| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies:
Consolidation
The accompanying consolidated financial statements include the
accounts of Meira Holdings and its wholly owned subsidiaries:
MeiraGTx Limited, a limited company under the laws of England and
Wales (“Meira Limited);
MeiraGTx, LLC, a Delaware corporation (“Meira
LLC”);
BRI-Alzan, Inc., a Delaware corporation
(“BRI-Alzan”);
MeiraGTx B.V., a Netherlands corporation (“Meira
BV”);
MeiraGTx Neurosciences, Inc. a Delaware corporation (“Meira
Neuro”);
MeiraGTx UK II Limited, (“Meira UK II”), a limited
company under the laws of England and Wales; and
MeiraGTx UK Limited (“Meira UK”), a limited company
under the laws of England and Wales.
All intercompany balances and transactions between the consolidated
companies have been eliminated in consolidation.
Use of Estimates
Management considers many factors in selecting appropriate
financial accounting policies and controls, and in developing the
estimates and assumptions that are used in the preparation of these
consolidated financial statements. Management must apply
significant judgment in this process. In addition, other factors
may affect estimates, including expected business and operational
changes, sensitivity and volatility associated with the assumptions
used in developing estimates, and whether historical trends are
expected to be representative of future trends. The estimation
process often may yield a range of potentially reasonable estimates
of the ultimate future outcomes and management must select an
amount that falls within that range of reasonable estimates. This
process may result in actual results differing materially from
those estimated amounts used in the preparation of the financial
statements if these results differ from historical experience, or
other assumptions do not turn out to be substantially accurate,
even if such assumptions are reasonable when made. In preparing
these consolidated financial statements, management used
significant estimates in the following areas, among others:
valuation of A ordinary shares (“A Ordinary Shares”)
issued prior to the Company’s initial public offering, the
accounting for research and development costs, warrants,
share-based compensation and accrued expenses.
Subsequent Events
The Company considers events or transactions that occur after the
balance sheet date but before the financial statements are issued
to provide additional evidence relative to certain estimates or to
identify matters that require additional disclosure. The Company
evaluated all events and transactions through March 26, 2019,
the date these consolidated financial statements were issued. See
Note 18 for additional information.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an
original maturity of 90 days or less at the time of purchase to be
cash equivalents. Cash and cash equivalents consist of deposits
that are readily convertible into cash.
Warrant Liability
During 2017, the Company issued warrants to purchase Convertible
Preferred C Shares (the “Preferred Shares”) to certain
investors. Due to the potential redemption feature of the
underlying Preferred Shares, the warrants had been classified as a
liability. Liability accounting requires that the fair value of
warrants be remeasured each reporting period with changes recorded
in the statements of operations and comprehensive loss. These
Preferred Shares warrants remained outstanding until their exercise
in June 2018, at which time the warrant liability was remeasured to
fair value and reclassified to additional paid-in capital.
Financial Instruments
The carrying value of prepaid expenses, other current assets,
accounts payable, accrued expenses, notes payable and amounts due
to an affiliate reported in the consolidated balance sheets equal
or approximate fair value due to their short maturities.
Fair Value Measurements
Fair value is defined as the price that would be received upon sale
of an asset or paid upon transfer of a liability in an orderly
transaction between market participants at the measurement date and
in the principal or most advantageous market for that asset or
liability. The fair value should be calculated based on assumptions
that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition,
the fair value of liabilities should include consideration of
non-performance risk including our own credit risk.
The Company follows ASC Topic 820, Fair Value Measurements and
Disclosures
•
Level 1: Observable inputs such as quoted prices in
active markets for identical assets the reporting entity has the
ability to access as of the measurement date;
•
Level 2: Inputs, other than the quoted prices in
active markets, that are observable either directly or indirectly;
and
•
Level 3: Unobservable inputs in which there is little
or no market data, which require the reporting entity to develop
its own assumptions.
