2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 6, 2018. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which include all normal and recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2018, and the results of its operations and its cash flows for the interim periods ended June 30, 2018 and 2017.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2017, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements. Estimates are used in the following areas, among others: revenue, stock-based compensation expense, accrued research and development expenses and other accrued expenses, income taxes and the fair value of financial instruments.

Accounts Receivable

Accounts receivable primarily consist of consideration due to the Company resulting from its license agreements with NAV Technology Licensees. Accounts receivable include amounts invoiced to licensees as well as rights to consideration which have not yet been invoiced to licensees and for which payment is conditional solely upon the passage of time. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any accounts receivable from the licensee which are not contractually payable to the Company are charged off as a reduction of license revenue in the period of the termination. Accounts receivable from licensees which are not expected to be received by the Company within 12 months from the reporting date are stated net of a discount to present value and recorded as non-current assets on the consolidated balance sheets.

Receivables are stated net of an allowance for doubtful accounts, if deemed necessary based on the Company’s evaluation of collectability using specific identification of account balances, the credit profile of its customers and historical information regarding write-offs. Account balances are charged off against the allowance when the potential for recovery is considered remote. The Company did not record an allowance for doubtful accounts as of June 30, 2018 or December 31, 2017.

Non-marketable Equity Securities

The Company’s non-marketable equity securities do not have readily determinable fair values and consist of equity investments in other entities in which the Company’s ownership interest is below 20% and the Company does not have significant influence over the operations of the entity. Prior to January 1, 2018, non-marketable equity securities were accounted for using the cost method and measured at cost less impairment. Beginning January 1, 2018, upon the Company’s adoption of ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, non-marketable equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. Please refer to Note 4 for further information on non-marketable equity securities.

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. FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that 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 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 three levels of the fair value hierarchy are described below:

•

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (Topic 605). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 606 and the impact upon adoption to the Company’s financial position and results of operations.

Topic 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following five steps are performed to determine the appropriate revenue recognition for arrangements within the scope of Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies the performance obligations.

The Company applies the five-step model to contracts that are within the scope of Topic 606 only when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, for contracts within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determined those that are performance obligations and whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to respective performance obligations when (or as) the respective performance obligations are satisfied.

The Company evaluates its contracts for the presence of significant financing components. If a significant financing component is identified in a contract and provides a financing benefit to the customer, the transaction price for the contract is adjusted to account for the financing portion of the arrangement, which is recognized as interest income over the financing term using the effective interest method. In determining the appropriate interest rates for significant financing components, the Company evaluates the credit profile of the customer and prevailing market interest rates and selects an interest rate in which it believes would be charged to the customer in a separate financing arrangement over a similar financing term.

License revenue

The Company licenses its NAV Technology Platform to other biotechnology and pharmaceutical companies. The terms of the licenses vary, however licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the Company’s NAV Technology Platform. License agreements generally have a term at least equal to the life of the underlying patents, but are terminable at the option of the licensee. Consideration to the Company under its license agreements may include: (i) up-front fees, (ii) option fees to obtain additional licenses, (iii) annual maintenance fees, (iv) milestone payments based on the achievement of certain development and sales-based milestones by licensees, (v) sublicense fees and (vi) royalties on sales of licensed products.

The Company has determined that all of its license agreements are contracts with customers within the scope of Topic 606. Although licenses are terminable at the option of licensee, the Company has determined that there is a substantive termination penalty associated with the termination of each license. Due to the substantive termination penalty, the contract term for purposes of applying Topic 606 is equal to the stated term of the license agreement, which is the life of the underlying licensed patents. The Company’s performance obligations under its license agreements include the delivery of intellectual property licenses to licensees as well as options granted to licensees to acquire future licenses to the extent the options represent material rights to the licensee. The transaction price for each license agreement is allocated to these performance obligations and recognized as revenue when the performance obligations are satisfied. Consideration allocated to performance obligations for the delivery of intellectual property licenses is recognized as revenue upon the delivery of the license(s) to the licensee, which generally occurs upon the execution of the license agreement. Consideration allocated to performance obligations for license options is recognized as revenue upon the earlier of the option exercise or expiration.

