Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Nature of Business | Nature of Business |
StemCells, Inc., a Delaware corporation, is a biopharmaceutical company that operates in one segment, the research, development, and commercialization of cell-based therapeutics and related technologies. |
The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern. Since inception, we have incurred annual losses and negative cash flows from operations and have an accumulated deficit of approximately $420 million at December 31, 2014. We have not derived significant revenue from the sale of products, and do not expect to receive significant revenue from product sales for at least several years. We may never be able to realize sufficient revenue to achieve or sustain profitability in the future. |
We expect to incur additional operating losses over the foreseeable future. We have limited liquidity and capital resources and must obtain significant additional capital and other resources in order to sustain our product development efforts, to provide funding for the acquisition of technologies and intellectual property rights, preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, general and administrative expenses and other working capital requirements. We rely on our cash reserves, proceeds from equity and debt offerings, proceeds from the transfer or sale of intellectual property rights, equipment, facilities or investments, government grants and funding from collaborative arrangements, to fund our operations. Funding may not be available when needed — at all or on terms acceptable to us. If we exhaust our cash reserves and are unable to obtain adequate financing, we may be unable to meet our operating obligations and we may be required to initiate bankruptcy proceedings. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. |
Principles of Consolidation | Principles of Consolidation |
The consolidated financial statements include the accounts of StemCells, Inc., and our wholly-owned subsidiaries, including StemCells California, Inc., Stem Cell Sciences Holdings Ltd (SCS), and Stem Cell Sciences (UK) Ltd (SCS UK). All significant intercompany accounts and transactions have been eliminated. |
Reclassifications | Reclassifications |
Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation. |
Use of Estimates | Use of Estimates |
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. |
Significant estimates include the following: |
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| • | | the fair value of share-based awards recognized as compensation (see Note 10, “Stock-Based Compensation”); | | | | | | | | | |
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| • | | valuation allowance against net deferred tax assets (see Note 18, “Income Taxes”); | | | | | | | | | |
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| • | | the fair value of warrants recorded as a liability (see Note 13, “Warrant Liability”); and | | | | | | | | | |
Financial Instruments | Financial Instruments |
Cash Equivalents and Marketable Securities |
All money market and highly liquid investments with a maturity of 90 days or less at the date of purchase are classified as cash equivalents. Highly liquid investments with maturities of 365 days or less not previously classified as cash equivalents are classified as marketable securities, current. Investments with maturities greater than 365 days are classified as marketable securities, non-current. |
Trade and Other Receivables |
Our receivables generally consist of interest income on our financial instruments, revenue from licensing agreements and grants, revenue from product sales, and rent from our sub-lease tenants. Because dollar amounts for individual transactions related to our product sales are not material and because we have a broad customer base, we regard the associated credit risk to be minimal. In the fourth quarter of 2014, we sold and completed the wind down of our subsidiary SCS UK’s operations in Cambridge, UK which includes our SC Proven product line. |
Estimated Fair Value of Financial Instruments | Estimated Fair Value of Financial Instruments |
The estimated fair values of cash and cash equivalents, receivables and accounts payable approximates their carrying values due to the short maturities of these instruments. |
Property, Plant and Equipment | Property, Plant and Equipment |
Property, plant and equipment, including those held under capital lease, are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, or the lease term if shorter, as follows: |
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Building and improvements | | | 3 - 20 years | | | | | | | | | |
Machinery and equipment | | | 3 - 10 years | | | | | | | | | |
Furniture and fixtures | | | 3 - 10 years | | | | | | | | | |
Repairs and maintenance costs are expensed as incurred. |
Discontinued Operations | Discontinued Operations |
The results of operations of a business that either has been disposed of or is classified as held-for-sale are reported in discontinued operations if the operations and cash flows of the component have been or will be eliminated from our ongoing operations as a result of the disposal transaction and we will not have any significant continuing involvement in the operations of the component after the disposal transaction. We present the operations of a business that meet this criteria as a discontinued operation, and retrospectively reclassify operating results for all prior periods presented. In the fourth quarter of 2014, as part of our strategy to focus on our clinical operations, we sold our SC Proven reagent and cell culture business and wound-down our business operations at our Subsidiary SCS UK in Cambridge, UK. The results of operations for this component have been classified as discontinued operations for all periods in our Consolidated Statement of Operations. |
