Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Presentation | ' |
(a) Basis of Presentation |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash, Cash Equivalents and Investments | ' |
(b) Cash, Cash Equivalents and Investments |
The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at December 31, 2013 and 2012 consisted of cash and money market funds. |
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Management determines the appropriate classification of marketable securities at the time of purchase. Investments that the Company does not have the positive intent to hold to maturity are classified as “available-for-sale” and reported at fair market value. Available-for-sale investments are classified as long-term if their contractual maturity is greater than one year at the balance sheet date and the Company does not have the intent to sell them in order to fund current operations. Unrealized gains and losses associated with available-for-sale investments are recorded in “Accumulated other comprehensive income” on the accompanying balance sheets. The amortization of premiums and accretion of discounts, and any realized gains and losses and declines in value judged to be other-than-temporary, and interest and dividends for all available-for-sale securities are included in “Investment income, net” on the accompanying statements of operations. Investments that the Company intends to hold to maturity are classified as “held-to-maturity” investments. The Company had no “held-to-maturity” investments at either December 31, 2013 or 2012. The cost of securities sold is based on the specific identification method. |
The Company had no realized gains or losses from available-for-sale securities in 2013, 2012 or 2011. There were no losses or other-than-temporary declines in value included in “Investment income, net” for any securities for the three years ended December 31, 2013. The Company had no auction rate securities as of December 31, 2013 and 2012. |
Restricted Cash | ' |
(c) Restricted Cash |
As part of the Company’s lease arrangement for its office and laboratory facility, the Company is required to restrict cash held in a certificate of deposit securing a line of credit for the lessor. As of December 31, 2013 and 2012, the restricted cash amounted to $311,000 held in certificates of deposit securing a line of credit for the lessor. In February 2014, the lease term was extended to August 31, 2017. As a result, the restricted cash is included in non-current assets at December 31, 2013. |
Depreciation and Amortization | ' |
(d) Depreciation and Amortization |
Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets. Laboratory and other equipment are depreciated over three to five years. Leasehold improvements are amortized over the remaining lease term or the related useful life, if shorter. |
Revenue Recognition | ' |
(e) Revenue Recognition |
For the years ended December 31, 2013, 2012 and 2011, alliance revenue consisted primarily of revenue from the reimbursement by licensees of costs associated with patent maintenance. The Company recognizes the reimbursement revenue during the period in which the related expenses are incurred. |
Financial Instruments | ' |
(f) Financial Instruments |
The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note 2(m). The Company is required to disclose the estimated fair values of its financial instruments. The Company’s financial instruments consist of cash, cash equivalents, available-for-sale investments and receivables. The estimated fair values of these financial instruments approximate their carrying values as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company did not have any derivatives, hedging instruments or other similar financial instruments except for the Series D convertible preferred stock, the (“Series D preferred stock”), embedded features discussed in Note 7(a) and the Series E convertible preferred stock, the (“Series E preferred stock”) embedded features discussed in Note 8(g). |
Comprehensive Income (Loss) | ' |
(g) Comprehensive Income (Loss) |
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. Comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011 is comprised of reported net income (loss) and any change in net unrealized gains and losses on investments during each year, which is included in “Accumulated other comprehensive income” on the accompanying balance sheets. The Company applies ASU No. 2011-05, “Comprehensive Income” by presenting the components of net income and other comprehensive income as one continuous statement. |
The following table includes the changes in the accumulated balance of the component of other comprehensive (loss) gain for the years ended December 31, 2013 and 2011: |
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| | Year ended December 31, | | | | | | | | | |
(In thousands) | | 2013 | | | 2011 | | | | | | | | | |
Accumulated unrealized gain on available-for-sale securities at beginning of period | | $ | — | | | $ | 13 | | | | | | | | | |
Change during the period | | | (7 | ) | | | (13 | ) | | | | | | | | |
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Accumulated unrealized loss on available-for-sale securities at end of period | | $ | (7 | ) | | $ | — | | | | | | | | | |
