Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The accompanying consolidated financial statements include the accounts of Sierra Oncology, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of expense during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to the fair values of stock options and warrants issued, the convertible voting preferred stock and securities issuance obligation, the probability of achieving performance-based milestones of stock options, accruals such as research and development costs, and recoverability of the Company’s net deferred tax assets, and related valuation allowance. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Foreign Currency

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the U.S. Dollar. Transactions denominated in currencies other than the functional currency are recorded at prevailing exchange rates during the period. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at historical exchange rates. Gains and losses related to remeasurement are recorded in other income (expense), net in the consolidated statements of operations. The net foreign exchange transaction gains (losses) included in other income (expense), net in the accompanying consolidated statements of operations were insignificant for the years ended December 31, 2020, 2019 and 2018.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of funds invested in readily available checking and savings accounts and highly liquid investments in money market funds.

Restricted Cash

Restricted Cash

Restricted cash, which consists of funds invested in a money market fund, represents collateral for a corporate credit card facility and is included in other assets in the accompanying consolidated balance sheets.

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist of cash, cash equivalents and restricted cash. All of the Company’s cash, cash equivalents and restricted cash are held at financial institutions in the United States and Canada that management believes to be of high credit quality. Deposits held in the United States and Canada with these financial institutions exceed federally insured limits.

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer and establishing a minimum allowable credit rating.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s cash and cash equivalents, restricted cash, other current assets, accounts payable and accrued liabilities approximate their fair values at December 31, 2020 and 2019, due to their short duration. The warrant liabilities and securities issuance obligation contained unobservable inputs that reflected the Company’s own assumptions in which there was little, if any, market activity at the measurement date, thus the Company’s warrant liabilities and securities issuance obligation were measured at their fair values on a recurring basis using unobservable inputs until such time the warrants were no longer considered derivative instruments and the securities issuance obligation was settled.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

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

Property and Equipment, Net

Property and Equipment, Net

Property and equipment, net are stated at cost, less accumulated depreciation. Depreciation on property and equipment, excluding leasehold improvements, is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations.

Other Assets

Other Assets

Other assets consist primarily of restricted cash pledged as collateral for a corporate credit card facility and deferred income tax assets in foreign jurisdictions.

Operating Lease Right-of-Use Asset and Lease Liabilities

Operating Lease Right-of-Use Asset and Lease Liability

The Company recognizes an operating lease with terms greater than one year as right-of-use (ROU) asset and lease liability on its consolidated balance sheet using the portfolio approach. Lease liability and ROU asset are recorded based on the present value of future lease payments over the contractual term of the operating lease. The Company utilized its incremental borrowing rate from information available as at the date of initial adoption in determining the present value of the future lease payments. The lease liability and ROU asset are amortized over the term of the lease.

Warrant Liabilities

Warrant Liabilities

The Company accounted for its warrants issued in connection with its November 2019 financing based upon the characteristics and provisions of the instruments. Warrants classified as derivative liabilities were recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other income (expense), net in the accompanying consolidated statements of operations. The Company revalued the warrant liabilities until they ceased to be derivative instruments, at which time they were reclassified to additional paid-in capital at their fair value. The Company estimated the fair value of these liabilities using the Black-Scholes option-pricing model and the fair value of the underlying stock, as well as assumptions for expected volatility, expected term and risk-free interest rate. An estimated non-marketable discount was also applied if applicable. Offering expenses arising from the issuance of warrants are expensed as incurred.

Securities Issuance Obligation

The Company recognized its securities issuance obligation pursuant to the amendment to the Asset Purchase Agreement with Gilead Sciences, Inc. (Gilead) at their fair values on the date such obligations arose. At the end of each reporting period, changes in estimated fair values during the period were recognized as research and development costs in the accompanying consolidated statements of operations. The Company adjusted the fair values of the obligations until the securities issuance obligation was settled, at which time the liabilities were reclassified to common stock and additional paid-in capital at their fair values. The Company determined the fair values of these obligations based upon the individual characteristics and provisions of the securities to be issued. The Company estimated the fair value of its obligation to issue common stock using the fair value of the underlying stock and a non-marketable discount. The Company estimated the fair value of its obligation to issue warrant using the Black-Scholes option-pricing model and the fair value of the underlying stock, as well as assumptions for expected volatility, expected term and risk-free interest rate. An estimated non-marketable discount was also applied if applicable.

Research and Development Costs

Research and Development Costs

Research and development costs are expensed as incurred. The Company accounts for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Depending on the timing of payments to service providers of research and development costs, the Company recognizes prepaid expenses or accrued expenses related to these costs. These prepaid or accrued expenses are based on management’s estimates of the work performed under service agreements and milestones achieved. In the event that a clinical trial is terminated early, the Company records an accrual for the estimated remaining costs to complete the trial in the period of termination.

Upfront payments made in connection with license and asset purchase agreements are expensed as research and developments costs, as the assets acquired do not have alternative future use. Contingent milestone payment obligations due to third parties under license and asset purchase agreements are expensed when the milestones are considered probable of occurring. To the extent an obligation is to be settled by future issuance of securities, the fair value of these instruments is recorded in research and development expense until the securities are issued.

Research and development costs include fees incurred in connection with license and asset purchase agreements and their related amendments, compensation and other related costs for employees engaged in research and development, costs associated with research and preclinical studies, clinical trials, regulatory activities, manufacturing activities to support clinical activities, fees paid to external service providers that conduct certain research and development, clinical, and manufacturing activities on behalf of the Company and an allocation of overhead expenses.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based payments at fair value, which is measured using the Black-Scholes option-pricing model. For stock-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for stock-based compensation awards is the date of grant and the expense is recognized on a straight-line basis over the vesting period, which is generally the service period. For stock-based awards that vest subject to the satisfaction of a service requirement and a performance component, the fair value measurement date is the date of grant and the expense is recognized over the requisite service period as achievement of the performance objective becomes probable. The Company accounts for forfeitures as they occur.

Income Taxes

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management makes an assessment of the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net U.S. deferred tax assets have been offset by a full valuation allowance.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company recognizes interest and penalties related to the underpayment of income taxes as a component of provision for (benefit from) income taxes, net.

Segment Information

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of researching, developing and commercializing therapies for the treatment of patients with hematology and oncology needs. Accordingly, the Company has a single reporting segment.