The table below represents the values of the Company’s
financial assets and liabilities that are required to be measured
at fair value on a recurring basis:
Fair Value Measurement Using:
Description December 31, Significant Significant Other Significant
Restricted cash $ 123,376 $ 123,376 $
— $
—
Fair Value Measurement Using:
Description December 31, Significant Significant Other Significant
Restricted cash $ 123,376 $ 123,376 $
— $
—
Warrants $ 2,679,633 $
— $
— $ 2,679,633
The table below represents a rollforward of the assets and
liabilities that are required to be measured at fair value on a
recurring basis from December 31, 2016 to December 31,
2018:
Significant Significant Other Significant
Balance as of December 31, 2016 $ 444,844 $
— $
—
Cash released from restriction (321,468 )
—
—
Fair value of warrants issued
—
— 2,214,000
Change in fair value of warrants
—
— 465,633
Balance as of December 31, 2017 123,376
— 2,679,633
Change in fair value of warrants 1,514,775
Exercise of warrants
—
— (4,194,408 )
Balance as of December 31, 2018 $ 123,376 $
— $
—
The warrants were classified as liabilities because the underlying
Preferred Shares had a redemption feature in the event of a change
of control of the Company. On June 5, 2018, the warrants were
exercised at which time the warrant liability was determined to be
$4,194,408, which represented the difference in the market value of
the Preferred Shares and the exercise price of the warrants. This
resulted in an increase of the warrant liability in the amount of
$1,514,775 for the year ended December 31, 2018. The related
warrant liability of $4,194,408 was reclassified as Capital in
Excess of Nominal Value at such time.
The fair values of the warrants were estimated using the
Black-Scholes valuation model with the following assumptions:
June 4, 2018 December 31, 2017 September 21, 2017
Risk-free interest rate 1.77 % 1.72 % 1.38 %
Expected volatility 80 % 80 % 80 %
Expected dividend yield 0 0 0
Expected life 1 day 9 months 18 months
For the unobservable inputs for the warrants, the expected
volatility was determined at each measurement date by taking an
average of the volatility of other publicly-traded peer
biotechnology companies. The expected life was determined at each
measurement date based upon the Company’s estimate of the
time until the Company has a conversion event, as described in Note
12.
The fair value of the Preferred Shares were based upon recent
issuances of the Company’s Preferred Shares on or about those
dates.
The estimated fair values of the Company’s warrants were not
necessarily indicative of the amounts that would have been realized
in a current market exchange. The determination of the fair value
of the warrants were sensitive to changes in the assumptions used
and a change in those inputs could result in a significantly higher
or lower fair value measurement. If the volatility were to increase
or the expected life were to increase, the fair value of the
warrant would increase. Conversely, if the volatility were to
decrease or the expected life were to decrease, the fair value of
the warrant would decrease.
Convertible Preferred C Shares
The Preferred Shares were not redeemable, except in the event of a
change of control which was outside the control of the Company and
required shareholder approval. The redemption value of the
Preferred Shares upon a change in control is equal to its
liquidation value described below.
The Company is accounting for its Preferred Shares under the
requirements of ASC 480, Distinguishing Liabilities from
Equity,
Concentrations of Credit Risk
The Company maintains its cash and cash equivalents primarily in
depository and money market accounts within two large financial
institutions in the United States and one large financial
institution in the United Kingdom. Cash balances deposited at these
major financial banking institutions exceed the insured limit. The
Company has not experienced any losses on its bank deposits and
believes these deposits do not expose the Company to any
significant credit risk.
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are depreciated over the
lesser of their useful lives or the life of the lease (see Note
5).
The estimated useful lives of the asset categories are set forth in
the table below:
Asset Category Useful Lives
Computer and office equipment 3 years
Laboratory equipment 5 years
Manufacturing equipment 7 years
Furniture and fixtures 5 years
Capitalized leasehold interest 25 years
Leasehold improvements lesser of useful
Expenditures for leasehold improvements are capitalized, and
expenditures for maintenance and repairs are expensed to operations
as incurred.