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There was no accumulated unrealized gain or loss on available-for-sale securities during 2012. |
Net Income (Loss) per Common Share Applicable to Common Stockholders | ' |
(h) Net Income (Loss) per Common Share applicable to Common Stockholders |
Basic and diluted net loss per common share applicable to common stockholders is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share applicable to common stockholders is the same as basic net loss per common share applicable to common stockholders for each of the three years ended December 31, 2013 as the effects of the Company’s potential common stock equivalents are antidilutive (see Note 12). |
Segment Reporting | ' |
(i) Segment Reporting |
The Company views its operations and manages its business as one operating segment. Accordingly, the Company operates in one segment, which is the business of discovering and developing novel therapeutics that modulate immune responses through TLRs. As a result, the financial information disclosed herein represents all of the material financial information related to the Company’s principal operating segment. For all of the periods presented, all of the Company’s revenues were generated in the United States. As of December 31, 2013 and 2012, all assets were located in the United States. |
Stock-Based Compensation | ' |
(j) Stock-Based Compensation |
The Company recognizes all share-based payments to employees and directors as expense in the statements of operations and comprehensive loss based on their fair values. The Company records compensation expense over an award’s requisite service period, or vesting period, based on the award’s fair value at the date of grant. The Company’s policy is to charge the fair value of stock options as an expense, adjusted for forfeitures, on a straight-line basis over the vesting period, which is generally four years for employees and three years for directors. Prior to December 2011, the vesting of all of the Company’s stock options was based on the passage of time and the employees’ continued service. In December 2011 and January 2012, the Company granted performance-based stock options to purchase 697,500 shares of common stock to employees. As of the grant date of such options, options to purchase 174,375 shares were to vest immediately upon the achievement of various performance conditions and options to purchase 523,125 shares were to vest over a three year service period upon the achievement of the same performance conditions. During 2012, three of the specified performance conditions were achieved. As a result, options to purchase 80,213 shares vested immediately, and options to purchase 240,640 shares began vesting over a three-year period in accordance with the terms of the performance-based options. As of June 30, 2013, the remaining performance-based options were forfeited as the remaining performance conditions had not been met by their deadlines. The Company recognizes expense over the implicit and explicit service periods for awards with performance conditions when the Company determines the achievement of the performance conditions to be probable. |
The Company recorded charges of $1,398,000, $2,096,000, and $2,725,000 for the years ended December 31, 2013, 2012 and 2011, respectively, for stock-based compensation expense attributable to share-based payments made to employees and directors. |
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions apply to the options to purchase 5,072,583, 187,500, and 1,671,000 shares of common stock granted to employees and directors during the years ended December 31, 2013, 2012 and 2011, respectively: |
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| | 2013 | | | 2012 | | | 2011 | | | | | |
Average risk free interest rate | | | 1.3 | % | | | 0.8 | % | | | 1.4 | % | | | | |
Expected dividend yield | | | — | | | | — | | | | — | | | | | |
Expected lives (years) | | | 5 | | | | 5.6 | | | | 6.3 | | | | | |
Expected volatility | | | 67 | % | | | 62 | % | | | 64 | % | | | | |
Weighted average grant date fair value of options granted during the period (per share) | | $ | 0.89 | | | $ | 0.51 | | | $ | 0.75 | | | | | |
Weighted average exercise price of options granted during the period (per share) | | $ | 1.55 | | | $ | 0.92 | | | $ | 1.26 | | | | | |
The expected lives of the options and the expected volatility are based on historical experience. All options granted during the three years ended December 31, 2013 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant. |
The fair value of options that vested during 2013, 2012 and 2011 amounted to $1,429,000, $2,123,000 and $2,707,000, respectively. The intrinsic value of options exercised amounted to $150,000 during 2013. There were no option exercises in 2012 and 2011. As of December 31, 2013, there was $4,543,000 of unrecognized compensation cost related to nonvested stock-based compensation arrangements, which the Company expects to recognize over a weighted average period of 3.4 years. |
Research and Development Expenses | ' |
(k) Research and Development Expenses |
All research and development expenses, including amounts funded by research collaborations, are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including drug development trials and studies, drug manufacturing, laboratory supplies, external research, payroll including stock-based compensation and overhead. |
