Significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2012

Principles of Consolidation

The Company's consolidated financial statements include the Company's accounts and the accounts of the Company's wholly-owned subsidiary, OvaScience Securities Corporation. All intercompany transactions have been eliminated.

Use of estimates

Use of estimates

The preparation of the Company's financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.

The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The Company granted stock options at exercise prices not less than the fair market value of its common stock as determined by the board of directors contemporaneously at the date such grants were made, with input from management. The fair value of common stock at certain of the grant dates was adjusted in connection with the Company's retrospective fair value assessment for financial reporting purposes. The board of directors has determined the estimated fair value of the Company's common stock based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, the prices at which the Company sold shares of preferred stock and common stock, the superior rights and preferences of securities senior to the Company's common stock at the time and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company.

The Company utilized various valuation methodologies in accordance with the framework of the 2004 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. The methodologies included a probability analysis including both a potential public trading scenario and potential sale scenario. For the sale scenario, the Company used the reverse backsolve method and in the public trading scenario the Company assumed that all of its shares of convertible preferred stock would convert into common stock. Valuation methodologies include estimates and assumptions that require the Company's judgment. These estimates include assumptions regarding future performance, including the successful completion of the Company's AUGMENT marketing study in humans and the time to complete a public trading scenario or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

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 product candidates dedicated to the treatment of female infertility, and the Company operates in only one geographic segment.

Comprehensive loss

Comprehensive loss

In June 2011, the Financial Accounting Standards Board issued revised guidance on the presentation of comprehensive income and its components in the financial statements. As a result of this guidance, companies are now required to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements, eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. This update does not change the items that must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. The Company adopted this new guidance on January 1, 2012 and elected to present comprehensive income (loss) in one continuous statement as part of the financial statements.

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss for the year ended December 31, 2012, the periods from April 5, 2011 (inception) to December 31, 2011 and April 5, 2011 (inception) to December 31, 2012 comprised net loss and net unrealized losses on investments.

Organizational costs

Organizational costs

All organizational costs have been expensed as incurred.

Cash and cash equivalents

Cash and cash equivalents

The Company considers all highly liquid investment instruments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Investments qualifying as cash equivalents primarily consist of money market funds. The carrying amount of cash equivalents approximates fair value. The amount of cash equivalents included in cash and cash equivalents was approximately $13.3 million at December 31, 2012. There were no cash equivalents as of December 31, 2011.

Fair value of financial instruments

Fair value of financial instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:


Level 1 inputs		Quoted prices in active markets for identical assets or liabilities
Level 2 inputs		Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3 inputs		Unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability

Effective January 1, 2012, the Company adopted, on a prospective basis, ASU No. 2011-04, "Fair Value Measurement (Topic 820)" ("ASU No. 2011-04"), which updates the existing fair value measurement guidance currently included in the ASC to achieve common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU No. 2011-04 is generally consistent with the Company's previous fair value measurement policies but includes additional disclosure requirements, particularly for assets and liabilities that require the use of Level 3 inputs to measure fair value. The adoption of ASU No. 2011-04 did not have a material impact on the Company's financial position or results of operations.

Concentrations of credit risk and off-balance sheet risk

Concentrations of credit risk and off-balance sheet risk

Cash, cash equivalents and marketable securities are the only financial instruments that potentially subject the Company to concentrations of credit risk. The Company maintains its cash with a high quality, accredited financial institution and, accordingly, such funds are subject to minimal credit risk. The Company also has established guidelines relating to diversification and maturities that allow the Company to manage risk. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Research and development costs

Research and development costs

The Company expenses research and development costs to operations as incurred. Research and development expenses consist of costs associated with research activities, including license payments paid to third parties for rights to intellectual property, the costs of development of therapeutic product candidates and advances in the field of infertility. The Company accounts for nonrefundable 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. Research and development expenses consist of:

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employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

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external research and development expenses incurred under arrangements with third parties, such as contract research organizations manufacturing organizations and consultants;

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license fees; and

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facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and laboratory and other supplies.

Stock-based compensation

Stock-based compensation

The Company expenses the fair value of employee stock options on a straight-line basis over the requisite service period, which is the vesting period. Compensation expense is measured using the fair value of the award at the grant date, net of estimated forfeitures, and is adjusted annually to reflect actual forfeitures. The fair value of each stock option is estimated using the Black-Scholes option pricing model.