ASC Topic 360, Property, Plant and Equipment
Net Loss per Ordinary Share
Basic net loss per Ordinary Share is computed by dividing net loss
by the weighted average number of shares of the Company’s
Ordinary Shares assumed to be outstanding during the period of
computation. Diluted net loss per ordinary share is computed
similar to basic net loss per share except that the denominator is
increased to include the number of additional Ordinary Shares that
would have been outstanding if the potential ordinary shares had
been issued at the beginning of the year and if the additional
Ordinary Shares were dilutive (treasury stock method) or the
two-class method, whichever is more dilutive. For all periods
presented, basic and diluted net loss per Ordinary Share are the
same, as any additional Ordinary Share equivalents would be
anti-dilutive (see Note 13).
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740,
Income Taxes
The Company accounts for uncertain tax positions in accordance with
the provisions of ASC 740. When uncertain tax positions exist, the
Company recognizes the tax benefit of tax positions to the extent
that the benefit will more likely than not be realized. The
determination as to whether the tax benefit will more likely than
not be realized is based upon the technical merits of the tax
position as well as consideration of the available facts and
circumstances. As of December 31, 2018 and 2017, the Company
does not have any significant uncertain tax positions.
The Company is required to estimate income taxes in each of the
jurisdictions in which it operates.
The Company’s reserves related to taxes are based on a
determination of whether and how much of a tax benefit taken by the
Company in its tax filings or positions is more likely than not to
be realized. As of December 31, 2018, the Company had no
unrecognized tax benefits or related interest and penalties
accrued.
In the United States, on December 22, 2017, the “Tax
Cuts and Jobs Act” (the “Act”) was signed into
law. Substantially all of the provisions of the Act are effective
for taxable years beginning after December 31, 2017. The Act
includes significant changes to the Internal Revenue Code of 1986
(as amended, the “Code”), including amendments which
significantly change the taxation of individuals, and business
entities. The Act contains numerous provisions impacting the
Company, the most significant of which reduces the Federal
corporate statutory tax rate from 34% to 21%.
The staff of the U.S. Securities and Exchange Commission
(“SEC”) has recognized the complexity of reflecting the
impacts of the Act, and on December 22, 2017 issued guidance
in Staff Accounting Bulletin 118 (“SAB 118”), which
clarifies accounting for income taxes under ASC 740 if information
is not yet available or complete and provides for up to a one year
period in which to complete the required analyses and accounting
(the measurement period). SAB 118 describes three scenarios (or
“buckets”) associated with a company’s status of
accounting for income tax reform: (1) a company is complete
with its accounting for certain effects of tax reform, (2) a
company is able to determine a reasonable estimate for certain
effects of tax reform and records that estimate as a provisional
amount, or (3) a company is not able to determine a reasonable
estimate and therefore continues to apply ASC 740, based on the
provisions of the tax laws that were in effect immediately prior to
the Act being enacted.
The various provisions under the Act deemed most relevant to the
Company have been considered in preparation of its financial
statements as of December 31, 2017. The Company had made a
reasonable estimate for certain effects of tax reform and had
recorded provisional amounts as part of its income tax provision.
To the extent that clarifications or interpretations materialized
in the future that would impact upon the effects of the Act
incorporated into the December 31, 2017 financial statements,
those effects would have been reflected in the future as or if they
materialize. As of December 31, 2018, the Company has
completed its accounting for all of the tax effects of the Act.
Based on the additional analysis performed, no adjustments to the
provisional amounts were made in the reporting period which had an
impact to the tax provision or consolidated financial
statements.
Research and Development
Research and development costs are charged to expense as incurred.
