Business, Liquidity and Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Business, Liquidity and Summary of Significant Accounting Policies | Note 1 — Business, Liquidity and Summary of Significant Accounting Policies |
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Business |
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Business |
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We are a biotechnology company focused on the discovery, development and commercialization of nucleic acid-based therapies to treat orphan diseases. Our pipeline includes CEQ508, a product in clinical development for the treatment of Familial Adenomatous Polyposis (“FAP”), for which we have received Orphan Drug Designation (“ODD”) from the U.S. Food and Drug Administration (“FDA”), and preclinical programs for the treatment of type 1 myotonic dystrophy (“DM1”) and Duchenne muscular dystrophy (“DMD”). |
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Since 2010, we have strategically acquired/in-licensed and further developed nucleic acid chemistry and delivery-related technologies in order to establish a novel and differentiated drug discovery platform. This platform allows us to distinguish ourselves from others in the nucleic acid therapeutics area in that we are the only company capable of creating a wide variety of therapeutics targeting coding and non-coding RNA via multiple mechanisms of action such as RNA interference (“RNAi”), messenger RNA translational inhibition, exon skipping, microRNA (“miRNA”) replacement, miRNA inhibition, and steric blocking in order to modulate gene expression either up or down depending on the specific mechanism of action. Our goal is to dramatically improve the lives of the patients and families affected by orphan diseases through either our own efforts or those of our collaborators and licensees. |
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Liquidity |
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The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2015, we had an accumulated deficit of approximately $337.4 million, $111.7 million of which has been accumulated since we focused on RNA therapeutics in June 2008. To the extent that sufficient funding is available, we will continue to incur losses as we continue our research and development (“R&D”) activities. In addition, we have had and will continue to have negative cash flows from operations. We have funded our losses primarily through the sale of common and preferred stock and warrants, revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans. In 2014, we funded operations with a combination of the issuance of preferred stock and license-related revenues. At March 31, 2015, we had negative working capital of $0.6 million and $1.2 million in cash. Our resumed operating activities consume the majority of our cash resources. |
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We believe that our current cash resources will enable us to fund our intended limited operations through September 2015. Our ability to execute our operating plan beyond September 2015 depends on our ability to obtain additional funding. The volatility in our stock price, as well as market conditions in general, could make it difficult for us to raise capital on favorable terms, or at all. If we fail to obtain additional capital when required, we may have to modify, delay or abandon some or all of our planned activities, or terminate our operations. We are currently pursuing both non-dilutive means of obtaining additional capital, primarily from existing and potential future licenses and partnerships, and dilutive means of obtaining additional capital, primarily through the offering of our equity and debt securities. However, there can be no assurance that we will be successful in such endeavors. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
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Basis of Preparation and Summary of Significant Accounting Policies |
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Basis of Preparation — The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2014, included in our 2014 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 or for any future period. |
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Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Estimates having relatively higher significance include revenue recognition, stock-based compensation, valuation of warrants, valuation and estimated lives of identifiable intangible assets, impairment of long-lived assets, valuation of features embedded within note agreements and amendments, and income taxes. Actual results could differ from those estimates. |
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Fair Value of Financial Instruments — We consider the fair value of cash, accounts receivable, accounts payable and accrued liabilities to not be materially different from their carrying value. These financial instruments have short-term maturities. |
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We follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: |
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Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
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Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
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Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
