Equity Method Investment

6 Months Ended

Jun. 30, 2018

Equity Method Investments and Joint Ventures [Abstract]

On August 29, 2016, the Company executed a stock purchase agreement with Kleo Pharmaceuticals, Inc. (“Kleo”), a privately held Delaware corporation, to purchase 3,000,000 shares of Kleo’s common stock at an initial closing, with a commitment to purchase an aggregate of 5,500,000 additional shares of common stock, in each case at a share price of $1.00 per share (the “Kleo SPA”). Kleo is a development-stage biopharmaceutical company focused on advancing the field of immunotherapy by developing small molecules that emulate biologics. The Company purchased 3,000,000 shares upon the initial closing on August 31, 2016, and the remaining 5,500,000 shares were purchased in four equal tranches of 1,375,000 shares from March 2017 through January 2018 for total cash consideration of $5,500. In connection with the initial investment, the Company received the right to designate two of the members of Kleo’s board of directors.

In March 2017, the Company purchased 500,000 shares of Kleo common stock directly from a co-founder of Kleo for consideration of $250 in cash and 32,500 common shares of the Company.

In addition to these purchases, in October 2017, the Company purchased an additional aggregate of 2,049,543 shares for cash consideration of $2,253 which allowed the Company to maintain its relative ownership interest in Kleo. As of June 30, 2018, the Company’s ownership interest in the outstanding stock of Kleo was 46.6%.

The Company has a variable interest in Kleo through its equity investment. Kleo is a variable interest entity due to the equity investment at risk being insufficient to finance its activities. An assessment of whether or not the Company has the power to direct activities that most significantly impact Kleo’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed as of June 30, 2018 and December 31, 2017, and will be performed as of each subsequent reporting date. After each of these assessments, the Company concluded that the activities that most significantly impact Kleo’s economic performance are the ability to direct the research activities, the ability to select vendors to perform the research, the ability to maintain research staff and the ability to raise additional funds, each of which are directed by Kleo. Based on the outcome of these assessments, the Company concluded that the investment should be accounted for under the equity method.

The Company has recorded its investments in Kleo to date based on the costs of those investments, as adjusted for the Company’s proportional share of Kleo’s net income or loss in each period. The difference between the cost of the Company’s investments in Kleo and its proportionate share of the net assets of Kleo was allocated to goodwill and indefinite-lived intangible assets. The Company records future adjustments to the carrying value of its investment at each reporting date equal to its proportionate share of Kleo’s net loss for the corresponding period. The Company recorded other expense and a corresponding reduction in the carrying value of its investment in Kleo for its proportionate share of Kleo’s net loss as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Proportionate share of Kleo's net loss	$	641	$	348	$	1,369	$	566

The carrying value of the Company’s investment in Kleo was $7,853 and $7,847 as of June 30, 2018 and December 31, 2017, respectively, and is reported as equity method investment on the consolidated balance sheet. The carrying value of the investment represents the Company’s maximum loss exposure as of June 30, 2018.

The following table provides a roll forward of the carrying value of the Company’s equity method investment:



	Carrying Value
Balance at December 31, 2017	$	7,847
Purchases of Kleo common stock	1,375
Loss recognized in connection with equity method investment	(1,369		)
Balance at June 30, 2018	$	7,853

Balance at December 31, 2016	$	2,753
Purchases of Kleo common stock	3,351
Loss recognized in connection with equity method investment	(566		)
Balance at June 30, 2017	$	5,538