Goodwill | Goodwill |
Goodwill is not amortized but subject to annual impairment tests. On April 1, 2009, we acquired the operations of SCS for an aggregate purchase price of approximately $5,135,000. Approximately 42% of the purchase price was allocated to Goodwill. The acquired operations included proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and infrastructure for providing cell-based assays for drug discovery; a cell culture products business; and an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion. In the fourth quarter of 2014, as part of our strategy to focus on our clinical operations, we sold our SC Proven reagent and cell culture business and wound-down our business operations at our Subsidiary SCS UK in Cambridge, UK. We also determined that we could not predict the future cash flows if any from the intellectual property portfolio acquired. Based on these factors, we determined that the Goodwill related to the acquisition was impaired and wrote off its carrying value of approximately $1,910,000. |
Intangible Assets (Patent and License Costs) | Intangible Assets (Patent and License Costs) |
Other intangible assets, net were approximately $357,000 at December 31, 2014. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited. Intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the assays technology. Therefore, we determined that the intangible asset was impaired and wrote off the approximately $655,000 carrying value of the asset. Similarly, in December 2014, based on our decision to focus all of our efforts on moving our clinical programs forward, we determined we could not predict the future cash flows from the intangible IPR&D asset related to our Transgenic Rat Program and determined that the intangible asset was impaired and wrote off the approximately $530,000 carrying value of the asset. |
Prior to fiscal year 2001, we capitalized certain patent costs, which are being amortized over the estimated life of the patent and would be expensed at the time such patents are deemed to have no continuing value. Since 2001, all patent costs are expensed as incurred. License costs are capitalized and amortized over the estimated life of the license agreement. |
Impairment of Long-Lived Tangible Assets | Impairment of Long-Lived Tangible Assets |
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property, plant, and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its estimated fair market value. In 2012, we recorded a charge of approximately $28,000 to adjust the fair value of certain lab equipment we expect to dispose. No such impairment was recognized during the year 2013 and 2014. |
Loan Payable | Loan Payable |
In April 2013, we entered into a Loan Agreement with Silicon Valley Bank (SVB) and received loan proceeds of $9,900,000, net of a $100,000 cash discount. The loan has a three-year term and bears interest at an annual rate of 6%. The loan obligations are secured by a first priority security interest on substantially all of our assets excluding intellectual property. There is also a final $1,000,000 fee payable at the end of the term which is being expensed over the term of the loan using the effective interest method. In conjunction with the Loan Agreement, we issued to SVB a ten year warrant to acquire 293,531 shares of common stock at an exercise price of $1.7034 per share. The warrant is immediately exercisable and expires in April 2023. We estimated the fair value of the warrant to be approximately $388,000 using the Black-Scholes option pricing model. We applied the relative fair value method to allocate the $9,900,000 net proceeds between the loan and warrant. The approximately $388,000 fair value allocated to the warrant was recorded as an increase to additional paid-in capital and as a discount to loan payable. Approximately $9,512,000 was assigned to the loan and was recorded as the initial carrying amount of the loan payable, net of discount. The approximately $388,000 fair value of the warrant and the $100,000 cash discount are both being amortized as additional interest expense over the term of the loan using the effective interest rate method. We also incurred loan issuance costs of approximately $117,000, which are recorded as deferred financing costs on the accompanying consolidated balance sheet and are being amortized to interest expense over the term of the Loan Agreement using the effective interest rate method. The effective interest rate used to amortize the deferred financing costs and the discount (including the fair value of the warrant and the cash discount), and for the accretion of the final payment, is 9.0%. |
