rgnx-10q_20180930.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 001-37553

 

REGENXBIO Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-1851754

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

9600 Blackwell Road, Suite 210

Rockville, MD

 

20850

(Address of principal executive offices)

 

(Zip Code)

(240) 552-8181

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 2, 2018, there were 35,840,359 outstanding shares of the registrant’s common stock, par value $0.0001 per share.

 

 

 


Table of Contents

 

REGENXBIO INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017

 

3

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017

 

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

 

5

 

 

Notes to Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

Item 4.

 

Controls and Procedures

 

41

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

85

Item 3.

 

Defaults Upon Senior Securities

 

85

Item 4.

 

Mine Safety Disclosures

 

85

Item 5.

 

Other Information

 

85

Item 6.

 

Exhibits

 

87

Signatures

 

88

 

 

 


Table of Contents

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements express a belief, expectation or intention and are generally accompanied by words that convey projected future events or outcomes such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or by variations of such words or by similar expressions. We have based these forward-looking statements on our current expectations and assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, uncertainties, assumptions and other important factors, including, but not limited to:

 

the timing of enrollment, commencement and completion and the success of clinical trials conducted by us, our licensees and our partners;

 

the timing of commencement and completion and the success of preclinical studies conducted by us and our development partners;

 

the timely development and launch of new products;

 

the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved products;

 

the scope, progress, expansion and costs of developing and commercializing our product candidates;

 

our ability to obtain and maintain intellectual property protection for our product candidates and technology;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

the anticipated trends and challenges in our business and the market in which we operate;

 

our ability to attract or retain key personnel;

 

the size and growth of the potential markets for our product candidates and the ability to serve those markets;

 

the rate and degree of market acceptance of any of our product candidates;

 

our ability to establish and maintain development partnerships;

 

our expectations regarding our expenses and revenue;

 

our expectations regarding regulatory developments in the United States and foreign countries; and

 

the use or sufficiency of our cash and cash equivalents and needs for additional financing.

You should carefully read the factors discussed in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2017 and in our other filings with the U.S. Securities and Exchange Commission (the SEC) for additional discussion of the risks, uncertainties, assumptions and other important factors that could cause our actual results or developments to differ materially and adversely from those projected in the forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on us or our businesses or operations. Such statements are not guarantees of future performance and actual results or developments may differ materially and adversely from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of this report. Except as required by law and the rules of the SEC, we do not undertake any obligation, and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Exchange Act. You may obtain any reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

You also may view and download copies of our SEC filings free of charge at our website, www.regenxbio.com. The information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and is not considered part of, this Quarterly Report on Form 10-Q. Investors should also note that we use our website, as well as SEC filings, press releases, public conference calls and webcasts, to announce financial information and other material developments regarding our business. We use these channels, as well as any social media channels listed on our website, to communicate with investors and members of the public about our business. It is possible that the information that we post on our social media channels could be deemed material information. Therefore, we encourage investors, the media and others interested in our company to review the information that we post on our social media channels.

As used in this Quarterly Report on Form 10-Q, the terms “REGENXBIO,” “we,” “us,” “our” or the “Company” mean REGENXBIO Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

NAV, REGENXBIO and the REGENXBIO logos are our registered trademarks. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

REGENXBIO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

142,423

 

 

$

46,656

 

Marketable securities

 

 

230,166

 

 

 

114,122

 

Accounts receivable

 

 

2,626

 

 

 

473

 

Prepaid expenses

 

 

6,308

 

 

 

5,334

 

Other current assets

 

 

4,834

 

 

 

1,412

 

Total current assets

 

 

386,357

 

 

 

167,997

 

Marketable securities

 

 

102,296

 

 

 

15,616

 

Accounts receivable

 

 

4,600

 

 

 

 

Property and equipment, net

 

 

19,856

 

 

 

13,977

 

Restricted cash

 

 

225

 

 

 

225

 

Other assets

 

 

1,650

 

 

 

862

 

Total assets

 

$

514,984

 

 

$

198,677

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,214

 

 

$

4,832

 

Accrued expenses and other current liabilities

 

 

13,306

 

 

 

9,605

 

Deferred revenue

 