For license agreements which contain options for the licensee to purchase additional licenses in the future, the Company evaluates the options at the inception of the agreement to determine if they provide a material right to the licensee. In making this determination, the Company considers whether the optional licenses are priced at a discount to the standalone selling price for the licenses. For options granted which are deemed to be material rights to the licensee, the Company allocates a portion of the transaction price to the performance obligation for the option and recognizes that consideration as revenue at the earlier of option exercise or expiration. Options which are not material rights to licensees are not considered performance obligations and are not accounted for as part of the license agreement until exercised by the licensee. Consideration contingent upon the exercise of options by licensees is excluded from the transaction price and not accounted for as part of the license agreement until the option is exercised. Upon the exercise of an option by a licensee, the additional consideration related to the option exercise is added to the transaction price and recognized as revenue upon the delivery of the newly purchased license.

The Company evaluates the transaction price for its license agreements at each reporting date. The transaction price for each license includes all fixed consideration, as well as variable consideration to the extent that it is probable that a significant reversal of revenue will not occur in the future. Fixed consideration under the Company’s license agreements includes up-front fees and annual maintenance fees. Variable consideration under the Company’s license agreements includes development and sales-based milestone payments, sublicense fees and royalties on sales of licensed products.

Up-front license fees are included in the transaction price and recognized as revenue upon the delivery of the license. If up-front license fees are payable to Company in periods beyond 12 months from the delivery of the license, a significant financing component is deemed to exist and the Company adjusts the transaction price to include only the present value of the license fees. The discounted portion of the license fees is recognized as interest income in the consolidated statements of operations over the term of the financing period.

Annual maintenance fees are generally payable to the Company on each anniversary date over the term of the license agreement. The Company has determined that the payment of annual maintenance fees by licensees in future periods represents a significant financing component to the license since the delivery of the license occurs at the inception of the agreement. The present value of aggregate annual maintenance fees payable to the Company over the term of the license is included in the transaction price and recognized as revenue upon the delivery of the license. The discounted portion of the annual maintenance fees is recognized as interest income in the consolidated statements of operations over the term of the license.

Development milestone payments are payable to the Company upon the achievement of specified development milestones by licensees. At the inception of each license agreement that contains development milestone payments, the Company evaluates whether the milestones are considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal will not occur in the future, milestone payments are included in the transaction price and recognized as revenue upon the delivery of the license. Milestone payments contingent on the achievement of development milestones that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved and are excluded from the transaction price until the milestone is achieved. At each reporting date, the Company re-evaluates the probability of achievement of outstanding development milestones and, if necessary, adjusts the transaction price for any milestones for which the probability of achievement has changed due to current facts and circumstances. Any such adjustments are recorded on a cumulative catch-up basis and recorded as license revenue in the period of the adjustment.

Royalties on sales of licensed products, sales-based milestone payments and sublicense fees based on the receipt of certain fees by licensees from any sublicensees are excluded from the transaction price for each license and recognized as revenue in the period that the related sales or sublicenses occur, provided that the associated license has been delivered to the licensee. To date the Company has not recognized any revenue from royalties on sales of licensed products, the achievement of sales-based milestones or sublicense fees.

The Company receives payments from licensees based on the billing schedules established in each license agreement. Amounts recognized as revenue which have not yet been received from licensees are recorded as accounts receivable when the Company’s rights to the consideration are conditional solely upon the passage of time. Amounts recognized as revenue which have not yet been received from licensees are recorded as contract assets when the Company’s rights to the consideration are not unconditional. Contract assets are recorded as other current assets on the consolidated balance sheets. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any consideration recorded as accounts receivable or contract assets which is not contractually payable by the licensee is charged off as a reduction of license revenue in the period of the termination. Amounts received by the Company prior to the delivery of underlying performance obligations are deferred and recognized as revenue upon the satisfaction of the performance obligations by the Company.

Costs of Revenues

Licensing costs consist of sublicense fees incurred by the Company to its licensors as a result of license revenues generated by the Company. Sublicense fees are based on a percentage of license fees received by the Company from licensees as specified in the Company’s agreements with its licensors. The Company recognizes sublicense fees in the period that the underlying license revenue is recognized. Sublicense fees payable by the Company to licensors in periods beyond 12 months from the reporting are recorded as non-current liabilities on the consolidated balance sheets.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income (loss) per share until the contingency has been fully met. For purposes of the diluted net income (loss) per share calculation, common stock equivalents are excluded from the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.