In April 2013, we entered into an agreement with the California Institute for Regenerative Medicine (CIRM) under which CIRM will provide up to approximately $19.3 million as a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations. The CIRM loan was to help fund preclinical development of our HuCNS-SC cells for Alzheimer’s disease. Between July 2013 and August 2014, we received in aggregate, approximately $9.6 million as disbursements of the loan provided under the CIRM Loan Agreement. However in December 2014, as findings under this pre-clinical study in Alzheimer’s disease did not meet pre-determined criteria for ongoing funding for this program by CIRM, we decided to wind down this pre-clinical study which had been funded in part by the CIRM loan agreement. Under the terms of the CIRM loan agreement, principal amount of approximately $8,917,000 and accrued interest of approximately $243,000 were forgiven. However, authoritative accounting guidance requires certain conditions (which includes a legal release from the creditor) to be met before a liability can be extinguished and derecognized. In February 2015, we repaid CIRM approximately $679,000 of the aggregate loan proceeds received. |
Warrant Liability | Warrant Liability |
We account for our warrants in accordance with U.S. GAAP which defines how freestanding contracts that are indexed to and potentially settled in a company’s own stock should be measured and classified. Authoritative accounting guidance prescribes that only warrants issued by us under contracts that cannot be net-cash settled, and are both indexed to and settled in our common stock, can be classified as equity. As part of both our November 2008 and November 2009 financings, we issued warrants with five year terms to purchase 1,034,483 and 400,000 shares of our common stock at $23.00 and $15.00 per share, respectively. The 1,034,483 warrants issued as part of the November 2008 financing, expired unexercised by their own terms in May 2014. As part of our December 2011 financing, we issued Series A Warrants with a five year term to purchase 8,000,000 shares at $1.40 per share and Series B Warrants with a ninety trading day term to purchase 8,000,000 units at $1.25 per unit. Each unit underlying the Series B Warrants consisted of one share of our common stock and one Series A Warrant. In the first and second quarter of 2012, an aggregate of 2,700,000 Series B Warrants were exercised. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. As terms of the warrants issued in 2009, as well as the Series A Warrants, do not meet the specific conditions for equity classification, we are required to classify the fair value of these warrants as a liability, with subsequent changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The fair value of the warrants issued in the 2009 financing is determined using the Black-Scholes-Merton (Black-Scholes) option pricing model and the fair value of the Series A Warrants is determined using a Monte Carlo simulation model (see Note 13, “Warrant Liability”). The fair value is affected by changes in inputs to these models including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. The use of a Monte Carlo simulation model requires input of additional assumptions including the progress of our R&D programs and its affect on potential future financings. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. The estimated fair value of our warrant liability at December 31, 2014, was approximately $1,685,000. |
Revenue Recognition | Revenue Recognition |
We recognize revenue resulting from licensing agreements, government grants, and product sales. |
Licensing agreements — We currently recognize revenue resulting from the licensing and use of our technology and intellectual property. Such licensing agreements may contain multiple elements, such as up-front fees, payments related to the achievement of particular milestones and royalties. Revenue from up-front fees for licensing agreements that contain multiple elements are generally deferred and recognized on a straight-line basis over the term of the agreement. Fees associated with substantive at risk performance-based milestones are recognized as revenue upon completion of the scientific or regulatory event specified in the agreement, and royalties received are recognized as earned. Revenue from licensing agreements is recognized net of a fixed percentage due to licensors as royalties. |
Government grants — Grant revenue from government agencies are funds received to cover specific expenses and are recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the relevant collaborative agreement or grant. |
Product sales — We currently recognize revenue from the sale of products when the products are shipped, title to the products are transferred to the customer, when no further contingencies or material performance obligations are warranted, and thereby earning the right to receive reasonably assured payments for products sold and delivered. Cost of product sales includes labor, raw materials and shipping supplies. In the fourth quarter of 2014, we sold and completed the wind down of our subsidiary SCS UK’s operations in Cambridge, UK which includes our SC Proven product line. Product sales and its related costs are included in net loss from discontinued operations for all periods presented in our Consolidated Statement of Operations. |
Research and Development Costs | Research and Development Costs |
Our research and development expenses consist primarily of salaries and related personnel expenses; costs associated with clinical trials and regulatory submissions; costs associated with preclinical activities such as toxicology studies; certain patent-related costs such as licensing; facilities-related costs such as depreciation; lab equipment and supplies. Clinical trial expenses include payments to vendors such as clinical research organizations, contract manufacturers, clinical trial sites, laboratories for testing clinical samples and consultants. All research and development costs are expensed as incurred. |