 

600

 

 

 

 

Total current liabilities

 

 

19,120

 

 

 

14,437

 

Deferred rent, net of current portion

 

 

1,116

 

 

 

1,211

 

Other liabilities

 

 

691

 

 

 

 

Total liabilities

 

 

20,927

 

 

 

15,648

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 10,000 shares authorized, and no shares issued

   and outstanding at September 30, 2018 and December 31, 2017

 

 

 

 

 

 

Common stock; $0.0001 par value; 100,000 shares authorized at September 30, 2018

   and December 31, 2017; 35,704 and 31,295 shares issued and outstanding at

   September 30, 2018 and December 31, 2017, respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

582,249

 

 

 

371,497

 

Accumulated other comprehensive loss

 

 

(874

)

 

 

(715

)

Accumulated deficit

 

 

(87,322

)

 

 

(187,756

)

Total stockholders’ equity

 

 

494,057

 

 

 

183,029

 

Total liabilities and stockholders’ equity

 

$

514,984

 

 

$

198,677

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

5,306

 

 

$

1,335

 

 

$

177,728

 

 

$

8,345

 

Other revenues

 

 

 

 

 

1

 

 

 

 

 

 

8

 

Total revenues

 

 

5,306

 

 

 

1,336

 

 

 

177,728

 

 

 

8,353

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licensing costs

 

 

517

 

 

 

683

 

 

 

6,797

 

 

 

2,085

 

Other

 

 

 

 

 

 

 

 

 

 

 

6

 

Research and development

 

 

18,508

 

 

 

12,518

 

 

 

59,544

 

 

 

43,054

 

General and administrative

 

 

9,008

 

 

 

9,444

 

 

 

25,706

 

 

 

22,421

 

Other operating expenses (income)

 

 

(2

)

 

 

 

 

 

31

 

 

 

74

 

Total operating expenses

 

 

28,031

 

 

 

22,645

 

 

 

92,078

 

 

 

67,640

 

Income (loss) from operations

 

 

(22,725

)

 

 

(21,309

)

 

 

85,650

 

 

 

(59,287

)

Other Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income from licensing

 

 

109

 

 

 

 

 

 

8,362

 

 

 

 

Investment income

 

 

2,122

 

 

 

603

 

 

 

4,177

 

 

 

2,115

 

Total other income

 

 

2,231

 

 

 

603

 

 

 

12,539

 

 

 

2,115

 

Income (loss) before income taxes

 

 

(20,494

)

 

 

(20,706

)

 

 

98,189

 

 

 

(57,172

)

Income Tax Benefit (Expense)

 

 

1,292

 

 

 

 

 

 

(2,558

)

 

 

 

Net income (loss)

 

$

(19,202

)

 

$

(20,706

)

 

$

95,631

 

 

$

(57,172

)

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities,

   net of reclassifications and income tax expense

 

 

(103

)

 

 

93

 

 

 

(159

)

 

 

(521

)

Total other comprehensive income (loss)

 

 

(103

)

 

 

93

 

 

 

(159

)

 

 

(521

)

Comprehensive income (loss)

 

$

(19,305

)

 

$

(20,613

)

 

$

95,472

 

 

$

(57,693

)

Net income (loss) applicable to common stockholders

 

$

(19,202

)

 

$

(20,706

)

 

$

95,631

 

 

$

(57,172

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.56

)

 

$

(0.67

)

 

$

2.94

 

 

$

(1.94

)

Diluted

 

$

(0.56

)

 

$

(0.67

)

 

$

2.67

 

 

$

(1.94

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

33,988

 

 

 

30,940

 

 

 

32,576

 

 

 

29,440

 

Diluted

 

 

33,988

 

 

 

30,940

 

 

 

35,875

 

 

 

29,440

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

95,631

 

 

$

(57,172

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

11,755

 

 

 

7,809

 

Net amortization of premiums and accretion of discounts on marketable debt securities

 

 

889

 

 

 

1,410

 

Depreciation and amortization

 

 

2,671

 

 

 

1,963

 

Net realized losses (gains) on sales of marketable securities

 

 

15

 

 

 

(479

)

