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Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2013
Basis of Presentation

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

The Company’s most significant estimates and judgments used in the preparation of our financial statements are:

 

  •   Clinical trial expenses;

 

  •   Fair value measurements for stock based compensation and warrants; and

 

  •   Income taxes.
Subsequent Events

Subsequent Events

The Company evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not identify any material events that require accounting or disclosure in these financial statements.
Cash and Cash Equivalents

Cash and Cash Equivalents

Cash equivalents consist primarily of demand deposit accounts and deposits in short-term U.S. treasury money market mutual funds. Cash equivalents are stated at cost, which approximates fair market value.
Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash accounts in commercial banks, which may, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets, which is between three and five years. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the balance sheets and related gains or losses are reflected in the statements of operations.
Restricted Cash

Restricted Cash

Current assets include $200 thousand that is restricted for the Company’s former line of credit. Other non-current assets include cash of $409 thousand that is restricted as collateral for the Company’s facility leases and subleases and $103 thousand that is restricted as collateral for a line of credit.
Long-Lived Assets

Long-Lived Assets

The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair values less costs to sell.
Warrants

Warrants

The Company applies the accounting standard which provides guidance in assessing whether an equity-based financial instrument is indexed to an entity’s own stock for purposes of determining whether a financial instrument should be treated as a derivative. In applying the methodology the Company concluded that certain warrants issued by the Company have terms that do not meet the criteria to be considered indexed to the Company’s own stock and therefore are classified as liabilities in the Company’s balance sheet. The liability classified warrants are subject to re-measurement at each balance sheet date and any change in fair value is recognized as a component of “Other income, net” in the accompanying Statement of Operations. Fair value is measured using the binomial valuation model. In December 2011, the Company switched from the Black-Scholes valuation model to the binomial valuation model as it provides a better evaluation of the fair market value of the Company’s liability-classified warrants.
Fair Value Measurements

Fair Value Measurements

We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

 

  •   Level 1—Quoted prices in active markets for identical assets or liabilities.

 

  •   Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

  •   Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012 are as follows:

 

($ in thousands)           Fair Value Measurements at Reporting Date Using  

Description

    Balance as of
December 31, 2013		      Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)		      Significant Other
Observable
Inputs
(Level 2)		      Significant
Unobservable Inputs
(Level 3)		  

Cash equivalents

    $ 66,794       $ 66,794       $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Warrant liability

    $ 11,776       $ —         $ 11,776       $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

 

($ in thousands)           Fair Value Measurements at Reporting Date Using  

Description

    Balance as of
December 31, 2012		      Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)		      Significant Other
Observable
Inputs
(Level 2)		      Significant
Unobservable Inputs
(Level 3)		  

Cash equivalents

    $ 72,002       $ 72,002       $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Warrant liability

    $ 12,962       $ —         $ 12,962       $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

The cash equivalents consist primarily of short term U.S. treasury money market mutual funds which are actively traded. The warrants were valued using a binomial valuation model. See Note 9 to the financial statements, Warrants, for additional disclosure on the valuation methodology and significant assumptions.
Revenue Recognition

Revenue Recognition

The Company receives revenue from a collaboration agreement (see Note 8 to the financial statements, Commitments and Contingencies). Collaboration arrangements typically include payments for one or more of the following: non-refundable, upfront license fees, funding of research and development efforts, milestone payments if specified objectives are achieved and/or profit-sharing or royalties on product sales. Arrangements containing multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the collaborative partner. The consideration received is then allocated among the separate units based on their respective fair values and the applicable revenue recognition criteria are applied to each of the separate units.

Revenue from non-refundable, upfront research and development fees is reported as research and development revenue and is recognized on a straight-line basis over the contracted or estimated period of performance, which is typically the development term. Research and development funding is earned over the period of effort.

Milestone payments are recognized as research and development revenue upon achievement of the milestone only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone and (3) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with achievement of the milestone. If any of these conditions are not met, the milestone payment is deferred and recognized as revenue over the estimated remaining period of performance under the contract as the Company completes its performance obligations.
Research and Development Costs

Research and Development Costs

Research and development expenditures are charged to the statement of operations as incurred. Such costs include proprietary research and development activities, purchased research and development, and expenses associated with research and development contracts, whether performed by the Company or contracted with independent third parties.
Income Taxes

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. The Company evaluates the realizability of our deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates this tax position on an annual basis. The Company also accrues for potential interest and penalties, related to unrecognized tax benefits in income tax expense (see Note 10 to the financial statements, Income Taxes).
Accounting for Stock-Based Compensation

Accounting for Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period. Stock-based compensation expense is based on the number of awards ultimately expected to vest and is therefore reduced for an estimate of the awards that are expected to be forfeited prior to vesting. Consistent with prior years, the Company uses the Black-Scholes option pricing model which requires estimates of the expected term option holders will retain their options before exercising them and the estimated volatility of the Company’s common stock price over the expected term.

