Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

The preparation of financial statements in conformity with generally-accepted accounting principles in the United States or 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.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents and marketable securities. The Company invests its cash reserves in money market funds or high-quality marketable securities in accordance with its investment policy. The stated objectives of its investment policy are to preserve capital, provide liquidity consistent with forecasted cash flow requirements, maintain appropriate diversification and generate returns relative to these investment objectives and prevailing market conditions. The Company’s investment policy includes guidelines on acceptable investment securities, limits interest-bearing security investments to certain types of debt and money market instruments issued by the U.S. government and institutions with investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer. The Company's cash and cash equivalents and marketable securities are held by two major financial institutions. In accordance with the Company's policies, the Company monitors exposure with its counterparties. The Company also maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits, deposits with banks and highly liquid money market funds with holdings of cash and other investments with original maturities of three months or less.

Marketable Securities

The Company deems certain of its investments to be marketable securities if the investment, or in the case of money market funds, the securities underlying the money market fund, meet the definition of a debt security in Accounting Standards Codification, or ASC, section 320-10-20 and has a maturity at the time of purchase of more than three months. The Company considers its marketable securities to be available-for-sale and, accordingly, these investments are recorded at fair value with unrealized gains and losses generally recorded in Accumulated other comprehensive income (loss), or AOCI, as a separate component of stockholders’ equity. Available-for-sale marketable securities are reported as Marketable securities in the Balance Sheets. Other income includes interest and dividends, realized gains and losses on sales of securities and other-than-temporary impairment, or OTTI, declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method.

The Company reviews its available-for-sale marketable securities for OTTI declines in fair value below its cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below its cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security, and the intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company’s assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security.

If a decline in the fair value of an available-for-sale marketable debt security in the Company's investment portfolio is deemed to be other-than-temporary, the Company writes down the security to its current fair value. If the Company intends to sell the security or it is more likely than not that the Company will be forced to sell the security before recovery of the amortized cost of the security, the loss is recognized in net income. Otherwise, the loss is separated into a portion representing a credit loss, which is recorded in net income, and the remainder is recorded in Other comprehensive income, or OCI, net of taxes. See Note 3, Marketable Securities, and Note 10, Fair Value Measurement.

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risks.

The Company’s financial instruments consist of cash, cash equivalents, available-for-sale marketable securities, restricted cash, accounts payable and accrued liabilities. The fair values of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these financial instruments. Marketable securities are reported on the Company’s Balance Sheets at their fair values, based upon pricing of securities with the same or similar investment characteristics as provided by pricing services, as described below.

Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with ASC section 820, and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs 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 Company classifies its investments in a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is divided into three levels based on the source of inputs as follows:

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Level 1 – Observable inputs – quoted prices in active markets for identical assets and liabilities.

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Level 2 – Observable inputs other than the quoted prices in active markets for identical assets and liabilities – such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data.

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Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

The Company records transfers between levels in the hierarchy by assuming that the transfer occurred at the end of the quarter or year-to-date period.

Valuation Techniques - Level 2 Inputs

The Company estimates the fair values of its financial instruments categorized as level 2 in the fair value hierarchy, including U.S. Treasury securities, U.S. government agency obligations, corporate bonds, commercial paper and money market funds with similar underlying investments by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, benchmark yields, issuer credit spreads, benchmark securities, and other observable inputs. The Company obtains a single price for each financial instrument and does not adjust the prices obtained from the pricing service.

The Company validates the prices provided by its third-party pricing services by reviewing their pricing methods, obtaining market values from other pricing sources and comparing them to the share prices presented by the third-party pricing services. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by its pricing services as of December 31, 2016 or December 31, 2017.

Property and Equipment

Property and equipment (consisting of computer, office and laboratory equipment, furniture and fixtures and leasehold improvements) are stated at cost, net of accumulated depreciation and amortization of leasehold improvements. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the lesser of their useful lives or the life of the lease.

Asset Category	Useful Lives
Computer and office equipment	5 years
Laboratory equipment	8 years
Short-term laboratory equipment	2 years
Furniture and fixtures	7 years
Leasehold improvements	lesser of useful life of asset or life of lease (Stamford - 7 years)

Long-Lived Assets

ASC 360, Property, Plant and Equipment, addresses the financial accounting and reporting for impairment or disposal of long-lived assets. The Company reviews the recorded values of long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable.

