Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying financial statements are unaudited and were prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  In the opinion of management, the Company has made all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and results of operations for the interim periods presented.  Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.  These condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes for the fiscal year ended December 31, 2012 included in the Company’s final prospectus dated April 11, 2013 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on April 12, 2013.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for the full year or any other interim period.

Use of Estimates

Use of Estimates

The preparation of the financial statements in accordance with GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. In preparing these condensed financial statements, management has made its best estimates and judgments of certain amounts included in the condensed financial statements, giving due consideration to materiality. On an ongoing basis, the Company evaluates its estimates, including those related to stock-based compensation, fair value of assets, convertible preferred stock, warrants and common stock, income taxes, preclinical study and clinical trial accruals and other contingencies. Management bases its estimates on historical experience or on various other assumptions, including information received from its service providers, which it believes to be reasonable under the circumstances. Actual results could differ from these estimates.

Cash and Cash Equivalents, and Short-term Investments

Cash and Cash Equivalents, and Short-term Investments

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificate of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Marketable securities with original maturities greater than three months and less than one year are considered to be short-term investments and consist of corporate debt obligations. Short-term investments are reported at fair market value and unrealized gains and losses are included as a separate component of stockholders’ deficit. Realized gains, realized losses, the amortization of premiums and discounts, interest earned and dividends earned are included in other income (expense). The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Investments with maturities beyond one year are classified as short-term based on management’s intent to fund current operations with these securities or to make them available for current operations. A decline in the market value of a security below its cost value that is deemed to be other than temporary is charged to earnings, and results in the establishment of a new cost basis for the security.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and short-term investments. The Company maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of which, at times, may exceed federal insurance limits. Exposure to credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings. Short-term investments are invested in accordance with the Company’s investment policy. The investment policy includes guidelines on the quality of the institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company has no financial instruments with off-balance-sheet risk of accounting loss.

Segment and Geographic Information

Segment and Geographic Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing new therapies for abnormalities in blood lipids, referred to as dyslipidemia, and the treatment of cardiovascular disease.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

According to ASC 825, Financial Instruments, disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Cash and cash equivalents and short-term investments are carried at fair value (see Note 3). Financial instruments, including accounts payable and accrued liabilities, are carried at cost, which approximates fair value given their short-term nature.

Deferred Financing Costs

Deferred Financing Costs

Deferred financing costs consist of financing costs incurred by the Company in connection with the closing of the Company’s secured convertible notes and loan agreement with Hercules, and legal, accounting and other costs incurred in connection with preparing for the Company’s initial public offering (IPO).  The Company amortizes the deferred financing costs associated with the outstanding notes and the loan agreement over the term of the related debt using the straight line method. Upon closing of the IPO, which occurred on April 16, 2013, the Company recorded its legal, accounting and other costs incurred with connection with the IPO as a reduction to the proceeds received.

Property and Equipment

Property and Equipment

Property and equipment, which consist of furniture and fixtures and computer equipment, as well as construction in progress, are stated at cost, less accumulated depreciation. Depreciation is calculated over the estimated useful lives of the respective assets, which is two years for computer equipment and five years for furniture and fixtures.

Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance, are charged to earnings in the period in which the costs are incurred. Major replacements, improvements, and additions are capitalized in accordance with Company policy.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

In accordance with ASC 360, Property, Plant, and Equipment, the Company’s policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Through March 31, 2013, no impairment of long-lived assets has occurred.

Research and Development Costs

Research and Development Costs

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical trial activities, drug development and manufacturing, and third-party service fees, including clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed financial statements as prepaid or accrued expenses.

Foreign Currency

Foreign Currency

Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Transaction gains and losses are recorded to other income (expense), net in the Statements of Operations.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability method as required by ASC 740, Income Taxes. Under this method deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the related tax basis and also for operating losses and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded if it is “more-likely-than-not” that a portion or all of a deferred tax asset will not be realized.

Stock-Based Compensation

Stock-Based Compensation

The Company had one stock-based employee compensation plan, the 2010 Option Plan, as of December 31, 2012.  In March 2013, the Company adopted a 2013 Stock Option and Incentive Plan.