Imputed interest income from licensing

 

 

(8,362

)

 

 

 

Non-cash consideration received for licenses granted

 

 

 

 

 

(420

)

Other non-cash adjustments

 

 

12

 

 

 

39

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

6,986

 

 

 

150

 

Prepaid expenses

 

 

(974

)

 

 

(1,450

)

Other current assets

 

 

(3,072

)

 

 

(380

)

Other assets

 

 

(788

)

 

 

(109

)

Accounts payable

 

 

156

 

 

 

1,142

 

Accrued expenses and other current liabilities

 

 

3,438

 

 

 

3,449

 

Deferred revenue

 

 

600

 

 

 

 

Deferred rent

 

 

(41

)

 

 

(118

)

Other liabilities

 

 

(128

)

 

 

 

Net cash provided by (used in) operating activities

 

 

108,788

 

 

 

(44,166

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(319,897

)

 

 

(46,593

)

Maturities of marketable securities

 

 

116,110

 

 

 

47,225

 

Sales of marketable securities

 

 

 

 

 

780

 

Purchases of property and equipment

 

 

(8,389

)

 

 

(5,059

)

Net cash used in investing activities

 

 

(212,176

)

 

 

(3,647

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

9,051

 

 

 

752

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

850

 

 

 

556

 

Proceeds from public offering of common stock, net of underwriting discounts

   and commissions

 

 

189,716

 

 

 

81,994

 

Issuance costs for public offering of common stock

 

 

(462

)

 

 

(445

)

Net cash provided by financing activities

 

 

199,155

 

 

 

82,857

 

Net increase in cash and cash equivalents and restricted cash

 

 

95,767

 

 

 

35,044

 

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

46,881

 

 

 

25,065

 

End of period

 

$

142,648

 

 

$

60,109

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

174

 

 

$

 

Non-cash consideration received for licenses granted

 

$

 

 

$

420

 

Issuance costs for public offering of common stock in accounts payable and

   accrued expenses

 

$

157

 

 

$

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

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REGENXBIO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Nature of Business

REGENXBIO Inc. (the Company) is a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company’s proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The Company’s NAV® Technology Platform is being applied by the Company, as well as by third-party licensees (NAV Technology Licensees), in the development of product candidates for a variety of diseases with unmet needs. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland.

Liquidity and Risks

In August 2018, the Company completed a follow-on public offering of 3,105,000 shares of its common stock (inclusive of 405,000 shares pursuant to the full exercise by the underwriters of their option to purchase additional shares) at a price of $65.00 per share. The aggregate net proceeds received by the Company from the offering, inclusive of the underwriters’ option exercise, were $189.1 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

As of September 30, 2018, the Company had generated an accumulated deficit of $87.3 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring profitability is dependent upon the successful development, approval and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital. As of September 30, 2018, the Company had cash, cash equivalents and marketable securities of $474.9 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued.

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, development by the Company or its competitors of technological innovations, risks of failure of clinical trials, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to transition from clinical manufacturing to the commercial production of products.

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 6, 2018. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which include all normal and recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2018, and the results of its operations and its cash flows for the interim periods ended September 30, 2018 and 2017.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2017, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those 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 consolidated financial statements. Estimates are used in the following areas, among others: revenue, stock-based compensation expense, accrued research and development expenses and other accrued expenses, income taxes and the fair value of financial instruments.

Accounts Receivable

Accounts receivable primarily consist of consideration due to the Company resulting from its license agreements with NAV Technology Licensees. Accounts receivable include amounts invoiced to licensees as well as rights to consideration which have not yet been invoiced to licensees and for which payment is conditional solely upon the passage of time. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any accounts receivable from the licensee which are not contractually payable to the Company are charged off as a reduction of license revenue in the period of the termination. Accounts receivable from licensees which are not expected to be received by the Company within 12 months from the reporting date are stated net of a discount to present value and recorded as non-current assets on the consolidated balance sheets.

Receivables are stated net of an allowance for doubtful accounts, if deemed necessary based on the Company’s evaluation of collectability using specific identification of account balances, the credit profile of its customers and historical information regarding write-offs. Account balances are charged off against the allowance when the potential for recovery is considered remote. The Company did not record an allowance for doubtful accounts as of September 30, 2018 or December 31, 2017.