Revenue Recognition

In general, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; the Company’s price to the customer is fixed or determinable; collectability is reasonably assured and delivery has occurred or services have been rendered.

The Company has entered into license agreements to develop, manufacture and commercialize drug products. The terms of these agreements typically contain multiple elements, including licenses and R&D services. Payments to the Company under these agreements may include nonrefundable license fees, payments for research activities, payments based upon the achievement of certain milestones and royalties on any resulting net product sales. There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to the Company.

The Company records revenue related to these agreements in accordance with ASC 605-25, Revenue Recognition Multiple-Element Arrangements. In order to account for these agreements, the Company identifies the deliverables included within an arrangement and evaluates which deliverables represent separate units of accounting based on whether certain criteria are met, including whether the delivered element has standalone value to the counterparty. The consideration received is then allocated among the separate units of accounting based on each unit’s relative selling price.

The identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involves significant judgment, including evaluation as to whether each delivered element has standalone value. The Company has determined that its license deliverables represent separate units of accounting because the counterparty has the right to sublicense and manufacture in its territory, as defined. The Company has determined that its R&D services deliverables, as applicable, represent separate units of accounting because similar services are sold separately by other vendors.

The Company determines the estimated selling price for deliverables within each agreement using vendor specific objective evidence, or VSOE, of selling price, if available, or third-party evidence, or TPE, of selling price if VSOE is not available, or the Company’s best estimate of selling price, if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment. Because the Company does not have VSOE or third-party evidence of selling price to determine the estimated selling price of a license to its proprietary technology, it typically uses its best estimate of a selling price to estimate the selling prices for licenses to its proprietary technology. In making these estimates, the Company considers market conditions and entity-specific factors, including those contemplated in negotiating the agreements, as well as internally developed estimates that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating its best estimate of selling price, the Company evaluates whether changes in the key assumptions used to determine its best estimate of selling price will have a significant effect on the allocation of arrangement consideration between deliverables. The Company recognizes consideration allocated to an individual element when all other revenue recognition criteria are met for that element.

Arrangement consideration allocated to license deliverables that represent separate units of accounting is recognized as revenue at the outset of the agreement assuming the general criteria for revenue recognition noted above have been met. Arrangement consideration allocated to license deliverables which do not represent separate units of accounting is deferred. Arrangement consideration allocated to R&D services which represent separate units of accounting is recognized as the services are performed, assuming the general criteria for revenue recognition noted above have been met.

The Company’s license agreements include contingent milestone payments related to specified clinical development milestones and regulatory milestones. Development milestones are payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are payable upon submission for marketing approval with the FDA or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. At the inception of each agreement that includes milestone payments, the Company evaluates whether each such payment is a milestone payment as defined by ASC 605-28, Revenue Recognition – Milestone Method, because achievement requires performance by the Company and, at inception of the arrangement, there is substantive uncertainty that the event will be achieved, or whether the payment is a contingent payment, because achievement requires performance by the counterparty.

If the payment meets the criteria of a milestone payment, the Company evaluates whether such milestone is considered to be substantive. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment.

The Company recognizes substantive milestone payments as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. If any milestone payment is considered not to be a substantive milestone or is considered to be a contingent payment, the Company initially defers the milestone payment, allocates it to the deliverables based on relative selling price in the same proportion as at inception of the agreement, immediately recognizes revenue to the extent of any delivered elements and recognizes the portion attributable to any undelivered elements over the remaining term of its performance obligations. If no such performance obligations exist, milestones that are considered not to be substantive or are considered to be contingent payments are generally recognized as revenue upon achievement, assuming all other revenue recognition criteria are met.

Royalty revenue is recognized when earned. To date, no royalties have been earned or were otherwise due to the Company.