Concentration of Credit Risk | ' |
(l) Concentration of Credit Risk |
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents and available-for-sale investments. The Company’s credit risk is managed by investing its cash and cash equivalents and marketable securities in highly rated money market instruments, certificates of deposit, corporate bonds, and debt securities. Due to these factors, no significant additional credit risk is believed by management to be inherent in the Company’s assets. As of December 31, 2013, all of the Company’s cash, cash equivalents and investments are held at one financial institution. |
Fair Value of Assets and Liabilities | ' |
(m) Fair Value of Assets and Liabilities |
The Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect the Company’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable Level 3 inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain. The Company applies ASU No. 2011-04, “Fair Value Measurement (Topic 820),” in its fair value measurements and disclosures. |
The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at December 31, 2013 and 2012 categorized by the level of inputs used in the valuation of each asset and liability. |
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(In thousands) | | Total | | | Quoted Prices | | | Significant | | | Significant | |
in Active | Other | Unobservable |
Markets | Observable | Inputs |
for Identical | Inputs | (Level 3) |
Assets or | (Level 2) | |
Liabilities | | |
(Level 1) | | |
December 31, 2013 | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Money market funds | | $ | 25,201 | | | $ | 25,201 | | | $ | — | | | $ | — | |
Short-term investments – commercial paper | | | 1,997 | | | | — | | | | 1,997 | | | | — | |
Short-term investments – corporate bonds | | | 1,128 | | | | | | | | 1,128 | | | | | |
Long-term investments | | | 6,189 | | | | — | | | | 6,189 | | | | — | |
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Total Assets | | $ | 34,515 | | | $ | 25,201 | | | $ | 9,314 | | | $ | — | |
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Total Liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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December 31, 2012 | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Money market funds | | $ | 9,990 | | | $ | 9,990 | | | $ | — | | | $ | — | |
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Total Assets | | $ | 9,990 | | | $ | 9,990 | | | $ | — | | | $ | — | |
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Total Liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of corporate bond and commercial paper investments whose fair value may not represent actual transactions of identical securities. The fair value of corporate bonds is generally determined from quoted market prices received from pricing services based upon quoted prices from active markets and/or other significant observable market transactions at fair value. The fair value of commercial paper is generally determined based on the relationship between the investment’s discount rate and the discount rates of the same issuer’s commercial paper available in the market which may not be actively traded daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as Level 2. Since any investments are classified as available-for-sale securities, any unrealized gains or losses are recorded in accumulated other comprehensive income or loss within stockholders’ equity on the balance sheet. The Company did not elect to measure any other financial assets or liabilities at fair value at December 31, 2013 or 2012. |
In connection with the sale of its Series D preferred stock in November 2011, the Company issued warrants which contained provisions for anti-dilution protection in the event that the Company issued other equity securities at a price below $1.46 per common share. Because of the potential adjustment to the warrant exercise price that could result from this anti-dilution protection, the warrants did not meet the criteria set forth in ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s own Stock” to be considered indexed to the Company’s own stock. Accordingly, the Company recorded the fair value of these warrants as a liability. The Company estimated the fair value of these warrants at the issuance date using the Black-Scholes Model as the result was not significantly different than the use of a lattice or binomial model because the price protection provision is subject to a floor of $1.46 per share and the initial exercise price is $1.63. The Company characterized this warrant liability as a Level 3 liability because its fair value measurement was based, in part, on significant inputs not observed in the market and reflects the Company’s assumptions as to the expected warrant exercise price, the expected volatility of the Company’s common stock, the expected dividend yield, the expected term of the warrant instrument and the expected percentage of warrants to be exercised. |