These costs include, but are not limited to, employee-related
expenses, including salaries, benefits and travel of the
Company’s research and development personnel; expenses
incurred under agreements with contract research organizations and
investigative sites that conduct clinical and preclinical studies
and manufacture the drug product for the clinical studies and
preclinical activities; facilities; supplies; rent, insurance,
certain legal fees, share-based compensation, depreciation, other
costs associated with clinical and preclinical activities and
regulatory operations and acquisition of in-process research and
development write-offs. Refundable research and development credits
/ tax credits received are recorded as an offset to these
costs.
Costs for certain development activities, such as Company funded
outside research programs, are recognized based on an evaluation of
the progress to completion of specific tasks with respect to their
actual costs incurred. Payments for these activities are based on
the terms of the individual arrangements, which may differ from the
pattern of costs incurred, and are reflected in the consolidated
financial statements as prepaid or accrued research and development
expense, as the case may be.
Share-Based Compensation Expense
Options
The Company grants share options to
employees, non-employee members of the Company’s
board of directors and non-employee consultants as
compensation for services performed. Employee
and non-employee members of the board of directors’
awards of share-based compensation are accounted for in accordance
with ASC 718, Compensation Stock
Compensation, .
Using this model, fair value is calculated based on assumptions
with respect to (i) the fair value of the Company’s
Ordinary Shares on the grant date; (ii) expected volatility of
the Company’s Ordinary Share price, (iii) the periods of
time over which employees and members of the Company’s board
of directors are expected to hold their options prior to exercise
(expected term), (iv) expected dividend yield on the
Company’s Ordinary Shares, and (v) risk-free interest
rates.
As there had been no public market for the Company’s Ordinary
Shares until the Company’s IPO on June 7, 2018, the
estimated fair value of the Ordinary Shares until that time had
been determined by the Company’s board of directors as of the
date of each option grant, with input from management, considering
the most recently available third-party valuations of Ordinary
Shares and the board of directors’ assessment of additional
objective and subjective factors that it believed were relevant and
which may have changed from the date of the most recent valuation
through the date of the grant. The fair value of Ordinary Shares
after the Company’s IPO was determined based upon the closing
share price on the date of grant.
The third party estimated the fair value of the equity using a
special case of the market approach known as the backsolve method.
The backsolve method was used to solve for the implied total equity
value based on the Company’s recent Series C financing round.
Consideration was given to the rights and preferences of each of
the Company’s classes of equity and the expected time to a
liquidity event. An option pricing allocation method, or OPM, was
selected to allocate the total equity value. The OPM treats
ordinary shares and preferred shares as call options on the total
equity value of a company, with exercise prices based on the value
thresholds at which the allocation among the various holders of a
company’s securities changes. Under this method, the Ordinary
Shares have value only if the funds available for distribution to
shareholders exceeded the value of the Preferred Shares’
liquidation preference at the time of the liquidity event, such as
a strategic sale or a merger. These third-party valuations resulted
in a valuation of the Company’s Ordinary Shares of $7.57,
$2.64 and $5.63 per share as of December 31,
2016, September 15, 2017 and December 31, 2017,
respectively.
The assumptions underlying these valuations represented
management’s best estimate, which involved inherent
uncertainties and the application of management’s judgment.
As a result, if the Company had used different assumptions or
estimates, the fair value of its Ordinary Shares and its
share-based compensation expense could have been materially
different.
Since the Company’s Ordinary Shares had not been traded on a
public exchange prior to the Company’s IPO and have only been
traded on a public exchange for a short period of time since the
Company’s IPO, the Company believes that it does not have
sufficient company-specific information available to determine the
expected term based on its historical data. As a result, the
expected term of share options granted to employees and members of
the Company’s board of directors is determined using the
average of the vesting period and contractual life of the option,
an accepted method for the Company’s option grants under the
SEC’s Staff Accounting Bulletin No. 107 and
No. 110, Share-Based Payment.
Similarly, the Company believes that its future volatility will
differ materially during the expected term from the volatility that
would be calculated from its historical share prices to date.
