodwill is not
recognized in asset acquisitions. In an asset acquisition, the cost
allocated to acquire IPR&D with no alternative future use is
charged to expense at the acquisition date.
In-Process
The fair value of IPR&D acquired through a business combination
is capitalized as an indefinite-lived intangible asset until the
completion or abandonment of the related research and development
activities. When the related research and development is completed,
the asset is reclassified to a definite-lived asset and amortized
over its estimated useful life.
The fair value of an IPR&D intangible asset is typically
determined using an income approach whereby management forecasts
the net cash flows expected to be generated by the asset over its
estimated useful life. The net cash flows reflect the asset’s
stage of completion, the probability of technical success, the
projected costs to complete, expected market competition, and an
assessment of the asset’s life-cycle. The net cash flows are
then adjusted to present value by applying an appropriate discount
rate that reflects the risk factors associated with the cash flow
streams.
Indefinite-lived IPR&D is not subject to amortization, but is
tested annually for impairment or more frequently if there are
indicators of impairment. The Company tests its indefinite-lived
IPR&D annually for impairment on October 1st. In testing
indefinite-lived IPR&D for impairment, the Company has the
option to first assess qualitative factors to determine whether the
existence of events or circumstances would indicate that it is more
likely than not that its fair value is less than its carrying
amount, or the Company can perform a quantitative impairment
analysis to determine the fair value of the indefinite-lives
IPR&D without performing a qualitative assessment. Qualitative
factors that the Company considers include significant
underperformance of the business in relation to expectations,
significant negative industry or economic trends and significant
changes or planned changes in the use of the assets. If the Company
chooses to first assess qualitative factors and the Company
determines that it is more likely than not that the fair value of
the indefinite-lived IPR&D is less than its carrying amount,
the Company would then determine the fair value of the
indefinite-lived IPR&D. Under either approach, if the fair
value of the indefinite-lived IPR&D is less than its carrying
amount, an impairment charge is recognized in the consolidated
statements of operations. During the three and six months ended
June 30, 2018 and 2017, the Company did not recognize any
impairment charges related to its indefinite-lived IPR&D (see
Note 3).
Definite-lived IPR&D, if any, is tested for recoverability
whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable. If
an impairment review is performed to evaluate an asset group for
recoverability, the Company compares the forecasted undiscounted
cash flows expected to result from the use and eventual disposition
of the asset group to its carrying value. An impairment loss would
be recognized when estimated undiscounted future cash flows
expected to result from the use and eventual disposition of an
asset group are less than its carrying amount. The impairment loss
would be based on the excess of the carrying value of the impaired
asset group over its fair value, determined based on discounted
cash flows using market participant assumptions.
Goodwill
Goodwill represents the excess of the fair value of the
consideration transferred over the fair value of the net tangible
and identifiable intangible assets acquired in a business
combination. Goodwill is not subject to amortization, but is tested
annually for impairment or more frequently if there are indicators
of impairment. The Company tests its goodwill annually for
impairment on October 1st.
The Company has determined that there is a single reporting unit
for purposes of testing goodwill for impairment. In testing
goodwill for impairment, the Company has the option to first assess
qualitative factors to determine whether the existence of events or
circumstances would indicate that it is more likely than not that
the fair value of the reporting unit was less than its carrying
amount, or the Company can perform a two-step two-step two-step
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair
value under GAAP. 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. Financial assets and
liabilities carried at fair value are to be classified and
disclosed in one of the following three levels of the fair value
hierarchy, of which the first two are considered observable and the
last is considered unobservable:
•
Level 1—Quoted prices in active markets for
identical assets or liabilities.
•
Level 2—Observable inputs (other than
Level 1 quoted prices), such as quoted prices in active
markets for similar assets or liabilities, quoted prices in markets
that are not active for identical or similar assets or liabilities,
or other inputs that are observable or can be corroborated by
observable market data.