Research and Development Expenses

Research and development, or R&D, costs are charged to expense as incurred. Costs incurred under agreements with third parties are charged to expense as incurred in accordance with the specific contractual performance terms of such agreements. R&D expenses include, among other costs, salaries and other personnel-related costs, including consultant costs, and costs to conduct clinical trials using Clinical Research Organizations, or CRO’s, which include upfront, milestone and monthly expenses as well as reimbursement for pass through costs. The amount of clinical trial expense recognized in any period varies depending on the duration and progress of each clinical trial, including the required level of patient enrollment, the rate at which patients actually enroll in and drop-out of the clinical trial, and the number of sites involved in the trial as well as the activities to be performed by the sites each period. R&D costs also include costs to manufacture product candidates and clinical supplies, laboratory supplies costs and facility-related costs. Non-refundable R&D advance payments are deferred and capitalized as prepaid R&D expense. The capitalized amounts are expensed as the related goods are delivered or services are performed. As of December 31, 2017 and 2016, the Company recorded $1,287 and $1,256 as prepaid R&D expense, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and 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. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.

The Company applies the provisions of ASC 740, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. The financial statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts. There were no material uncertain tax positions taken as of December 31, 2017 and December 31, 2016. The Company does not have any interest or penalties accrued related to tax positions as it does not have any unrecognized tax benefits. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of interest expense.

Stock-Based Compensation

The Company grants stock options to employees, non-employee members of the Company’s Board of Directors and non-employee consultants as compensation for services performed. Employee and non-employee members of the Board of Directors’ awards of stock-based compensation are accounted for in accordance with ASC 718, Compensation - Stock Compensation or ASC 718. ASC 718 requires all share-based payments to employees and non-employee directors, including grants of stock options, to be recognized in the Statements of Comprehensive Loss based on their grant date fair values. The grant date fair value of stock options is estimated using the Black-Scholes option valuation model.

Using this model, fair value is calculated based on assumptions with respect to (i) the fair value or market price of the Company’s common stock on the grant date; (ii) expected volatility of the Company’s common stock price, (iii) the periods of time over which employees and members of the Company’s Board of Directors are expected to hold their options prior to exercise (expected term), (iv) expected dividend yield on the Company’s common stock, and (v) risk-free interest rates.

The Company’s common stock has been traded on a public exchange only since January 31, 2014. Since that time, exercises of stock options have been limited due to various factors, including fluctuations in the Company’s stock price to below the exercise prices of awards and blackout periods during which exercises are not allowed, among others. Therefore, the Company believes that as of December 31, 2017, it does not have sufficient company-specific information available to determine the expected term based on its historical data. As a result, the expected term of stock options granted to employees and members of the Company’s Board of Directors is determined using the average of the vesting period and term (6.25 years), an accepted method for the Company’s option grants under the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment.

Similarly, because the Company does not have sufficient company-specific information available to calculate the volatility of its common stock during the periods of the expected term of stock option grants (as noted above), expected volatility is based on an analysis of guideline companies in accordance with ASC 718. A higher volatility input to the Black-Scholes option valuation model increases the resulting compensation expense, while a shorter expected term would result in a lower compensation expense.

The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future. Risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the option’s expected term.

On the grant date of each stock option award prior to January 1, 2017, the Company applied a forfeiture rate in order to accrue share-based compensation expense based on an estimate of the number of stock options that are expected to vest. Estimated forfeiture rates were based upon historical data of awards that were cancelled prior to vesting. The Company adjusted the total amount of compensation cost recognized for each award, in the period in which each award vested, to reflect the actual forfeitures related to that award. To the extent that the actual forfeiture rate for an award was lower than the estimated forfeiture rate, additional compensation expense was recorded in the period that the award vested. Changes in the Company’s estimated forfeiture rate resulted in changes in the rate at which compensation cost for an award was recognized over its vesting period. As of January 1, 2017, the Company adopted Accounting Standards Update, or ASU, 2016-09, Improvements to Employee Share-Based Payment Accounting, and accounts for forfeitures as they occur from that date (see Accounting Pronouncements Recently Adopted, below).

The Company accounts for options granted to non-employee consultants under ASC 505-50, Equity-Based Payments to Non-Employees. As such, the Company estimates the fair value of each such option using the Black-Scholes model, with the expected term of stock options granted to non-employees initially equal to the options’ maximum contractual life of ten years, at issuance. On each subsequent reporting date until performance is complete, the Company revalues all outstanding options granted to non-employee consultants during the vesting period of each tranche. Under ASC 505-50, upon re-measurement of each award, income or expense is recognized during its vesting term. Compensation cost relating to awards with service-based graded vesting schedules is recognized using the straight-line method.

