XML 31 R21.htm IDEA: XBRL DOCUMENT

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition and the accrual for research and development expenses. Estimates are periodically reviewed in light of changes in facts, circumstances and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Translation of Foreign Currency

For our foreign subsidiaries that report in a functional currency other than U.S. dollars, we translate their assets and liabilities into U.S. dollars using the exchange rate at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates for the period. We translate transactions in our capital accounts at the historic exchange rate in effect at the date of the transaction. We include foreign currency translation adjustments as a component of accumulated other comprehensive loss within the condensed consolidated statements of comprehensive loss.

Revenue Recognition

Collaboration and License Revenue

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, which amended the guidance for accounting for revenue from contracts with customers. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (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 a performance obligation. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, then assess whether each promised good or service is distinct. When we offer options for additional goods or services, such as an option to license a drug in the future or for additional goods or services to be provided in the future, we evaluate whether such options are material rights that should be treated as additional performance obligations. We typically have concluded that the option to license a drug or the options for additional goods or services that may be requested in the future under our collaboration agreements are not material rights as the amounts attributable to such options represent standalone selling price, and therefore no consideration is allocated to these items at the inception of an agreement. When a partner exercises its option to license a drug or requests the additional goods or services, a new performance obligation is created for that item. Once performance obligations are identified, we then recognize as revenue the amount of the transaction price that we allocated to the respective performance obligation when (or as) each performance obligation is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, we recognize revenue based on the use of an output or input method. As of September 30, 2019, we had three collaborative and license revenue agreements: our strategic collaboration, option and license agreement with Novartis Pharma AG, or Novartis, which we entered into in January 2017, our collaboration and license agreement with PTC Therapeutics International Limited, or PTC Therapeutics, which we entered into in August 2018, and our TTR development, commercialization, collaboration and license agreement with Ionis, under which we are recognizing commercial product revenue related to TEGSEDI sales subsequent to product launch in the fourth quarter of 2018. For a complete discussion of the accounting related to our collaborative agreements, see Note 7, Strategic Collaboration with Novartis, Note 8, License Agreements and Services Agreement with Ionis, Note 9, Collaboration and License Agreement with PTC Therapeutics, and the section below entitled Product Revenue, Net.

Product Revenue Net

Product Revenue, Net

Subsequent to obtaining regulatory approval from the United States Food and Drug Administration, or FDA, on October 5, 2018, we began to sell TEGSEDI in the U.S. in the fourth quarter of 2018. The product is distributed through an exclusive distribution agreement with a third-party logistics company, or 3PL, that takes title to the product and represents our sole customer in the U.S. Our U.S. customer distributes TEGSEDI to a specialty pharmacy and a specialty distributor (collectively referred to as “wholesalers”), who then distribute the product to health care providers and patients. On July 11, 2018, we obtained regulatory approval of TEGSEDI in Europe, following which we began to sell TEGSEDI in Europe in the fourth quarter of 2018. On May 7, 2019, we obtained regulatory approval of WAYLIVRA in Europe, following which we began to sell WAYLIVRA in Europe in the third quarter of 2019. TEGSEDI and WAYLIVRA are distributed through 3PLs that distribute the product to hospitals and pharmacies in Europe.

Revenue from product sales is recognized when the customer obtains control of our product, which occurs upon transfer of title to the customer. Revenue is recognized at the amount that we expect to be entitled to in exchange for the sale of our product. This amount includes both fixed and variable consideration and excludes amounts that are collected from customers and remitted to governmental authorities. We record shipping and handling costs within cost of goods sold on our condensed consolidated statement of operations. We classify payments to customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses on our condensed consolidated statements of operations. Payments to customers or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. We have elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Our payment terms are generally between thirty to ninety days.

Reserves for Variable Consideration

Revenue from product sales is recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between us and our customers, wholesalers, health care providers and other indirect customers relating to the sale of TEGSEDI and WAYLIVRA. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable or a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, product revenue net of these reserves reflects our best estimate of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following are the components of variable consideration related to product revenue:

Chargebacks: In the U.S., we estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to our U.S. customer. Our U.S. customer charges us for the difference between what they pay for the product and the selling price to the qualified healthcare providers. We record reserves for these chargebacks related to product sold to our U.S. customer during the reporting period as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers in future periods.

Government rebates: We are subject to discount obligations under government programs, including Medicaid and Medicare programs in the U.S., and we record reserves for government rebates based on statutory discount rates and estimated utilization in the period in which revenue is recognized. We estimate Medicaid and Medicare rebates based upon estimated payer mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses on our condensed consolidated balance sheet. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we expect we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Trade discounts and allowances: We provide customary invoice discounts on sales to our U.S. customer for prompt payment that are recorded as a reduction of revenue in the period the related product revenue is recognized.

Distribution fees: We receive and pay for various distribution services provided by our U.S. and E.U. customers and wholesalers in the U.S. and these fees are generally accounted for as a reduction of revenue. To the extent that the services received are distinct from the sale of products to our customers, we classify these payments as selling, general and administrative expenses.

Product Returns: Our U.S. customer has return rights and the wholesalers in the U.S. have limited return rights primarily related to the product’s expiration date. We estimate the amount of product sales that may be returned and record the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized. Based on our distribution model, contractual inventory limits with our U.S. customer and wholesalers and the price of TEGSEDI, we believe there will be minimal returns in the U.S. Our E.U. customers only take title to TEGSEDI and WAYLIVRA when an order is received and therefore do not maintain excess inventory levels of our products. Accordingly, there is limited return risk in the E.U. and we have not recorded any return estimate in the transaction price for products sold in Europe.

Other incentives: In the U.S., other incentives include co-payment assistance that we provide to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue. The estimate is recorded as a reduction of revenue in the same period that the related revenue is recognized.