•
Level 3—Unobservable inputs that are supported
by little or no market activity that are significant to determining
the fair value of the assets or liabilities, including pricing
models, discounted cash flow methodologies and similar
techniques.
The Company’s cash equivalents and short-term investments are
carried at fair value, determined based on Level 2 inputs in
the fair value hierarchy described above (see Note 4). The
Company’s contingent consideration liability is carried at
fair value, determined based on Level 3 inputs in the fair
value hierarchy described above (see Note 4). The carrying values
of the Company’s prepaid expenses and other current assets,
accounts payable, accrued expenses and other short-term liabilities
approximate their fair values due to the short-term nature of these
assets and liabilities.
Segment Information
The Company manages its operations as a single operating segment
for the purposes of assessing performance and making operating
decisions. The Company’s primary focus is on the advancement
of the Company’s MRT platform to treat diseases caused by
protein or gene dysfunction.
Research and Development Costs
Costs associated with internal research and development and
external research and development services, including drug
development and preclinical studies, are expensed as incurred.
Research and development expenses include costs for salaries,
employee benefits, subcontractors, facility-related expenses,
depreciation and amortization, stock-based compensation,
third-party license fees, laboratory supplies, and external costs
of outside vendors engaged to conduct discovery, preclinical and
clinical development activities and clinical trials as well as to
manufacture clinical trial materials, and other costs. The Company
recognizes external research and development costs based on an
evaluation of the progress to completion of specific tasks using
information provided to the Company by its service providers.
Nonrefundable advance payments for goods or services to be received
in the future for use in research and development activities are
recorded as prepaid expenses. Such prepaid expenses are recognized
as an expense when the services have been performed or the goods
have been delivered, or when it is no longer expected that the
goods will be delivered or the services rendered.
Upfront payments, milestone payments (other than those deemed
contingent consideration in a business combination) and annual
maintenance fees under license agreements are expensed in the
period in which they are incurred.
Research and Development Contract Costs and
Accruals
The Company has entered into various research and
development-related contracts with companies both inside and
outside of the United States. The related costs are recorded as
research and development expenses as incurred. The Company records
accruals for estimated ongoing research and development costs. When
evaluating the adequacy of the accrued liabilities, the Company
analyzes progress of the studies or clinical trials, including the
phase or completion of events, invoices received and contracted
costs. Significant judgments and estimates are made in determining
the accrued balances at the end of any reporting period. Actual
results could differ materially from the Company’s estimates.
The Company’s historical accrual estimates have not been
materially different from the actual costs.
Stock-Based Compensation
The Company measures all stock-based awards granted to employees
and directors based on their fair value on the date of the grant
and recognizes compensation expense for those awards over the
requisite service period, which is generally the vesting period of
the respective award. For stock-based awards with service-based
vesting conditions, the Company recognizes compensation expense
using the straight-line method. For stock-based awards with both
performance-based and service-based vesting conditions, the Company
recognizes compensation expense using the graded-vesting method
over the requisite service period, commencing when achievement of
the performance condition becomes probable. The fair value of each
stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, which requires inputs based on
certain subjective assumptions, including the expected stock price
volatility, the expected term of the option, the risk-free interest
rate for a period that approximates the expected term of the
option, and the Company’s expected dividend yield (see Note
9). The fair value of each restricted common stock award is
estimated on the date of grant based on the fair value of the
Company’s common stock on that same date.
For stock-based awards granted to non-employee non-employee
The Company classifies stock-based compensation expense in its
consolidated statements of operations in the same manner in which
the award recipient’s payroll costs are classified or in
which the award recipient’s service payments are
classified.