The Company grants stock options for a fixed number of shares to employees and non-employees with an exercise price equal to the fair value of the share at the grant date.

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the weighted-average of historical information of similar public entities. The Company will continue to use a weighted-average approach using other similar public entities’ volatility information until historical volatility of the Company is relevant to measure expected volatility for future option grants. The average expected life was determined according to the Securities and Exchange Commission (SEC) shortcut approach as described in Staff Accounting Bulletin (SAB) No. 110, which is the midpoint between the vesting date and the end of the contractual term.

Warrant Liability

Warrant Liability

In February 2013, the Company issued $17.6 million of secured convertible notes (the “Notes”).  In connection with the issuance of the Notes, the Company also issued to its noteholders warrants to purchase shares of its capital stock up to 25% of the principal amounts of the Notes divided by the applicable purchase price at an exercise price of $0.01.  Upon completion of the Company’s IPO on April 16, 2013, the warrants were automatically net exercised by the holders resulting in the issuance of 549,301 shares of common stock.  The above-mentioned warrants are recorded as a liability and, as such, the Company reflects the warrant liability at fair value in the March 31, 2013 Balance Sheet with a corresponding charge to the Company’s Statements of Operations for the three months ending March 31, 2013.  At March 31, 2013, the fair value was estimated to be $4,394,500.

Beneficial Conversion

Beneficial Conversion

When the Company issues a debt or a equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the debt or equity security counterparty is legally committed to purchase such a security (“Commitment Date”), a beneficial conversion feature is measured and recorded on the Commitment Date for the difference between the fair value of the Company’s common stock and the effective conversion price of the convertible debt or equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible debt or equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible debt or equity security. The amount allocated to the beneficial conversion feature is presented as a discount or reduction to the related debt security or as an immediate charge to earnings available to common shareholders for convertible preferred stock instruments that are convertible by the shareholders at any time.

Net Loss per Share

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of convertible preferred stock and options outstanding under the Company’s stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common equivalent shares):

	Three Months Ending March 31,
	2012	2013
	(Unaudited)
Convertible preferred stock outstanding	9,162,873	10,625,847
Common stock options	1,188,274	1,179,906
Total	10,351,147	11,805,753

In addition, the Notes (and related warrants) are potentially dilutive as they can be converted into shares of capital stock.  However, the number of shares varies based on the applicable price of the stock.  As indicated in Note 9, the Notes (and accrued interest) were automatically converted into 2,228,925 shares of common stock and the warrants were automatically net exercised into 549,301 shares of common stock in conjunction with the Company’s IPO in April 2013.

The following table summarizes the Company’s historical computation of basic and diluted net loss per share:

Net Loss per Share

	Three Months EndingMarch 31,
	2012			2013
	(Unaudited)
Numerator
Net loss	$	(9,174,109	)	$	(6,253,233	)
Less dividends on preferred stock, not declared	(909,394		)	(1,094,324		)
Net loss attributable to common stockholders	$	(10,083,503	)	$	(7,347,557	)
Denominator
Common shares outstanding	3,010,101			3,010,101
Less weighted average unvested common shares	(1,378,374		)	(626,657		)
Weighted average shares used to compute net loss per share	1,631,727			2,383,444
Net loss per share, basic and diluted	$	(6.18	)	$	(3.08	)

Although the common shares are legally outstanding, these shares are subject to vesting provisions and therefore the unvested shares are excluded from the basic earnings per share calculation.

Recent Accounting Standards

Recent Accounting Standards

In February 2013, the FASB issued ASU 2013-2, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update to the comprehensive income guidance requires additional disclosure about the amounts reclassified out of Accumulated other comprehensive income, including disclosing the amounts that impact each line item in the Statement of Operations within a reporting period. This update enhances the disclosure requirements for amounts reclassified out of Accumulated other comprehensive income but will not impact the Company’s financial position, results of operations or cash flows. The Company adopted the new accounting guidance prospectively effective January 1, 2013.

In March 2013, the FASB issued ASU 2013-05, which permits an entity to release cumulative translation adjustments into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held. The revised standard is effective for fiscal years beginning after December 15, 2013; however, early adoption is permitted. The Company does not expect adoption of this ASU to materially impact its consolidated financial statements.