The Company revalued the warrants at the end of each quarter using the Black-Scholes Model and recognized the change in the fair value of the warrants in the statements of operations and comprehensive loss as other income (expense). The following assumptions and other inputs were used to compute the fair value of the warrant liability as of the November 4, 2011 issuance date, December 31, 2011 and November 9, 2012 when it was transferred to stockholders’ equity, as explained below: |
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| | November 4, | | | December 31, | | | November 9, | | | | | |
2011 | 2011 | 2012 | | | | |
Common stock price | | $ | 1.92 | | | $ | 1.05 | | | $ | 0.7 | | | | | |
Expected warrant exercise price | | $ | 1.46 | | | $ | 1.46 | | | $ | 1.46 | | | | | |
Remaining term of warrant (years) | | | 5 | | | | 4.8 | | | | 4 | | | | | |
Expected volatility | | | 61 | % | | | 58 | % | | | 59 | % | | | | |
Average risk free interest rate | | | 0.9 | % | | | 0.8 | % | | | 0.5 | % | | | | |
Expected dividend yield | | | — | | | | — | | | | — | | | | | |
Expected percentage of warrants to be exercised | | | 100 | % | | | 100 | % | | | 100 | % | | | | |
The closing price of the Company’s common stock is readily determinable since it is publicly traded. The exercise price of the warrant was initially set at $1.63 subject to adjustment to as low as the $1.46 minimum exercise price per share for diluting effects such as if in specified circumstances the Company sells its common stock at a price below $1.46 per share. The Company used the $1.46 minimum exercise price as an assumption in computing the fair value of the warrant at November 4, 2011 and December 31, 2011 because the Company’s common stock was trading below the $1.63 maximum exercise price as of such dates. The sale of shares of Series E preferred stock and Series E warrants in our November 2012 Series E financing triggered an anti-dilution adjustment under the terms of the Series D warrants, resulting in the exercise price of the Series D warrants being reduced and fixed at the minimum $1.46 per share and the Series D warrants no longer being subject to any anti-dilution adjustments. Since the exercise price of the Series D warrants became fixed, the Series D warrants then met the exception under ASC 815-40 as they were now “indexed to the company’s own stock” and met certain criteria for equity classification, thus the Series D warrants were marked to fair value through earnings as of November 9, 2012 and then reclassified to stockholders equity at that time. The estimated remaining term of the warrant is readily determinable from the warrant agreement as it is the remaining contractual term. The expected volatility is based on the actual stock-price volatility over a period equal to the greater of the remaining term of the warrant or three years. The assumed risk-free interest rate is based on the U.S. Treasury security rate with a term equal to the remaining term of the warrant. The assumed dividend yield of zero is based on the fact that the Company has never paid cash dividends to common stockholders and has no present intention to pay cash dividends to common stockholders. The Company assumed that future financings would dilute the warrant holder’s ownership in the Company such that the 19.99% ownership limitation would not prevent the warrant holder from exercising all of the warrants during the term of the warrants. |
Changes in the warrant liability from November 4, 2011 to November 9, 2012 were as follows: |
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(In thousands) | | Fair Value of | | | | | | | | | | | | | |
Warrant Liability | | | | | | | | | | | | |
Balance, November 4, 2011 | | $ | 3,152 | | | | | | | | | | | | | |
Decrease in fair value | | | (1,974 | ) | | | | | | | | | | | | |
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Balance, December 31, 2011 | | | 1,178 | | | | | | | | | | | | | |
Decrease in fair value | | | (675 | ) | | | | | | | | | | | | |
Transfer to stockholders’ equity | | | (503 | ) | | | | | | | | | | | | |
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Balance, November 9, 2012 | | $ | — | | | | | | | | | | | | | |
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The fair value of the warrants decreased from $3,152,000 at November 4, 2011 to $1,178,000 at December 31, 2011 primarily due to decreases in the market price of the Company’s common stock resulting in the recognition of $1,974,000 in non-operating income in 2011. The fair value of the warrants decreased from $1,178,000 at December 31, 2011 to $503,000 at November 9, 2012 primarily due to decreases in the market price of the Company’s common stock and the remaining term of the warrants resulting in the recognition of $675,000 of non-operating income during the period ended November 9, 2012 at which time the $503,000 fair value of the warrant liability was transferred to stockholders’ equity. |
The Company did not elect to measure any other financial assets or liabilities at fair value. |
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Accounting for Uncertainty in Income Taxes | ' |
The Company applies ASC 740-10, “Accounting for Uncertainty in Income Taxes, an interpretation of ASC 740.” ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The Company had no unrecognized tax benefits resulting from uncertain tax positions at December 31, 2013 and 2012. |