Stock-Based Compensation | Stock-Based Compensation |
We expense the estimated fair value of our stock-based compensation awards. The estimated fair value is calculated using the Black-Scholes model. The compensation cost we record for these awards are based on their grant-date fair value as estimated and amortized over their vesting period. At the end of each reporting period we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust stock-based compensation expense accordingly. See Note 10, “Stock-Based Compensation” for further information. |
Income Taxes | Income Taxes |
When accounting for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities. |
Developing our provision for income taxes and analyzing our uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, any valuation allowances that may be required for deferred tax assets. |
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We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on such evidence that can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include: |
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| • | | cumulative losses in recent years; | | | | | | | | | |
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| • | | income/losses expected in future years; and | | | | | | | | | |
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| • | | the applicable statute of limitations. | | | | | | | | | |
Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied. |
We concluded that the realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Deferred tax liabilities related to indefinite-lived assets that cannot be used as a source of taxable income to support the realization of deferred tax assets are reported as a net deferred tax liability. |
Net Loss per Share | Net Loss per Share |
Basic net loss per share is computed based on the weighted-average number of shares of our common stock outstanding during the period. Diluted net loss per share is computed based on the weighted-average number of shares of our common stock and other dilutive securities. |
The following are the basic and dilutive net loss per share computations for the last three fiscal years: |
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| | 2014 | | | 2013 | | | 2012 | |
Net loss from continuing operations | | $ | (32,260,663 | ) | | $ | (25,986,692 | ) | | $ | (27,971,259 | ) |
Net loss from discontinued operations | | | (480,611 | ) | | | (452,467 | ) | | | (519,894 | ) |
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Net loss | | $ | (32,741,274 | ) | | $ | (26,439,159 | ) | | $ | (28,491,153 | ) |
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Weighted average shares outstanding used to compute basic and diluted net loss per share | | | 61,612,957 | | | | 43,422,001 | | | | 28,824,417 | |
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Basic and diluted net loss per share from continuing operations | | $ | (0.52 | ) | | $ | (0.60 | ) | | $ | (0.97 | ) |
Basic and diluted net loss per share from discontinued operations | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) |
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Basic and diluted net loss per share | | $ | (0.53 | ) | | $ | (0.61 | ) | | $ | (0.99 | ) |
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Outstanding options, warrants and restricted stock units were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive for all periods presented below: |
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| | 2014 | | | 2013 | | | 2012 | |
Outstanding options | | | 302,729 | | | | 428,258 | | | | 447,359 | |
Restricted stock units | | | 3,374,940 | | | | 3,326,282 | | | | 1,534,200 | |
Outstanding warrants | | | 23,478,181 | | | | 16,267,659 | | | | 9,935,912 | |
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Total | | | 27,155,850 | | | | 20,022,199 | | | | 11,917,471 | |
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Comprehensive Income (Loss) | Comprehensive Income (Loss) |
Comprehensive income (loss) is comprised of net losses and other comprehensive income (or “OCI”). OCI includes certain changes in stockholders’ equity that are excluded from net losses. Specifically, we include in OCI changes in unrealized gains and losses on our marketable securities and unrealized gains and losses on foreign currency translations. |
The components of our accumulated OCI, as of December 31 of each year shown, are as follows: |
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| | 2014 | | | 2013 | | | | | |
Unrealized gain on foreign currency translation | | $ | 65,390 | | | $ | 252,101 | | | | | |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements |
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. This update is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We do not expect the adoption of ASU 2014-15 to have a significant impact on our Consolidated Financial Statements or related disclosures. |
In April 2014, the 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 ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under this guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. This guidance is effective prospectively for all disposals of components of an entity that occur with annual periods beginning on or after December 15, 2014, and interim periods therein. We do not expect the adoption of ASU 2014-15 to have a significant impact on our Consolidated Financial Statements or related disclosures. |