Income (Loss) Per Share

The Company computes basic net income (loss) per share by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted net income per share includes the potential dilutive effect of common stock equivalents as if such securities were exercised during the period, when the effect is dilutive. Common stock equivalents may include outstanding stock options, which are included under the treasury stock method when dilutive. For each of the years ended December 31, 2017, 2016 and 2015, the Company excluded the effects of potentially dilutive shares that were outstanding during those respective periods from the denominator as their inclusion would be anti-dilutive due to the Company’s net losses during those periods.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment, which includes all activities related to the discovery and development of novel therapeutics to treat serious medical conditions, including pruritus and pain.

Leases

The Company recognizes rent expense for operating leases on a straight-line basis over the term of the lease, beginning on the date the Company takes possession of the property. Rent expense includes the base amounts stated in the lease agreement as well as the effect of reduced or free rent and rent escalations. At lease inception, the Company determines the lease term by assuming the exercise of those renewal options that are reasonably assured because of the significant economic penalty that exists for not exercising those options. The exercise of renewal options is at the Company’s sole discretion. The expected lease term is one of the factors used to determine whether a lease is classified as operating or capital and is used to calculate the straight-line rent expense. The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent and classified within long-term liabilities. Lease incentives made by landlords to or on behalf of the Company for leasehold improvements are recorded as deferred rent and classified as long-term liabilities. Deferred rent related to landlord incentives is amortized using the straight-line method over the lease term as an offset to rent expense. Penalties paid to landlords to terminate a lease before the contractual end date of the lease are recognized on an undiscounted basis in the Statements of Comprehensive Loss.

Litigation Reserves

The Company may become involved in the future in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. Accruals are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The Company reviews these reserves at least quarterly and adjusts these reserves to reflect current law, progress of each case, opinions and views of legal counsel and other advisers, the Company’s experience in similar matters and intended response to the litigation. The Company expenses amounts for administering or litigating claims as incurred. Accruals for legal proceedings, if any, are included in Accounts payable and accrued expenses in the Balance Sheets.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

As of January 1, 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which amends ASC Topic 718, Compensation – 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 generally has not modified, and does not expect to frequently modify, the fair value, vesting conditions or classification of its share-based payment awards. As a result, for reporting periods following the adoption of ASU 2017-09, the Company generally does not expect this guidance to have a material effect on its financial position, results of operations or cash flows. However, if and when modifications occur, their effect could be material to the Company’s financial position, results of operations or cash flows (see Note 12, Stock-based Compensation).

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 December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20, that allows entities not to disclose variable consideration allocated to performance obligations related to either: (1) sales - or usage -based royalties on licenses of intellectual property or (2) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when certain criteria are met. ASU 2016-20 also requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. It also makes 12 additional technical corrections and improvements to the new revenue standard, ASU 2014-09. The amendments have the same effective date and transition requirements as ASU 2014-09. The Company does not expect the adoption of ASU 2016-20 to have a material effect on its financial position, results of operations or cash flows.