Recent Accounting Pronouncements

Adoption of ASU 2014-09, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (Topic 605). Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method. Under this method, the Company applied Topic 606 to all contracts with customers which were not completed as of January 1, 2018 and recorded the cumulative impact of the adoption as an adjustment to its accumulated deficit on January 1, 2018. The Company’s financial results for periods ending after January 1, 2018 are presented in accordance with the requirements of Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605. Please refer to Revenue Recognition above for additional information on Topic 606, including a description of the Company’s revenue recognition policies upon adoption.

The Company recorded a net reduction in opening accumulated deficit of $4.8 million as of January 1, 2018 for the cumulative impact of adoption of Topic 606, which was primarily the result of accelerated recognition of license revenue due to annual maintenance fees under Topic 606. Under Topic 605, annual maintenance fees payable to the Company by licensees were recognized as license revenue annually when the amounts became fixed or determinable. Under Topic 606, the present value of aggregate annual maintenance fees over the term of the license agreement are recognized as revenue upon the delivery of the license to the licensee. The impact of the accelerated recognition of license revenue upon adoption was partially offset by the accelerated recognition of licensing costs to the Company’s licensors. The Company recognizes sublicense fees to its licensors in the period the underlying license revenue is recognized.

The cumulative adjustment for the adoption of Topic 606 had the following effects on the Company’s consolidated balance sheet as of January 1, 2018 (in thousands):

				Cumulative
				Adjustment for
	Balance at			Adoption of		Balance at
	December 31, 2017			Topic 606		January 1, 2018
Consolidated Balance Sheet
Assets:
Accounts receivable, current	$	473		$	527	$	1,000
Accounts receivable, non-current	$	—		$	4,850	$	4,850
Other current assets	$	1,412		$	350	$	1,762

Liabilities:
Accrued expenses and other current liabilities	$	9,605		$	105	$	9,710
Other liabilities	$	—		$	819	$	819

Stockholdersʼ Equity:
Accumulated deficit	$	(187,756	)	$	4,803	$	(182,953	)

The following tables present the effects of the adoption of Topic 606 on each financial statement line item of the Company’s financial statements for the interim periods ended June 30, 2018 (in thousands, except per share data):

	As of June 30, 2018
				Impact of		Results Without
				Adoption of		Adoption of
	As Reported			Topic 606		Topic 606
Consolidated Balance Sheet
Assets:
Accounts receivable, current	$	739		$	567	$	172
Accounts receivable, non-current	$	4,485		$	4,485	$	—
Prepaid expenses	$	3,690		$	60	$	3,630

Liabilities:
Accrued expenses and other current liabilities	$	12,023		$	100	$	11,923
Deferred revenue	$	600		$	600	$	—
Other liabilities	$	720		$	720	$	—

Stockholdersʼ Equity:
Accumulated deficit	$	(68,120	)	$	3,692	$	(71,812	)

	Three Months Ended June 30, 2018							Six Months Ended June 30, 2018
			Impact of			Results Without				Impact of			Results Without
			Adoption of			Adoption of				Adoption of			Adoption of
	As Reported		Topic 606			Topic 606		As Reported		Topic 606			Topic 606
Consolidated Statement of Operations
Revenues:
License revenue	$	40,031	$	(61,244	)	$	101,275	$	172,422	$	(9,529	)	$	181,951

Expenses:
Licensing costs	$	3,872	$	(1,220	)	$	5,092	$	6,280	$	(165	)	$	6,445

Other Income:
Interest income from licensing	$	6,898	$	6,898		$	—	$	8,253	$	8,253		$	—

Net Income	$	10,594	$	(53,126	)	$	63,720	$	114,833	$	(1,111	)	$	115,944

Net Income Per Share:
Basic	$	0.33	$	(1.66	)	$	1.99	$	3.60	$	(0.04	)	$	3.64
Diluted	$	0.30	$	(1.51	)	$	1.81	$	3.29	$	(0.03	)	$	3.32