Non-marketable Equity Securities

The Company’s non-marketable equity securities do not have readily determinable fair values and consist of equity investments in other entities in which the Company’s ownership interest is below 20% and the Company does not have significant influence over the operations of the entity. Prior to January 1, 2018, non-marketable equity securities were accounted for using the cost method and measured at cost less impairment. Beginning January 1, 2018, upon the Company’s adoption of ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, non-marketable equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. Please refer to Note 4 for further information on non-marketable equity securities.

Fair Value of Financial Instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

 

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

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To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (Topic 605). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 606 and the impact upon adoption to the Company’s financial position and results of operations.

Topic 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following five steps are performed to determine the appropriate revenue recognition for arrangements within the scope of Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies the performance obligations.

The Company applies the five-step model to contracts that are within the scope of Topic 606 only when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, for contracts within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determined those that are performance obligations and whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to respective performance obligations when (or as) the respective performance obligations are satisfied.

The Company evaluates its contracts for the presence of significant financing components. If a significant financing component is identified in a contract and provides a financing benefit to the customer, the transaction price for the contract is adjusted to account for the financing portion of the arrangement, which is recognized as interest income over the financing term using the effective interest method. In determining the appropriate interest rates for significant financing components, the Company evaluates the credit profile of the customer and prevailing market interest rates and selects an interest rate in which it believes would be charged to the customer in a separate financing arrangement over a similar financing term.

License revenue

The Company licenses its NAV Technology Platform to other biotechnology and pharmaceutical companies. The terms of the licenses vary, and licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the Company’s NAV Technology Platform. License agreements generally have a term at least equal to the life of the underlying patents, but are terminable at the option of the licensee. Consideration to the Company under its license agreements may include: (i) up-front fees, (ii) option fees to obtain additional licenses, (iii) annual maintenance fees, (iv) milestone payments based on the achievement of certain development and sales-based milestones by licensees, (v) sublicense fees and (vi) royalties on sales of licensed products.

The Company has determined that all of its license agreements are contracts with customers within the scope of Topic 606. Although licenses are terminable at the option of licensee, the Company has determined that there is a substantive termination penalty associated with the termination of each license. Due to the substantive termination penalty, the contract term for purposes of applying Topic 606 is equal to the stated term of the license agreement, which is the life of the underlying licensed patents. The Company’s performance obligations under its license agreements include the delivery of intellectual property licenses to licensees as well as options granted to licensees to acquire future licenses to the extent the options represent material rights to the licensee. The transaction price for each license agreement is allocated to these performance obligations and recognized as revenue when the performance obligations are satisfied. Consideration allocated to performance obligations for the delivery of intellectual property licenses is recognized as revenue upon the delivery of the license(s) to the licensee, which generally occurs upon the execution of the license agreement. Consideration allocated to performance obligations for license options is recognized as revenue upon the earlier of the option exercise or expiration.

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For license agreements which contain options for the licensee to purchase additional licenses in the future, the Company evaluates the options at the inception of the agreement to determine if they provide a material right to the licensee. In making this determination, the Company considers whether the optional licenses are priced at a discount to the standalone selling price for the licenses. For options granted which are deemed to be material rights to the licensee, the Company allocates a portion of the transaction price to the performance obligation for the option and recognizes that consideration as revenue at the earlier of option exercise or expiration. Options which are not material rights to licensees are not considered performance obligations and are not accounted for as part of the license agreement until exercised by the licensee. Consideration contingent upon the exercise of options by licensees is excluded from the transaction price and not accounted for as part of the license agreement until the option is exercised. Upon the exercise of an option by a licensee, the additional consideration related to the option exercise is added to the transaction price and recognized as revenue upon the delivery of the newly purchased license.

The Company evaluates the transaction price for its license agreements at each reporting date. The transaction price for each license includes all fixed consideration, as well as variable consideration to the extent that it is probable that a significant reversal of revenue will not occur in the future. Fixed consideration under the Company’s license agreements includes up-front fees and annual maintenance fees. Variable consideration under the Company’s license agreements includes development and sales-based milestone payments, sublicense fees and royalties on sales of licensed products.