In November, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the Emerging Issues Task Force), or ASU 2016-18, which changes the presentation of the cash flow statement to include amounts generally described as restricted cash or restricted cash equivalents, together with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. ASU 2016-18 also requires additional disclosures concerning the nature of the restrictions on cash and cash equivalents and a reconciliation between amounts of cash, cash equivalents and restricted cash on the balance sheet and statement of cash flows for each period presented. ASU 2016-18 will be applied retrospectively to all periods presented and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company currently presents changes in restricted cash as an investing activity in the statement of cash flows. Upon adoption of ASU 2016-18, such changes will be reflected in the beginning and ending balances of cash, cash equivalents and restricted cash for all periods presented.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which replaces the incurred loss impairment methodology in current GAAP, that delays recognition of a credit loss until it is probable that such loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 modifies the other-than-temporary impairment model for available-for-sale debt securities by requiring (1) estimating expected credit losses only when the fair value is below the amortized cost of the asset; (2) recording a credit loss without regard to the length of time a security has been in an unrealized loss position; (3) limiting the measurement of the credit loss to the difference between the security’s amortized cost basis and its fair value and (4) presenting credit losses as an allowance rather than as a write-down, which will allow the Company to record reversals of credit losses in current period net income, a practice that is currently prohibited. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the effect that adoption of ASU 2016-13 will have on its results of operations, financial position and cash flows.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients, or ASU 2016-12, which amends guidance in the new revenue standard, ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, on collectability, noncash consideration, presentation of sales tax and transition. The amendments in ASU 2016-12 are effective for annual reporting periods beginning after December 15, 2017 (i.e., January 1, 2018), including interim periods within those reporting periods, which is the same as for ASU 2014-09, as amended by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, or ASU 2015-14. See ASU 2014-09, below, for a discussion of the effect that adoption of ASU 2016-12 is expected to have on the Company’s financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, or ASU 2016-10, which clarifies the principle for determining whether a good or service is “separately identifiable” from other promises in the contract and, therefore, should be accounted for as a separate performance obligation. In that regard, ASU 2016-10 requires that an entity determine whether its promise is to transfer individual goods or services to the customer, or a combined item (or items) to which the individual goods and services are inputs. In addition, ASU 2016-10 categorizes intellectual property, or IP, into two categories: “functional” and “symbolic.” Functional IP has significant standalone functionality. All other IP is considered symbolic IP. Revenue from licenses of functional IP is generally recognized at a point in time, while revenue from licenses of symbolic IP is recognized over time. ASU 2016-10 has the same effective date and transition requirements as ASU 2014-09, as amended by ASU 2015-14. See ASU 2014-09, below, for a discussion of the effect that adoption of ASU 2016-10 is expected to have on the Company’s financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net), or ASU 2016-08, which clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09 by specifying that the determination as to whether an entity that is involved in providing a good or a service to a customer is a principal or an agent is based upon whether the entity controls the good or the service before it is transferred to the customer. ASU 2016-08 has the same effective date and transition requirements as ASU 2014-09, as amended by ASU 2015-14. See ASU 2014-09, below, for a discussion of the effect that adoption of ASU 2016-08 is expected to have on the Company’s financial statements.

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). ASU 2016-02 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 but may be adopted earlier. ASU 2016-02 requires modified retrospective adoption. However, the FASB has approved an amendment to ASU 2016-02, which allows entities to elect to continue to apply the guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year that they adopt the new leases guidance in ASC 842. Entities that elect this option would record the cumulative effect of adoption on the effective date rather than at the beginning of the earliest comparative period presented. 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. ASU 2014-09, as amended, 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.

During the years ended December 31, 2017, 2016 and 2015, the Company recognized 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 development and regulatory events. The Company has also recognized revenue from a sub-license fee under the Maruishi Agreement. Since all defined milestones will not have been achieved and the related revenue will not have been recognized under ASC 605 as of the date of adoption of ASU 2014-09, as amended, those contracts will be included within the scope of ASU 2014-09, as amended.

The Company is currently accounting for the Maruishi Agreement and the CKDP Agreement under ASC 605-25, Multiple-Element Arrangements and ASC 605-28, Milestone Method. The Company has analyzed the terms and conditions of each of these contracts in light of the guidance under ASU 2014-09, 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 ASU 2014-09, 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 ASU 2014-09, as amended, will be the same as under ASC 605-25 and ASC 605-28.

In particular, the following aspects of ASU 2014-09, 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 ASU 2014-09, 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 ASU 2014-09, as amended, the guidance under ASU 2014-09, 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 ASU 2014-09, as amended. Under ASU 2014-09, 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 ASU 2014-09, 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 ASU 2014-09, as amended. As a result of the foregoing considerations, the Company has concluded that upon adoption of ASU 2014-09, as amended, there will be no impact on its results of operations, financial position or cash flows for any period presented from the CKDP Agreement or the Maruishi Agreement.

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, as amended, 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, as amended, recognized as an adjustment to the opening balance of retained earnings at the date of initial adoption. The Company adopted ASU 2014-09, as amended, using the full retrospective method on January 1, 2018.