Consequently, expected volatility is based on an analysis of
guideline companies in accordance with ASC 718. The expected
dividend yield is zero as the Company has never paid dividends and
does not currently anticipate paying any in the foreseeable future.
Risk-free interest rates are based on quoted U.S. Treasury rates
for securities with maturities approximating the option’s
expected term.
The Company accounted for options granted
to non-employee consultants under
ASC 505-50, Equity-Based Payments
to Non-Employees, .
On July 1, 2018, the Company early adopted ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting all
Restricted Shares
In connection with certain service agreements and research
agreements, the Company has granted restricted Ordinary Shares as
compensation. The Ordinary Shares are recognized in the
consolidated statements of operations and comprehensive loss based
on their grant date fair values. Compensation cost relating to
share grants with service-based graded vesting schedules is
recognized based on the vesting schedule.
Leases
The Company recognizes rent expense for operating leases on a
straight-line basis over the term of the lease, beginning on the
date the Company takes possession of the property. Rent expense
includes the base amounts stated in the lease agreement as well as
the effect of reduced or free rent and rent escalations. At lease
inception, the Company determines the lease term by assuming the
exercise of those renewal options that are reasonably assured
because of the significant economic penalty that exists for not
exercising those options. The expected lease term is one of the
factors used to determine whether a lease is classified as an
operating or capital lease and is used to calculate the
straight-line rent expense. The difference between the cash paid to
the landlord and the amount recognized as rent expense on a
straight-line basis is included in deferred rent and classified
within long-term liabilities. Lease incentives made by landlords to
or on behalf of the Company for leasehold improvements are recorded
as deferred rent and classified as long-term liabilities.
Asset Retirement Obligation
Accounting for Asset Retirement Obligations requires legal
obligations associated with the retirement of long-lived assets to
be recognized at fair value when incurred and capitalized as part
of the related long-lived asset. In the absence of quoted market
prices, we estimate the fair value of our asset retirement
obligations using Level 3 present value techniques, in which
estimates of future cash flows associated with retirement
activities are discounted using a credit-adjusted risk-free rate.
Asset retirement obligations currently reported on our Consolidated
Balance Sheets were measured during a period of historically low
interest rates. The impact on measurements of new asset retirement
obligations using different rates in the future may be
significant.
The Company uses estimates to determine the amount of the asset
retirement obligations at the end of the lease term and discounts
such asset retirement obligations using an estimated discount rate.
Interest on the discounted asset retirement obligation is amortized
over the term of the lease using the effective interest method and
is recorded as interest expense in the consolidated statements of
operations and comprehensive loss.
The change in asset retirement obligations is as folows:
For the year
ended
2018 2017
Balance at beginning of year $ 178,419 $ 221,254
Inception of asset retirement obligation 69,286
—
Amortization of interest (38,301 ) 19,313
Change in estimate (99,090 ) (75,011 )
Effects of exchange rate 17,805 12,863
Balance at end of year $ 128,119 $ 178,419
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is defined as the change in
equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The only
component of other comprehensive income (loss) impacting the
Company is foreign currency translation.
Foreign Currencies
The Company’s consolidated financial statements are presented
in U.S. dollars, the reporting currency of the Company. The
financial position and results of operations of Meira UK II and
Meira B.V. are measured using the foreign subsidiaries’ local
currency as the functional currency. Meira UK II’s cash
accounts holding U.S. dollars are remeasured based upon the
exchange rate at the date of remeasurement with the resulting gain
or loss included in the consolidated statements of operations and
comprehensive loss. Expenses of such subsidiaries have been
translated into U.S. dollars at average exchange rates prevailing
during the period. Assets and liabilities have been translated at
the rates of exchange on the consolidated balance sheets dates. The
resulting translation gain and loss adjustments are recorded
directly as a separate component of shareholders’ equity and
as other comprehensive loss on the consolidated statements of
operations and comprehensive loss.
Segment Information
Management has concluded it has a single reporting segment for
purposes of reporting financial condition and results of
operations.