During the three and nine months ended September 30, 2019, we recorded product revenue, net, of $11.9 million and $28.6 million, respectively. Given that we began to sell WAYLIVRA in September 2019, a majority of the product revenue during the three and nine months ended September 30, 2019 relates to TEGSEDI. The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the nine months ended September 30, 2019 (in thousands):

	Chargebacks, discounts and fees			Government and other rebates			Returns		Total
Balance at December 31, 2018	$	50		$	293		$	5	$	348
Provision related to current period sales		824			1,648			254		2,726
Adjustment related to prior period sales		(4	)		(28	)		—		(32	)
Credits or payments made during the period		(601	)		(954	)		—		(1,555	)
Balance at September 30, 2019	$	269		$	959		$	259	$	1,487

Leases

Topic 842 Adoption

In February 2016, the FASB issued amended accounting guidance related to lease accounting. This guidance superseded the lease requirements we previously followed in ASC Topic 840, Leases, or Topic 840, and created a new lease accounting standard, ASC Topic 842, Leases, or Topic 842. Under Topic 842, an entity will record all leases with a term longer than one year on its balance sheet. Further, an entity will record a liability with a value equal to the present value of payments it will make over the life of the lease (lease liability) and an asset representing the underlying leased asset (right-of-use asset). The new accounting guidance requires entities to determine if its leases are operating or financing leases. Entities will recognize expense for operating leases on a straight-line basis as an operating expense. If an entity determines a lease is a financing lease, it will record both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease.

We adopted Topic 842 on January 1, 2019 and adjusted our opening condensed consolidated balance sheet on that date to record our operating lease right-of-use assets and lease liabilities. We adopted Topic 842 using the available practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward historical lease classification of those leases we had in place as of January 1, 2019. Results for the nine months ended September 30, 2019 are presented under Topic 842. Results for the nine months ended September 30, 2018 are presented in accordance with our historic accounting under Topic 840.

The impact of the adoption of Topic 842 on the accompanying condensed consolidated balance sheet as of January 1, 2019 was as follows (in thousands):

	December 31, 2018		Adjustment due to adoption of Topic 842		January 1, 2019
Operating lease right-of-use assets		—		11,932		11,932
Other current liabilities		968		1,029		1,997
Long-term portion of lease liabilities		4,442		10,915		15,357

Leases

We determine if an arrangement contains a lease at inception. We currently only have operating leases. We recognize an operating lease right-of-use asset and associated short and long-term lease liability for operating leases greater than one year on our condensed consolidated balance sheet. We calculate our operating lease right-of-use asset and lease liability based on the present value of the future minimum lease payments we will pay over the lease term. We determine the lease term at the commencement date of the lease and we include renewal options in the lease term if we are reasonably certain that we will exercise the option. As our current leases do not provide an implicit interest rate, we used our incremental borrowing rate in determining the present value of future payments. We estimated the incremental borrowing rate based on the observed interest rates for secured debt issued by companies with similar credit ratings and with similar terms. Our operating lease right-of-use asset also includes any lease payments we made and excludes any tenant improvement allowances we received.

We recognize rent expense for the lease components of our operating leases on a straight-line basis over the term of our lease. We recognize non-lease components, such as common area maintenance expenses, in the period we incur the expense.

New Accounting Pronouncements - Recently Issued

New Accounting Pronouncements – Recently Issued

In June 2016, the FASB issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. If we have credit losses, this updated guidance requires us to record allowances for these instruments under a new expected credit loss model. This model requires us to estimate the expected credit loss of an instrument over its lifetime, which represents the portion of the amortized cost basis we do not expect to collect. The new guidance requires us to remeasure our allowance in each reporting period we have credit losses. The new standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. When we adopt the new standard, we will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We plan to adopt this guidance on January 1, 2020. We do not anticipate this guidance having a significant impact on our condensed consolidated financial statements and disclosures.

In August 2018, the FASB issued clarifying guidance on how to account for implementation costs related to cloud-servicing arrangements. The guidance states that if these fees qualify to be capitalized and amortized over the service period, they need to be expensed in the same line item as the service expense and recognized in the same balance sheet category. The update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The updated guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We plan to adopt this guidance on January 1, 2020 on a prospective basis. We do not anticipate this guidance having a significant impact on our condensed consolidated financial statements and disclosures.

In August 2018, the FASB updated its disclosure requirements related to Level 1, 2 and 3 fair value measurements. The update included deletion and modification of certain disclosure requirements and additional disclosure related to Level 3 measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. We adopted this updated guidance on January 1, 2019 and it did not have a significant impact on our disclosures.

In November 2018, the FASB issued clarifying guidance on the interaction between the collaboration accounting guidance and the new revenue recognition guidance we adopted on January 1, 2018 (Topic 606). Below is the clarifying guidance and how we will implement it (in italics):

When a participant is considered a customer in a collaborative arrangement, all of the associated accounting under Topic 606 should be applied.

●

We will apply all of the associated accounting under Topic 606 when we determine a participant in a collaborative arrangement is a customer.

Adds “unit of account” concept to collaboration accounting guidance to align with Topic 606. The “unit of account” concept is used to determine if revenue is recognized or if a contra expense is recognized from consideration received under a collaboration.

●

We will use the “unit of account” concept when we receive consideration under a collaboration agreement to determine when we recognize revenue or a contra expense.

The clarifying guidance precludes us from recognizing revenue under Topic 606 when we determine a transaction with a collaborative partner is not a customer and is not directly related to the sales to third parties.

●

When we conclude a collaboration partner is not a customer and is not directly related to the sales to third parties, we will not recognize revenue for the transaction.

The updated guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this guidance on January 1, 2020. We are currently assessing the effects it could have on our condensed consolidated financial statements and disclosures.