Classification and Accretion of Redeemable Convertible
Preferred Units and Redeemable Convertible Preferred
Stock
The Company has classified its redeemable convertible preferred
units and redeemable convertible preferred stock outside of
stockholders’ equity (deficit) because the units or shares
contain certain redemption features that are not solely within the
control of the Company. Costs incurred in connection with the
issuance of each series of redeemable convertible preferred units
or stock are recorded as a reduction of gross proceeds from
issuance. The carrying values of redeemable convertible preferred
units and stock are accreted to their redemption values through a
charge to additional paid-in
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in
stockholders’ equity (deficit) that result from transactions
and economic events other than those with stockholders. The
Company’s only element of other comprehensive income (loss)
was unrealized gains (losses) on U.S. government agency bonds,
which are classified as available-for-sale-securities.
Income Taxes
The Company accounts for income taxes using the asset and liability
method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the consolidated financial statements or in
the Company’s tax returns. Deferred tax assets and
liabilities are determined on the basis of the differences between
the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Changes in deferred tax assets
and liabilities are recorded in the provision for income taxes. The
Company assesses the likelihood that its deferred tax assets will
be recovered from future taxable income and, to the extent it
believes, based upon the weight of available evidence, that it is
more likely than not that all or a portion of the deferred tax
assets will not be realized, a valuation allowance is established
through a charge to income tax expense. Potential for recovery of
deferred tax assets is evaluated by estimating the future taxable
profits expected and considering prudent and feasible tax planning
strategies.
The Company accounts for uncertainty in income taxes recognized in
the consolidated financial statements by applying
a two-step more-likely-than-not
Net Income (Loss) per Share
The Company follows the two-class two-class two-class
Basic net income (loss) per share attributable to common
stockholders is computed by dividing the net income (loss)
attributable to common stockholders by the weighted average number
of shares of common stock outstanding for the period. Diluted net
income (loss) attributable to common stockholders is computed by
adjusting net income (loss) attributable to common stockholders to
reallocate undistributed earnings based on the potential impact of
dilutive securities. Diluted net income (loss) per share
attributable to common stockholders is computed by dividing the
diluted net income (loss) attributable to common stockholders by
the weighted average number of shares of common stock outstanding
for the period, including potential dilutive shares of common
stock. For purpose of this calculation, outstanding stock options,
unvested restricted common stock and redeemable convertible
preferred stock are considered potential dilutive shares of common
stock.
The Company’s preferred stock contractually entitles the
holders of such shares to participate in dividends but does not
contractually require the holders of such shares to participate in
losses of the Company. Accordingly, in periods in which the Company
reports a net loss attributable to common stockholders, such losses
are not allocated to such participating securities. In periods in
which the Company reports a net loss attributable to common
stockholders, diluted net loss per share attributable to common
stockholders is the same as basic net loss per share attributable
to common stockholders, since dilutive shares of common stock are
not assumed to have been issued if their effect is anti-dilutive.
The Company reported a net loss attributable to common stockholders
for the three and six months ended June 30, 2018 and 2017.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued ASU No. 2014-09, Revenue
from Contracts with Customers (Topic
606) 2014-09”), 2014-09 2014-09
In August 2016, the FASB issued ASU No. 2016-15, Statement
of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments (Topic
230) 2016-15”), 2016-15 2016-15
In November 2016, the FASB issued
ASU No. 2016-18, Statement
of Cash Flows (Topic
230) 2016-18”), beginning-of-period end-of-period 2016-18
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock
Compensation: Scope of Modification Accounting (Topic
718) 2017-09”), 2017-09
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued
ASU No. 2016-02 ,
Leases (Topic
842) 2016-02”), right-of-use 2016-02
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill
and Other: Simplifying the Test for
Goodwill Impairment (Topic
350) 2017-04”), 2017-04 2017-04
In July 2017, the FASB issued ASU
No. 2017-11, Earnings Per Share
(Topic 260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815) I. Accounting for Certain
Financial Instruments with Down Round Features II. Replacement of
the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception
(“ASU 2017-11”) . 2017-11 2017-11
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock
Compensation (Topic
718) 2018-07”), non-employees. non-employee |