Up-front license fees are included in the transaction price and recognized as revenue upon the delivery of the license. If up-front license fees are payable to Company in periods beyond 12 months from the delivery of the license, a significant financing component is deemed to exist and the Company adjusts the transaction price to include only the present value of the license fees. The discounted portion of the license fees is recognized as interest income in the consolidated statements of operations over the term of the financing period.

Annual maintenance fees are generally payable to the Company on each anniversary date over the term of the license agreement. The Company has determined that the payment of annual maintenance fees by licensees in future periods represents a significant financing component to the license since the delivery of the license occurs at the inception of the agreement. The present value of aggregate annual maintenance fees payable to the Company over the term of the license is included in the transaction price and recognized as revenue upon the delivery of the license. The discounted portion of the annual maintenance fees is recognized as interest income in the consolidated statements of operations over the term of the license.

Development milestone payments are payable to the Company upon the achievement of specified development milestones by licensees. At the inception of each license agreement that contains development milestone payments, the Company evaluates whether the milestones are considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal will not occur in the future, milestone payments are included in the transaction price and recognized as revenue upon the delivery of the license. Milestone payments contingent on the achievement of development milestones that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved and are excluded from the transaction price until the milestone is achieved. At each reporting date, the Company re-evaluates the probability of achievement of outstanding development milestones and, if necessary, adjusts the transaction price for any milestones for which the probability of achievement has changed due to current facts and circumstances. Any such adjustments are recorded on a cumulative catch-up basis and recorded as license revenue in the period of the adjustment.

Royalties on sales of licensed products, sales-based milestone payments and sublicense fees based on the receipt of certain fees by licensees from any sublicensees are excluded from the transaction price for each license and recognized as revenue in the period that the related sales or sublicenses occur, provided that the associated license has been delivered to the licensee. To date the Company has not recognized any revenue from royalties on sales of licensed products, the achievement of sales-based milestones or sublicense fees.

The Company receives payments from licensees based on the billing schedules established in each license agreement. Amounts recognized as revenue which have not yet been received from licensees are recorded as accounts receivable when the Company’s rights to the consideration are conditional solely upon the passage of time. Amounts recognized as revenue which have not yet been received from licensees are recorded as contract assets when the Company’s rights to the consideration are not unconditional. Contract assets are recorded as other current assets on the consolidated balance sheets. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any consideration recorded as accounts receivable or contract assets which is not contractually payable by the licensee is charged off as a reduction of license revenue in the period of the termination. Amounts received by the Company prior to the delivery of underlying performance obligations are deferred and recognized as revenue upon the satisfaction of the performance obligations by the Company.

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Costs of Revenues

Licensing costs consist of sublicense fees incurred by the Company to its licensors as a result of license revenues generated by the Company. Sublicense fees are based on a percentage of license fees received by the Company from licensees as specified in the Company’s agreements with its licensors. The Company recognizes sublicense fees in the period that the underlying license revenue is recognized. Sublicense fees payable by the Company to licensors in periods beyond 12 months from the reporting are recorded as non-current liabilities on the consolidated balance sheets.

Stock-based Compensation

The Company accounts for its stock-based compensation awards in accordance with FASB ASC 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees and nonemployees, including stock options and restricted stock units, to be recognized in the consolidated statement of operations and comprehensive loss based on their fair values.

The Company’s stock-based awards are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees and nonemployees with service-based vesting conditions is recognized on a straight-line basis based on the estimated grant date fair value over the associate service period of the award, which is generally the vesting term. Compensation expense related to awards to employees and nonemployees with performance-based vesting conditions is recognized based on the estimated grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable.

