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Basis of Presentation (Policies)
6 Months Ended
Jun. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from the Company’s estimates and assumptions. Significant estimates include the fair value of marketable securities that are classified as level 2 of the fair value hierarchy, useful lives of fixed assets, the periods over which certain revenues will be recognized, including licensing and collaborative revenue recognized from non-refundable up-front and milestone payments, the determination of prepaid research and development, or R&D, clinical costs and accrued research projects, the amount of non-cash compensation costs related to share-based payments to employees and non-employees and the periods over which those costs are expensed and the likelihood of realization of deferred tax assets.

Significant Accounting Policies

Significant Accounting Policies

There have been no material changes to the significant accounting policies previously disclosed in Note 2 to the Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

As of January 1, 2017, the Company adopted Accounting Standards Update, or ASU, No. 2016-09, Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which amends Accounting Standards Codification, or ASC, Topic 718Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the accounting for forfeitures, income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Certain of the amendments were applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of January 1, 2017, while other amendments were applied retrospectively, prospectively or using either a prospective or a retrospective transition method. Upon adoption, the Company began to account for forfeitures as they occur rather than estimate forfeiture rates for stock option awards. As a result, the Company recorded a cumulative-effect adjustment to stockholders’ equity of $45 on the date of initial adoption for all stock option awards that were unvested as of that date. In periods subsequent to adoption, a higher expense will be recognized earlier during the respective vesting periods of stock-based awards that are not forfeited. The Company expects that the income tax amendments within ASU 2016-09 will have no impact on its results of operations or cash flows because it is in a net operating loss position with a full valuation allowance against its deferred tax assets.

Recent Accounting Pronouncements Not Yet Adopted

In May 2017, the Financial Accounting Standards Board, or FASB, issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718) - Scope of Modification Accounting, or ASU 2017-09, which clarifies that a change to the terms or conditions of a share-based payment award should be accounted for as a modification only if the fair value, vesting conditions or classification (as equity or liability) of the award changes as a result of the change in terms or conditions. Modification of a share-based payment award may result in the Company recognizing additional compensation expense. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company does not expect that the adoption of ASU 2017-09 will have a material effect on its financial position, results of operations or cash flows since it has not had a history of modifying, and does not expect to modify, the fair value, vesting conditions or classification of its share-based payment awards.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, or ASU 2017-01, that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 also requires a business to include at least an input and one substantive process that together significantly contribute to the ability to create output and removes the evaluation of whether a market participant could replace missing elements. ASU 2017-01 will be applied prospectively and is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The Company does not expect that the adoption of ASU 2017-01 will have a material effect on its financial position, results of operations or cash flows since it has not and does not expect to acquire or dispose of assets for which the fair value is divided among diverse identifiable assets.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02, which amends the current guidance for the accounting and disclosure of leases (ASC 840) for both lessees and lessors. ASU 2016-02 requires a lessee to recognize in its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). Lessees and lessors will adopt ASU 2016-02 by using a modified retrospective transition approach. ASU 2016-02 also requires a lessee to disclose qualitative and quantitative information about its leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 31, 2018, and may be adopted earlier. The Company is continuing to evaluate the impact that ASU 2016-02 will have on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which changes the principle under which the Company will recognize revenue from contracts with customers from one which requires the Company to satisfy specific criteria before recognizing revenue to one which requires the Company to recognize revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the transfer of promised goods or services to customers. Topic 606 defines a five-step process to achieve this core principle: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company currently recognizes revenue only from a license agreement with Maruishi, or the Maruishi Agreement, and a license agreement with CKDP, or the CKDP Agreement. Under each of these agreements, the Company has recognized revenue from upfront and milestone payments and may earn additional future milestone payments upon the achievement of defined clinical and regulatory events. The Company has also recognized revenue from a sub-license fee under the Maruishi Agreement. The Company is continuing to monitor the timing of achievement of the milestones under each agreement. To the extent that all defined milestones have not been achieved and the related revenue recognized under current GAAP prior to the adoption of ASU 2014-09, those contracts will be included within the scope of ASU 2014-09.

The Company is currently accounting for the Maruishi Agreement and the CKDP Agreement under ASC 605-25, Multiple-Element Arrangements, or ASC 605-25, and ASC 605-28, Milestone Method, or ASC 605-28. The Company has analyzed the terms and conditions of each of these contracts in light of the guidance under ASC 606, including amendments under ASU 2016-08, 2016-10, 2016-12 and 2016-20, and has concluded that, due to the similarity of the application of the guidance under ASC 605-25 and ASC 605-28 and under ASC 606, as amended, as it relates to revenue recognition for licenses of intellectual property, or IP, as applied to each of these contracts, the distinct performance obligations, transaction prices, amount of the transaction price allocated to the performance obligations and timing and amount of revenue recognition under ASC 606, as amended, will be the same as under ASC 605-25 and ASC 605-28.

In particular, the following aspects of ASC 606, as amended, are the same as those under ASC 605-25 and ASC 605-28 in respect of the Maruishi Agreement and the CKDP Agreement. The Maruishi Agreement has two distinct performance obligations, granting of the license and the R&D services and the CKDP Agreement has one distinct performance obligation, granting of the license. The methodology for determining the relative standalone selling price of the performance obligations and the allocation of the transaction price to the performance obligations is the same under both standards. The licenses granted to the counterparties under these two contracts are deemed to be functional IP for which revenue is recognized at a point in time, which has been determined to be inception of the respective license agreements, the same as under ASC 605. The R&D services under the Maruishi Agreement were performed from inception of the agreement in 2013 through the third quarter of 2015. Accordingly, under ASC 606, as amended, revenue related to the R&D services under the Maruishi Agreement would be recognized proportionately as those services were performed, as it was under ASC 605-25.

 

Although the milestone method guidance under ASC 605-28 no longer applies under ASC 606, as amended, the guidance under ASC 606, as amended, for milestones and sales-based royalties related to licenses of IP is effectively the same as pertains to milestones achieved by the Company and those achieved by the counterparty to each license agreement. In addition, due to the probability, at inception of each of the two license agreements, that revenue recognized related to the achievement of milestones and sales-based royalty payments will be reversed in the future, the constraint on including those potential payments in the transaction price at that time applies under ASC 606, as amended. Under ASC 606, as amended, recognition of revenue for achievement of any milestone and sales-based royalty payment will occur at the time that it becomes probable that those events will be achieved. Application of the guidance under ASC 606, as amended, to the milestones achieved under the Maruishi Agreement and the CKDP Agreement prior to adoption of that standard will not change the amount or timing of revenue recognized under ASC 605 for any reporting period presented at or after the date of adoption of ASC 606, as amended. As a result of the foregoing considerations, the Company has concluded that upon adoption of ASC 606, as amended, there will be no impact on its results of operations, financial position or cash flows for any period presented.

ASU 2014-09, as amended by ASU 2015-14, is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods. ASU 2014-09 allows for two transition methods: (1) retrospectively to each prior reporting period presented, or (2) using a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized as an adjustment to the opening balance of retained earnings at the date of initial adoption. The Company will adopt ASU 2014-09 using the full retrospective method on January 1, 2018.