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Our cash is subject to fair value measurement and value is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes using the Black-Scholes option pricing model (“Black-Scholes Model”) under various probability weighted scenarios, using Level 3 inputs. The following tables summarize our liabilities measured at fair value on a recurring basis as of December 31, 2014 and March 31, 2015: |
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| | | | | Level 1 | | | | | | Level 3 | | | | | | | | | |
| | Balance at | | | Quoted prices in | | | Level 2 | | | Significant | | | | | | | | | |
| | December 31, | | | active markets for | | | Significant other | | | unobservable | | | | | | | | | |
(In thousands) | | 2014 | | | identical assets | | | observable inputs | | | inputs | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value liability for price adjustable warrants | | $ | 9,225 | | | $ | - | | | $ | - | | | $ | 9,225 | | | | | | | | | |
Fair value liability for shares to be issued | | | 75 | | | | 75 | | | | - | | | | - | | | | | | | | | |
Total liabilities at fair value | | $ | 9,300 | | | $ | 75 | | | $ | - | | | $ | 9,225 | | | | | | | | | |
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| | | | | Level 1 | | | | | | Level 3 | | | | | | | | | |
| | | | | Quoted prices in | | | Level 2 | | | Significant | | | | | | | | | |
| | Balance at | | | active markets for | | | Significant other | | | unobservable | | | | | | | | | |
(In thousands) | | 31-Mar-15 | | | identical assets | | | observable inputs | | | inputs | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value liability for price adjustable warrants | | $ | 7,496 | | | $ | - | | | $ | - | | | $ | 7,496 | | | | | | | | | |
Total liabilities at fair value | | $ | 7,496 | | | $ | - | | | $ | - | | | $ | 7,496 | | | | | | | | | |
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The following presents activity of the fair value liability of price adjustable warrants determined by Level 3 inputs for the three-month period ended March 31, 2015: |
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| | | | | Weighted average as of each measurement date | |
| | Fair value | | | | | | | | | | | | | | | | |
| | liability for price | | | | | | | | | | | | Contractual | | | | |
| | adjustable warrants | | | Exercise | | | Stock | | | | | | life | | | Risk free | |
| | (in thousands) | | | Price | | | Price | | | Volatility | | | (in years) | | | rate | |
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Balance at December 31, 2014 | | $ | 9,225 | | | $ | 0.42 | | | $ | 0.95 | | | | 121 | % | | | 3.51 | | | | 0.9 | % |
Change in fair value included in statement of operations | | | (1,729 | ) | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2015 | | $ | 7,496 | | | $ | 0.42 | | | $ | 0.64 | | | | 110 | % | | | 2.42 | | | | 0.66 | % |
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Net Income (Loss) per Common Share — Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of common stock equivalents (stock options, unvested restricted stock, warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. The following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive: |
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| | Three Months Ended March 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2015 | | | | | | | | | | | | | | | | | |
Stock options outstanding | | | 284,829 | | | | 1,316,106 | | | | | | | | | | | | | | | | | |
Warrants | | | 21,235,695 | | | | 1,285,693 | | | | | | | | | | | | | | | | | |
Total | | | 21,520,524 | | | | 2,601,799 | | | | | | | | | | | | | | | | | |
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The following is a reconciliation of basic and diluted net income (loss) per share: |
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| | Three Months Ended March 31, | | | | | | | | | | | | | | | | |
| | 2014 | | 2015 | | | | | | | | | | | | | | | | |
Net income (loss) – numerator basic | | $ | (15,078 | ) | | $ | 414 | | | | | | | | | | | | | | | | | |
Change in fair value liability for price adjustable warrants | | | - | | | | (1,729 | ) | | | | | | | | | | | | | | | | |
Net loss excluding change in fair value liability for price adjustable warrants | | $ | (15,078 | ) | | $ | (1,315 | ) | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding – denominator basic | | | 21,447 | | | | 25,632 | | | | | | | | | | | | | | | | | |
Effect of price adjustable warrants | | | - | | | | 6,923 | | | | | | | | | | | | | | | | | |
Weighted average dilutive common shares outstanding | | | 21,447 | | | | 32,555 | | | | | | | | | | | | | | | | | |
Net income (loss) per common share – basic | | $ | (0.70 | ) | | $ | 0.02 | | | | | | | | | | | | | | | | | |
Net income (loss) per common share – diluted | | $ | (0.70 | ) | | $ | (0.04 | ) | | | | | | | | | | | | | | | | |
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Recently Issued Accounting Standards - In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-03, 'Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 is intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This new guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of this ASU on the financial statements. |
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In January 2015, FASB issued ASU 2015-01 “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. This ASU removes the concept of an extraordinary item. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. |