The Company estimates the fair value of its stock option awards to employees and nonemployees using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (i) the fair value of the underlying common stock, (ii) the expected stock price volatility, (iii) the expected term of the award, (iv) the risk-free interest rate and (v) expected dividends. Due to the lack of Company-specific historical and implied volatility data of its common stock, the Company has based its estimate of expected volatility on its own historical volatility as well as the historical volatility of a group of similar companies that are publicly traded. Due to the lack of historical trading data for its common stock, the Company places a higher weight on the historical volatility of the selected peer group in estimating historical volatility. When selecting these public companies on which it has based its expected stock price volatility, the Company selects companies with comparable characteristics to it, including enterprise value, risk profiles and position within the industry and with historical share price information sufficient to meet the expected term of the Company’s stock-based awards. The Company computes historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this method of estimating expected volatility until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available. The Company estimates the expected term of its employee stock options using the “simplified” method, whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. For stock options granted to nonemployees, the Company uses the contractual term of the award rather than expected term to estimate the fair value of the award. The Company estimates the risk-free interest rates for periods within the expected term of its options based on the rates of U.S. Treasury securities with maturity dates commensurate with the expected term of the associated awards. The Company has never paid and does not expect to pay dividends in the foreseeable future.

The Company estimates the fair value of restricted stock units based on the fair value of the Company’s common stock on the date of the grant.

On July 1, 2018, the Company adopted ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting. Prior to the adoption of this standard, compensation expense for the Company’s stock-based awards to nonemployees was based on the then-current fair value of the awards at each reporting date prior to the measurement date, which is generally the vesting date. Upon the adoption of ASU 2018-07, these awards will no longer be remeasured and any new stock-based awards granted to nonemployees after the adoption of the new standard will be measured at the estimated grant date fair value of the awards.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income (loss) per share until the contingency has been fully met. For purposes of the diluted net income (loss) per share calculation, common stock equivalents are excluded from the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.

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Recent Accounting Pronouncements

Adoption of ASU 2014-09, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (Topic 605). Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method. Under this method, the Company applied Topic 606 to all contracts with customers which were not completed as of January 1, 2018 and recorded the cumulative impact of the adoption as an adjustment to its accumulated deficit on January 1, 2018. The Company’s financial results for periods ending after January 1, 2018 are presented in accordance with the requirements of Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 605. Please refer to Revenue Recognition above for additional information on Topic 606, including a description of the Company’s revenue recognition policies upon adoption.

The Company recorded a net reduction in opening accumulated deficit of $4.8 million as of January 1, 2018 for the cumulative impact of adoption of Topic 606, which was primarily the result of accelerated recognition of license revenue due to annual maintenance fees under Topic 606. Under Topic 605, annual maintenance fees payable to the Company by licensees were recognized as license revenue annually when the amounts became fixed or determinable. Under Topic 606, the present value of aggregate annual maintenance fees over the term of the license agreement are recognized as revenue upon the delivery of the license to the licensee. The impact of the accelerated recognition of license revenue upon adoption was partially offset by the accelerated recognition of licensing costs to the Company’s licensors. The Company recognizes sublicense fees to its licensors in the period the underlying license revenue is recognized.

The cumulative adjustment for the adoption of Topic 606 had the following effects on the Company’s consolidated balance sheet as of January 1, 2018 (in thousands):

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

 

Adjustment for

 

 

 

 

 

 

 

Balance at

 

 

Adoption of

 

 

Balance at

 

 

 

December 31, 2017

 

 

Topic 606

 

 

January 1, 2018

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, current

 

$

473

 

 

$

527

 

 

$

1,000

 

Accounts receivable, non-current

 

$

 

 

$

4,850

 

 

$

4,850

 

Other current assets

 

$

1,412

 

 

$

350

 

 

$

1,762

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

$

9,605

 

 

$

105

 

 

$

9,710

 

Other liabilities

 

$

 

 

$

819

 

 

$

819

 

Stockholdersʼ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(187,756

)

 

$

4,803

 

 

$

(182,953

)

The following tables present the effects of the adoption of Topic 606 on each financial statement line item of the Company’s financial statements for the interim periods ended September 30, 2018 (in thousands, except per share data):

 

 

 

As of September 30, 2018

 

 

 

 

 

 

 

Impact of

 

 

Results Without

 

 

 

 

 

 

 

Adoption of

 

 

Adoption of

 

 

 

As Reported

 

 

Topic 606

 

 

Topic 606

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, current

 

$

2,626

 

 

$

626

 

 