	Six Months Ended June 30, 2018
				Impact of			Results Without
				Adoption of			Adoption of
	As Reported			Topic 606			Topic 606
Consolidated Statement of Cash Flows
Cash Flows from Operating Activities:
Net income	$	114,833		$	(1,111	)	$	115,944
Imputed interest income from licensing	$	(8,253	)	$	(8,253	)	$	—
Changes in accounts receivable	$	8,879		$	8,578		$	301
Changes in prepaid expenses	$	1,644		$	(60	)	$	1,704
Changes in other current assets	$	(585	)	$	350		$	(935	)
Changes in accrued expenses and other current liabilities	$	2,566		$	(5	)	$	2,571
Changes in deferred revenue	$	600		$	600		$	—
Changes in other liabilities	$	(99	)	$	(99	)	$	—

The most significant effect that the adoption of Topic 606 had on the results of operations for the three and six months ended June 30, 2018, as compared to what results would have been if Topic 605 had continued to be applied, is related to the amount of revenue and interest income from licensing recognized under the Company’s January 2018 amendment to its license agreement with AveXis, Inc. (AveXis) for the development and commercialization of treatments for spinal muscular atrophy (SMA). Under Topic 606, the Company recognized the present value of all fixed consideration under the amendment as revenue upon the delivery of the license to AveXis in January 2018, including the present value of the two $30.0 million payments originally due to the Company in January 2019 and January 2020. The present value discount, which represents the financing portion of the consideration under Topic 606, was recognized as interest income from licensing over the financing term of the agreement. Under Topic 605, the Company would not have recognized such revenue until it became fixed and determinable and collectability was reasonably assured, and the Company would not have recognized any interest income from significant financing components under the license agreement. Under the requirements of Topic 606, the Company recognized license revenue of $40.0 million and $172.1 million, and interest income from licensing of $6.8 million and $8.0 million, during the three and six months ended June 30, 2018, respectively, related to its amended license agreement with AveXis. If the requirements of Topic 605 had been applied during the three and six months ended June 30, 2018, the Company would have recognized license revenue of $100.0 million and $180.0 million, respectively, and interest income from licensing of $0, related to its amended license agreement with AveXis. Please refer to Note 7 for further information on license revenue and the Company’s accounting analysis for the amended license with AveXis.

Other recently adopted accounting pronouncements

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when modification accounting should be applied for changes to terms or conditions of a share-based award. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and is to be applied prospectively upon adoption. The Company adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. As a result, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively to each period presented. The Company adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated statements of cash flows.

The Company’s restricted cash includes money market mutual funds used to collateralize an irrevocable letter of credit as required by the Company’s lease agreement for its office space in New York, New York. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands):

	June 30, 2018		June 30, 2017
Cash and cash equivalents	$	106,889	$	57,649
Restricted cash		225		225
Total cash and cash equivalents and restricted cash	$	107,114	$	57,874

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which modifies the current guidance on the recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which clarifies the guidance in ASU 2016-01. The Company adopted these standards effective January 1, 2018. Upon the adoption of these standards, the Company elected to measure its non-marketable equity securities without readily available fair values at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. Prior to the adoption of these standards, the Company measured these investments at cost less impairment. The adoption of these standards did not have a material impact on the Company’s financial position or results of operations.

Recent accounting pronouncements not yet adopted

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting which supersedes the current guidance for accounting for share-based payments to nonemployees under ASC 505-50, Equity—Equity-based Payments to Nonemployees. The new guidance expands the scope of Topic 718 to include share-based payments to nonemployees for goods or services. Consequently, the accounting for share-based payments to employees and nonemployees will be substantially aligned. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is evaluating the application of this standard but has not yet determined the potential effects it may have on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income which amends the current guidance on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 (the TCJA) that was signed into law in December 2017 from accumulated other comprehensive income directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is evaluating the application of this standard but has not yet determined the potential effects it may have on the Company’s consolidated financial statements.

In April 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which amends the required amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted upon issuance, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets and net investment in leases that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases which clarifies multiple aspects of the guidance under Topic 842. The standards are effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company believes the new standards will significantly impact the accounting for its operating leases for office and laboratory facilities. The Company expects the adoption of these standards will have a material impact on the Company’s consolidated balance sheet; however, the evaluation of these standards is not yet complete, and the Company has not yet determined the potential impact on the Company’s consolidated statement of operations.