Stock-based awards issued to non-employees, including directors for non-board related services, are accounted for based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured. These stock-based option awards are revalued at each vesting date using the fair value method.

Convertible preferred stock

In July 2011, the Company sold 6,200,000 shares of Series A Preferred Stock at a price of $1.00 per share for gross proceeds of $6,200,000. The Company incurred approximately $101,000 of issuance costs in connection with the sale of the Series A Preferred Stock, which were recorded to additional paid-in capital.

On March 29, 2012, the Company sold 6,770,563 shares of Series B Preferred Stock at a price of $5.50 per share for gross proceeds of approximately $37,238,000. The Company incurred approximately $2,246,000 of issuance costs in connection with the sale of the Series B Preferred Stock, which were recorded as a reduction of the proceeds received.

On August 13, 2012, as a result of the completion of the private placement of the Company's common stock (see Note 5), the Company's Series A and Series B Preferred Stock automatically converted into shares of common stock. Each share of Series A Preferred Stock converted into common stock on a one-for-2.023 basis, into a total of 3,064,753 shares of common stock, and each share of Series B Preferred Stock converted into common stock on a one-for-one basis, into a total of 6,770,563 shares of common stock.

The Company assessed the Series A Preferred Stock and the Series B Preferred Stock for any beneficial conversion features or embedded derivatives, including the conversion option, that would require bifurcation from the Series A Preferred Stock and/or the Series B Preferred Stock and receive separate accounting treatment. On the date of the issuance, the fair value of the common stock into which the Series A Preferred Stock and the Series B Preferred Stock, respectively, was convertible was less than the effective conversion price of the Series A Preferred Stock and the Series B Preferred Stock, respectively, and, as such, there was no intrinsic value of the conversion option on the commitment date. In addition, no embedded derivatives were identified that would require bifurcation.

The rights, preferences and privileges of the Series A Preferred Stock and the Series B Preferred Stock were as set forth below until the Series A Preferred Stock and the Series B Preferred Stock converted into common stock on August 13, 2012 (see Note 6).

Conversion

Shares of Series A Preferred Stock were convertible into common stock based on a defined conversion ratio, which was originally set at one-for-one and following the Reverse Stock Split was one-for-2.023, adjustable for certain dilutive events. Shares of Series B Preferred Stock were convertible into common stock based on a defined conversion ratio, which was one-for-one, adjustable for certain dilutive events. The conversion ratios for the Series A Preferred Stock and the Series B Preferred Stock were subject to change in accordance with anti-dilution provisions contained in the Company's restated certificate of incorporation. More specifically, the applicable conversion ratio was subject to adjustment to prevent dilution on a weighted-average basis in the event that the Company issued additional shares of common stock or securities convertible or exercisable for common stock at a purchase price less than the then effective applicable conversion ratio. The Company evaluated this feature and concluded it did not require bifurcation as a derivative because the Series A Preferred Stock and the Series B Preferred Stock were each concluded to have the characteristics of an equity-host and the feature was clearly and closely related to the Series A Preferred Stock and the Series B Preferred Stock, respectively.

The Series A Preferred Stock and the Series B Preferred Stock were convertible at the option of the holder at any time without any additional consideration. In addition, the Series A Preferred Stock and the Series B Preferred Stock would automatically convert into shares of common stock at the then effective applicable conversion rate, upon the earliest to occur of (a) the closing of the sale of shares of common stock to the public at a price of at least $16.50 per share in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), provided that such offering results in at least $35,000,000 of gross proceeds to the Company and the Company's common stock is listed for trading on a national securities exchange, (b) the closing of certain private placement or registered offerings of the Company's equity securities or (c) the effectiveness of a registration statement under the Securities Act covering the re-sale of privately placed securities. In addition, all outstanding shares of Series A Preferred Stock and Series B Preferred Stock would convert into common stock upon the vote or written consent of the holders of 70% of the outstanding Series A Preferred Stock and Series B Preferred Stock, voting as a single class (subject to certain limitations).