$

2,000

 

Accounts receivable, non-current

 

$

4,600

 

 

$

4,600

 

 

$

 

Prepaid expenses

 

$

6,308

 

 

$

60

 

 

$

6,248

 

Other current assets

 

$

4,834

 

 

$

2,000

 

 

$

2,834

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

$

13,306

 

 

$

322

 

 

$

12,984

 

Deferred revenue

 

$

600

 

 

$

600

 

 

$

 

Other liabilities

 

$

691

 

 

$

691

 

 

$

 

Stockholdersʼ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(87,322

)

 

$

5,673

 

 

$

(92,995

)

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Three Months Ended September 30, 2018

 

 

 

 

 

 

 

Impact of

 

 

Results Without

 

 

 

 

 

 

 

Adoption of

 

 

Adoption of

 

 

 

As Reported

 

 

Topic 606

 

 

Topic 606

 

Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

5,306

 

 

$

2,066

 

 

$

3,240

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Licensing costs

 

$

517

 

 

$

193

 

 

$

324

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income from licensing

 

$

109

 

 

$

109

 

 

$

 

Net Income (Loss)

 

$

(19,202

)

 

$

1,982

 

 

$

(21,184

)

Net Income (Loss) Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.56

)

 

$

0.06

 

 

$

(0.62

)

Diluted

 

$

(0.56

)

 

$

0.06

 

 

$

(0.62

)

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

Impact of

 

 

Results Without

 

 

 

 

 

 

 

Adoption of

 

 

Adoption of

 

 

 

As Reported

 

 

Topic 606

 

 

Topic 606

 

Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

177,728

 

 

$

(7,462

)

 

$

185,190

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Licensing costs

 

$

6,797

 

 

$

30

 

 

$

6,767

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income from licensing

 

$

8,362

 

 

$

8,362

 

 

$

 

Net Income (Loss)

 

$

95,631

 

 

$

870

 

 

$

94,761

 

Net Income (Loss) Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.94

 

 

$

0.03

 

 

$

2.91

 

Diluted

 

$

2.67

 

 

$

0.03

 

 

$

2.64

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

Impact of

 

 

Results Without

 

 

 

 

 

 

 

Adoption of

 

 

Adoption of

 

 

 

As Reported

 

 

Topic 606

 

 

Topic 606

 

Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

95,631

 

 

$

870

 

 

$

94,761

 

Imputed interest income from licensing

 

$

(8,362

)

 

$

(8,362

)

 

$

 

Changes in accounts receivable

 

$

6,986

 

 

$

8,513

 

 

$

(1,527

)

Changes in prepaid expenses

 

$

(974

)

 

$

(60

)

 

$

(914

)

Changes in other current assets

 

$

(3,072

)

 

$

(1,650

)

 

$

(1,422

)

Changes in accrued expenses and other current liabilities

 

$

3,438

 

 

$

217

 

 

$

3,221

 

Changes in deferred revenue

 

$

600

 

 

$

600

 

 

$

 

Changes in other liabilities

 

$

(128

)

 

$

(128

)

 

$

 

The most significant effects that the adoption of Topic 606 had on the results of operations for the three and nine months ended September 30, 2018, as compared to what results would have been if Topic 605 had continued to be applied, is the amount of (i) license revenue recognized related to licensee development milestones and (ii) interest income from licensing recognized as a result of significant financing components identified within the Company’s license agreements. Under Topic 606, development milestone payments from licensees are recognized as revenue to the extent that the development milestone is probable of achievement by the licensee and the underlying license has been delivered to the licensee by the Company. Under Topic 605, development milestone payments, if substantive, were not recognized as revenue until the development milestone was achieved by the licensee. During the three and nine months ended September 30, 2018, the Company recognized $2.0 million of license revenue, which would not have been recognized under the requirements of Topic 605, related to development milestones which were not achieved as of September 30, 2018 but were deemed probable of achievement by licensees and recorded as contract assets within other current assets on the

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Company’s consolidated balance sheet. Additionally, under Topic 606, if a significant financing component is identified within a license agreement, the Company is required to adjust the amount of revenue recognized upon the delivery of the license to the present value of the underlying consideration. The discounted portion of the consideration is recognized as interest income from licensing over the financing term of the license agreement. Under Topic 605, the amount of revenue recognized from the delivery of licenses is not adjusted for significant financing components. During the three and nine months ended September 30, 2018, the Company recognized $0.1 million and $8.4 million, respectively, of interest income from licensing as a result of significant financing components identified in its license agreements. The Company would not have recognized any interest income from significant financing components during these periods under the requirements of Topic 605.