The following table summarizes non-current assets by geographical
area:
December 31, December 31,
United States $ 454,568 $ 436,463
United Kingdom 21,788,130 13,942,642
$ 22,242,698 $ 14,379,105
Accounting Pronouncements Recently Adopted
In June 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting, all
In January 2017, the FASB issued
ASU No. 2017-01, Business Combinations (Topic
805), Clarifying the Definition of a Business, ,
In December 2016, the FASB
issued ASU No. 2016-20, Technical
Corrections and Improvements to Topic 606, Revenue from Contracts
with
Customers,
In November 2016, the Financial Accounting Standards Board, or FASB
issued ASU No. 2016-18, Statement of Cash Flows (Topic
230), Restricted Cash
In May 2016, the FASB issued ASU No. 2016-12 , Revenue
from Contracts with Customers (Topic 606), Narrow-Scope
Improvements and Practical Expedients Revenue from Contracts
with Customers (Topic 606) Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date . Revenue from Contracts with Customers
(Topic 606), Identifying Performance Obligations and Licensing , Revenue from Contracts with
Customers (Topic 606), Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. Technical Corrections and
Improvements to Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities,
Recent Accounting Pronouncements Not Yet Adopted
In November 2018, the FASB issued Accounting Standards Update
No. 2018-18, Collaborative Arrangements (Topic 808):
Clarifying the Interaction between Topic 808 and Topic 606
(“ASU 2018-18”). The standard amends Accounting
Standards Codification 808, Collaborative Agreements and Accounting
Standards Codification 606, Revenue from Contracts with Customers,
to clarify the interaction between collaborative arrangement
participants that should be accounted for as revenue under ASC 606.
In transactions when the collaborative arrangement participant is a
customer in the context of a unit of account, revenue should be
accounted for using the guidance in Topic 606. The amendments in
Update No. 2018-18 are effective for fiscal years beginning
after December 15, 2019, and interim periods within those
fiscal years. The Company is currently evaluating the new
guidance included in ASU 2018-18, but does not expect it to have a
material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other
than Inventory
In February 2016, the FASB issued ASU No. 2016-02,
“Leases” (ASC 842). The amended guidance requires
lessees to recognize lease liabilities and right-of-use assets on
the balance sheet for all leases with terms longer than 12 months
and provides enhanced disclosures on key information of leasing
arrangements. In July 2018, further amendments were issued to
clarify how to apply certain aspects of the amended lease guidance
and to address certain implementation issues. The amended guidance
is effective for us commencing in the first quarter of 2019. Early
adoption is permitted. We plan to adopt the amended guidance on the
effective date and expect to elect the package of practical
expedients. We expect the adoption of the amended guidance will
materially affect our consolidated balance sheet and that the
primary impact will be recognition of minimum commitments at
present value of our noncancelable operating leases as lease
liabilities and corresponding right-of-use assets. In July 2018,
the FASB issued ASU No. 2018-10, which provides narrow
amendments to ASU No. 2016-02 to clarify how to apply the rate
implicit in the lease, impairment of the net investment in the
lease, lessee reassessment of lease classification, variable
payments that depend on an index or rate and certain transition
adjustments. In July 2018, the FASB also issued ASU
No. 2018-11, which provides targeted improvements to ASU
No. 2016-02 to provide entities the transition option to not
apply the standard in the comparative periods presented in the year
of adoption. The Company will adopt the new standard effective
January 1, 2019 using the modified retrospective transition
method using the practical expedients model and a discount rate in
the range of 8% to 10%, and elect to not apply the standard in the
comparative periods presented in the year of adoption. We estimate
that upon implementation, we will record a right-of-use asset
between $3.3 million and $3.6 million and a corresponding
liability between $3.6 million and $3.8 million. We are
continuing to evaluate the impact that the amended lease guidance
will have on our consolidated financial statements, systems,
processes and internal controls. |