 

The Company recognizes the full impact of its share-based employee payment plans in the statements of operations for each of the years ended December 31, 2013, 2012, and 2011 and did not capitalize any such costs on the balance sheets. The Company recognized $2.3 million, $3.1 million, and $2.1 million of compensation expense related to vesting of employee stock options during the years ended December 31, 2013, 2012, and 2011, respectively. In the years ended December 31, 2013, 2012, and 2011, the Company recognized $1.2 million, $1.7 million, and $635 thousand of compensation expense, respectively, related to vesting of restricted stock (see Note 12 to the financial statements, Stock Option Plan). In the years ended December 31, 2013, 2012, and 2011, the Company recognized $3.5 million, $4.9 million, and $2.8 million of compensation expense, respectively, related to vesting of all employee and director awards. The following table presents share-based compensation expense included in the Company’s Statements of Operations:

 

     Year ended December 31,  
(in thousands)    2013      2012      2011  

Research and development

    $ 792       $ 1,917       $ 890   

General and administrative

      2,715         2,963         1,869   
  

 

 

     

 

 

     

 

 

  

Share based employee compensation expense before tax

      3,507         4,880         2,759   

Income tax benefit

      —           —           —     
  

 

 

     

 

 

     

 

 

  

Net share based employee compensation expense

    $ 3,507       $ 4,880       $ 2,759   
  

 

 

     

 

 

     

 

 

  

Prior to the adoption of the current accounting standards in 2006, the Company previously accounted for stock-based awards to employees using the intrinsic value method and had elected the disclosure-only alternative. All stock-based awards to nonemployees were accounted for at their fair value. The Company had recorded the fair value of each stock option issued to non-employees as determined at the date of grant using the Black-Scholes option pricing model.

The following table illustrates the effect on net loss and earnings per share if the Company had applied the fair value recognition provisions of current accounting standards to stock-based awards from September 9, 2003 (date of inception) to December 31, 2005:

 

(in thousands, except per share data)    September 9, 2003
(date of inception) to
December 31, 2005		  

Net loss:

   

As reported

    $ (15,364 ) 

Stock-based compensation expense included in reported net loss

      802   

Stock-based compensation expense under the fair-value based method

      (1,756 ) 
  

 

 

  

Pro forma net loss

    $ (16,318 ) 
  

 

 

  

Basic and diluted net loss per share:

   

As reported

    $ (3.75 ) 

Pro forma

    $ (3.98 ) 

The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. The estimated weighted-average fair value of stock options granted to employees in 2013, 2012, and 2011 was approximately $2.51, $3.06, and $4.04 per share, respectively. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatility assumption is based on the Company’s historical experience. The risk-free interest rate is based on a U.S. treasury note with a maturity similar to the option award’s expected life. The expected life represents the average period of time that options granted are expected to be outstanding. The Company calculated expected term using the simplified method described in SEC Staff Accounting Bulletin, or SAB, No. 107 and No. 110. The assumptions for volatility, expected life, dividend yield and risk-free interest rate are presented in the table below:

 

     2013    2012    2011

Weighted average risk-free interest rate

    1.00 - 2.10%    0.79 - 1.13%    1.09 - 2.69%

Expected life in years

    6    6    6

Expected volatility

    83.40 - 95.96%    83.36 - 83.53%    83.26 - 87.29%

Expected dividend yield

    0    0    0
Net Loss Per Share

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company’s potential dilutive shares, which include outstanding common stock options, unvested restricted stock and warrants, have not been included in the computation of diluted net loss per share for any of the periods presented as the result would be antidilutive. Such potential common shares at December 31, 2013, 2012, and 2011 consist of the following:

 

     December 31,  
     2013      2012      2011  

Stock options

      6,747,303         7,147,303         5,138,486   

Unvested restricted stock

      352,865         733,739         950,906   

Warrants

      10,539,767         11,197,454         13,117,264   
  

 

 

     

 

 

     

 

 

  
     17,639,935         19,078,496         19,206,656   
  

 

 

     

 

 

     

 

 

  
New Accounting Pronouncements

New Accounting Pronouncements

In January 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update, or ASU, No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scoping of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01) which clarifies the scope of ASU No. 2011-11 requiring an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This ASU was effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this standard did not have an impact on our financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02) which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This ASU was effective for reporting periods beginning after December 15, 2012 and did not have an impact on our financial position or results of operations.