Other recently adopted accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting which supersedes the existing guidance for accounting for stock-based awards to nonemployees under ASC 505-50, Equity—Equity-based Payments to Nonemployees. The new guidance expands the scope of Topic 718 to include stock-based awards to nonemployees for goods or services. Consequently, the accounting for stock-based awards to employees and nonemployees will be substantially aligned. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company elected to early adopt this standard effective July 1, 2018, which required the Company to remeasure all of its outstanding stock-based awards to nonemployees which do not yet have established measurement dates to the estimated fair value on the adoption date. These awards, which consisted solely of stock options granted to third-party advisors with performance-based vesting conditions, will no longer be remeasured and any new stock-based awards granted to nonemployees after the adoption of the new standard will be measured at the estimated grant date fair value of the awards. The new standard requires the cumulative effect of the adoption on the adoption date to be presented as an adjustment to retained earnings as of the beginning of the year of adoption. On the adoption date, the Company had no unvested and outstanding stock-based awards to nonemployees which were probable of vesting. Accordingly, the adoption of this standard required no retrospective adjustment and did not have a material impact on the Company’s financial position or results of operations.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when modification accounting should be applied for changes to terms or conditions of a stock-based award. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and is to be applied prospectively upon adoption. The Company adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. As a result, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively to each period presented. The Company adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated statements of cash flows.

The Company’s restricted cash consists of money market mutual funds used to collateralize an irrevocable letter of credit as required by the Company’s lease agreement for its office space in New York, New York. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands):

 

 

 

September 30, 2018

 

 

September 30, 2017

 

Cash and cash equivalents

 

$

142,423

 

 

$

59,884

 

Restricted cash

 

 

225

 

 

 

225

 

Total cash and cash equivalents and restricted cash

 

$

142,648

 

 

$

60,109

 

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In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which modifies the current guidance on the recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which clarifies the guidance in ASU 2016-01. The Company adopted these standards effective January 1, 2018. Upon the adoption of these standards, the Company elected to measure its non-marketable equity securities without readily available fair values at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. Prior to the adoption of these standards, the Company measured these investments at cost less impairment. The adoption of these standards did not have a material impact on the Company’s financial position or results of operations.

Recent accounting pronouncements not yet adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements regarding fair value measurements. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted upon issuance. The Company does not believe the application of this standard will have a material impact on the Company’s disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income which amends the current guidance on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 (the TCJA) that was signed into law in December 2017 from accumulated other comprehensive income directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is evaluating the application of this standard but has not yet determined the potential effects it may have on the Company’s consolidated financial statements.

In April 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which amends the required amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted upon issuance, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets and net investment in leases that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements which clarify and simplify multiple aspects of the guidance under Topic 842. The standards are effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company plans to adopt these standards using the modified retrospective transition method and will apply to leases in effect as of, or entered into after, January 1, 2019. The Company believes the new standards will significantly impact the accounting for its operating leases for office and laboratory facilities as well as any embedded leases within the Company’s service contracts. The Company expects the adoption of these standards will have a material impact on the Company’s consolidated balance sheet, as they will require the Company to recognize a right-of-use asset and lease liability for each of its lease agreements within the scope of the new standard. However, the Company does not expect the adoption of these standards to have a material impact on the Company’s results of operations.

 

 

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3. Marketable Securities

The following tables present a summary of the Company’s marketable securities, which consist solely of available-for-sale debt securities (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

$

68,437

 

 

$

 

 

$

(145

)

 

$

68,292

 

Certificates of deposit

 

 

6,806

 

 

 

 

 

 

 

 

 

6,806

 

Corporate bonds

 

 

257,658

 

 

 

5