Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
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 |
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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, 2014 and 2013 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, 2014 or 2013. The cost of securities sold is based on the specific identification method. |
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The Company had no realized gains or losses from available-for-sale securities in 2014, 2013 or 2012. 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, 2014. The Company had no auction rate securities as of December 31, 2014 and 2013. |
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, 2014 and 2013, the restricted cash amounted to $311,000 held in certificates of deposit securing a line of credit for the lessor. |
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, 2014, 2013 and 2012, 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 |
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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, receivables and a note payable. The estimated fair values of these financial instruments approximate their carrying values as of December 31, 2014 and 2013. As of December 31, 2014, the Company did not have any derivatives, hedging instruments or other similar financial instruments except for the note issued under the Company’s loan and security agreement, which is discussed in Note 5(a), including put and call features which the Company determined are clearly and closely associated with the debt host and do not require bifurcation as a derivative liability, or the fair value of the feature is immaterial. As of December 31, 2013, 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) |
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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, 2014, 2013 and 2012 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 Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income” by presenting the components of net income and other comprehensive income as one continuous statement. |
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The following table includes the changes in the accumulated balance of the component of other comprehensive (loss) gain for the years ended December 31, 2014 and 2013: |
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| | Year ended December 31, | | | | | | | | | |
(In thousands) | | 2014 | | | 2013 | | | | | | | | | |
Accumulated unrealized loss on available-for-sale securities at beginning of period | | $ | (7 | ) | | $ | — | | | | | | | | | |
Change during the period | | | (10 | ) | | | (7 | ) | | | | | | | | |
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Accumulated unrealized loss on available-for-sale securities at end of period | | $ | (17 | ) | | $ | (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, 2014 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, 2014 and 2013, 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. |
The Company recorded charges of $4,322,000, $1,398,000, and $2,096,000 for the years ended December 31, 2014, 2013 and 2012, respectively, for stock-based compensation expense attributable to share-based payments made to employees and directors. The 2014 charge includes approximately $1,293,000 for the recognition of amortization associated with an employee’s options that were subject to accelerated vesting as a result of a modification. 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 8,232,424, 5,072,583, and 187,500 shares of common stock granted to employees and directors during the years ended December 31, 2014, 2013 and 2012, respectively: |
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| | 2014 | | | 2013 | | | 2012 | | | | | |
Average risk free interest rate | | | 1.4 | % | | | 1.3 | % | | | 0.8 | % | | | | |
Expected dividend yield | | | — | | | | — | | | | — | | | | | |
Expected lives (years) | | | 4.4 | | | | 5 | | | | 5.6 | | | | | |
Expected volatility | | | 86 | % | | | 67 | % | | | 62 | % | | | | |
Weighted average grant date fair value of options granted during the period (per share) | | $ | 2.36 | | | $ | 0.89 | | | $ | 0.51 | | | | | |
Weighted average exercise price of options granted during the period (per share) | | $ | 3.69 | | | $ | 1.55 | | | $ | 0.92 | | | | | |
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, 2014 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 2014, 2013 and 2012 amounted to $4,208,000, $1,429,000 and $2,123,000, respectively. The intrinsic value of options exercised amounted to $573,000 and $150,000 during 2014 and 2013, respectively. There were no option exercises in 2012. As of December 31, 2014, there was $18,669,000 of unrecognized compensation cost related to nonvested stock-based compensation arrangements, which the Company expects to recognize over a weighted average period of 3.6 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, 2014, all of the Company’s cash, cash equivalents and investments are held at two financial institutions. |
Fair Value of Assets and Liabilities | (m) Fair Value of Assets and Liabilities |
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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. |
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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, 2014 and 2013 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, 2014 | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Money market funds | | $ | 17,156 | | | $ | 17,156 | | | $ | — | | | $ | — | |
Other cash equivalents – commercial paper | | | 2,500 | | | | — | | | | 2,500 | | | | — | |
Short-term investments – commercial paper | | | 4,494 | | | | — | | | | 4,494 | | | | — | |
Short-tem investments – certificate of deposit | | | 500 | | | | — | | | | 500 | | | | — | |
Short-term investments – corporate bonds | | | 14,357 | | | | — | | | | 14,357 | | | | — | |
Short-term investments – municipal bonds | | | 1,905 | | | | — | | | | 1,905 | | | | — | |
Long-term investments | | | 7,344 | | | | — | | | | 7,344 | | | | — | |
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Total Assets | | $ | 48,256 | | | $ | 17,156 | | | $ | 31,100 | | | $ | — | |
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Total Liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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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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The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of corporate bond, commercial paper, certificate of deposit and municipal bond 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. The fair value of certificates of deposits approximates carrying value. 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, 2014 or 2013. |
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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” and the Company recorded the fair value of these warrants as a Level 3 liability at the issuance date using the Black-Scholes option pricing model based, in part, on the Company’s assumptions and significant inputs not observed in the market. The Company revalued the warrants at the end of each quarter using the Black-Scholes option pricing model and recognized the change in the fair value of the warrants in the statements of operations and comprehensive loss as other income (expense). |
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The sale of shares of Series E preferred stock and Series E warrants in the Company’s 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 “indexed to the company’s own stock” and met certain criteria for equity classification, thus the Series D warrants were marked to fair value 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. |
New Accounting Pronouncements - Recently Issued | (n) New Accounting Pronouncements — Recently Issued |
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In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-08 —Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this ASU require that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosure requirements for individually significant components that do not qualify as discontinued operations. This ASU will be effective prospectively for fiscal years beginning on or after December 15, 2014. Early adoption is permitted, but only for disposals that have not been previously reported in financial statements previously issued. The Company does not expect the adoption of this ASU to have a material effect on its financial statements. |
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In May 2014, the FASB issued ASU No. 2014-09 — Revenue from Contracts with Customers (Topic 606). This ASU requires an entity to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In particular, this ASU addresses contracts with more than one performance obligation, as well as the accounting for some costs to obtain or fulfill a contract with a customer, and provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. This ASU will be effective for fiscal years beginning after December 15, 2016. Early adoption of this ASU is not permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements. |
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, 2014 and 2013. |