Dividends

Prior to the payment of any dividend, except a common stock dividend, to the common stockholders, the holders of Series A Preferred Stock and Series B Preferred Stock were entitled to receive an amount at least equal to the amount that would have been received by the holders of Series A Preferred Stock and Series B Preferred Stock had all shares of Series A Preferred Stock and Series B Preferred Stock been converted to common stock immediately prior to issuance of the dividend. There were no guaranteed dividends that accrue.

Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, including a deemed liquidation event, such as certain mergers or a disposition of substantially all the assets of the Company, unless holders of at least 70% of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, including certain of the Company's major investors, elected otherwise, the holders of Series A Preferred Stock and Series B Preferred Stock were entitled to receive, in preference to common stockholders, an amount equal to $1.00 per share, in the case of the Series A Preferred Stock, and $5.50 per share, in the case of the Series B Preferred Stock, in each case adjustable for certain dilutive events, plus all declared but unpaid dividends. If the Company had insufficient assets to pay the holders of Series A Preferred Stock and Series B Preferred Stock the full amount to which they were entitled, the holders of the Series A Preferred Stock and Series B Preferred Stock would share ratably in any distribution in proportion to the respective amounts which would otherwise be payable.

After payment of such preferential amounts, the remaining assets of the Company, if any, would be distributed ratably to the holders of common stock, Series A Preferred Stock and Series B Preferred Stock on an as-converted to common stock basis. However, the holders of Series A Preferred Stock and Series B Preferred Stock were limited to the receipt of an aggregate amount (including through payment of the preferential amounts described above) equal to the greater of:

(1)

$2.00 per share, in the case of the Series A Preferred Stock, and $11.00 per share, in the case of the Series B Preferred Stock, in each case adjustable for certain dilutive events, and

(2)

the amount such holders would have received if all Series A Preferred Stock or Series B Preferred Stock, as the case may be, had been converted to common stock immediately prior to the liquidation event.

Voting rights

Holders of Series A Preferred Stock and Series B Preferred Stock were entitled to vote as a single class with the holders of common stock, and had one vote for each equivalent common share into which the Series A Preferred Stock and the Series B Preferred Stock was convertible. In addition, the affirmative vote of the holders of at least 70% of the outstanding Series A Preferred Stock and Series B Preferred Stock, including certain of the Company's major investors, voting together on an as-converted to common stock basis, was required to amend the Company's organizational documents, declare or pay dividends, subject to limited exceptions, create certain new series or classes of stock or reclassify existing series or classes, exclusively license the Company's material intellectual property, effect a significant change in the Company's business, create indebtedness in excess of $250,000, increase the number of shares of common stock reserved for equity compensation, or undertake change of control transactions. Furthermore, the affirmative vote of the holders of at least 60% of the outstanding Series B Preferred Stock was required to amend or repeal the Company's organizational documents, increase the number of shares of Series B Preferred Stock, undertake change of control transactions or exclusively license any of the Company's material intellectual property. The holders of Series A Preferred Stock were entitled to elect two directors and the holders of Series B Preferred Stock were entitled to elect one director. The holders of the Company's common stock, Series A Preferred Stock and Series B Preferred Stock, voting together on an as converted to common stock basis, had the right to elect the remaining directors.

Income taxes

Income taxes

The Company determines its deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered.

The Company applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. During the years ended December 31, 2012 and December 31, 2011, the Company had no material unrecognized tax benefits and no adjustments to its deferred tax assets. The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense.

The Company files income tax returns in the United States federal jurisdiction and multiple state jurisdictions. The Company currently is not under examination by the Internal Revenue Service or other jurisdictions for any tax years.

Property and equipment

Property and equipment

Property and equipment is stated at cost. Expenditures for repairs and maintenance are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Depreciation is calculated over the following estimated useful lives of the assets:


Laboratory equipment		5 years
Furniture		5 years
Computer equipment		3 years
Leasehold improvements		Shorter of asset life or lease term

Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying value of assets may not be fully recoverable and that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. If impairment is indicated, the asset will be written down to its estimated fair value. To date, no such impairment losses have been recorded.

Net loss per share

Net loss per share

Basic and diluted net loss per common share is calculated by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company's potentially dilutive shares, which include preferred stock, outstanding stock options and restricted stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.