ARCUS BIOSCIENCES, INC., 10-Q filed on 8/6/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 01, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Trading Symbol RCUS  
Entity Registrant Name Arcus Biosciences, Inc.  
Entity Central Index Key 0001724521  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   44,456,659
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
[1]
Current assets:    
Cash and cash equivalents $ 169,998 $ 98,426
Short-term investments 95,700 77,277
Prepaid expenses and other current assets 1,550 1,141
Amounts owed by a related party 193 25
Total current assets 267,441 176,869
Long-term investments 11,792  
Property, plant and equipment-net 12,513 11,230
Equity investment in related party 1,711 682
Restricted cash 203 203
Other long-term assets 205 1,502
Total assets 293,865 190,486
Current liabilities    
Accounts payable 5,388 3,820
Accrued liabilities 4,342 3,137
Deferred revenue, current 5,000 5,000
Other current liabilities 1,650 769
Total current liabilities 16,380 12,726
Deferred revenue, noncurrent 16,087 18,587
Deferred rent 4,516 4,740
Other long-term liabilities 2,308 565
Total liabilities 39,291 36,618
Convertible preferred stock, $0.0001 par value, no shares and 120,958,867 shares authorized as of June 30, 2018 and December 31, 2017, respectively; no shares and 30,459,574 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively; aggregate liquidation preference of 226,725, as of December 31, 2017 0 226,196
Stockholders’ equity (deficit):    
Preferred stock, $0.0001 par value, 10,000,000 shares and no shares authorized as of June 30, 2018 and December 31, 2017, respectively; no shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively 0
Common stock; $0.0001 par value; 400,000,000 and 153,993,227 shares authorized as of June 30, 2018 and December 31, 2017, respectively; 44,456,659 and 4,090,898 shares issued and outstanding as of June 30, 2018 and December 31, 2017 respectively 4  
Additional paid-in capital 354,375 948
Accumulated deficit (99,722) (73,234)
Accumulated other comprehensive loss (83) (42)
Total stockholders’ equity (deficit) 254,574 (72,328)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 293,865 $ 190,486
[1] The Condensed Consolidated Balance Sheet as of December 31, 2017 has been derived from the audited financial statements as of that date.
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Convertible preferred stock, par value $ 0.0001 $ 0.0001
Convertible preferred stock, shares authorized 0 120,958,867
Convertible preferred stock, shares issued 0 30,459,574
Convertible preferred stock, shares outstanding 0 30,459,574
Convertible preferred stock, aggregate liquidation preference   $ 226,725
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 10,000,000 0
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 400,000,000 153,993,227
Common stock, shares issued 44,456,659 4,090,898
Common stock, shares outstanding 44,456,659 4,090,898
v3.10.0.1
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
Collaboration and license revenue $ 1,250   $ 2,500  
Type of Revenue [Extensible List] us-gaap:LicenseAndServiceMember us-gaap:LicenseAndServiceMember us-gaap:LicenseAndServiceMember us-gaap:LicenseAndServiceMember
Operation expenses:        
Research and development $ 13,699 $ 7,834 $ 25,352 $ 13,637
General and administrative 3,450 1,830 6,379 3,327
Total operating expenses 17,149 9,664 31,731 16,964
Loss from operations (15,899) (9,664) (29,231) (16,964)
Interest and other income, net 2,366 114 2,743 214
Net loss (13,533) (9,550) (26,488) (16,750)
Other comprehensive income (loss) 14 11 (41) 3
Comprehensive loss $ (13,519) $ (9,539) $ (26,529) $ (16,747)
Net loss per share, basic and diluted $ (0.32) $ (5.64) $ (1.01) $ (10.66)
Weighted-average number of shares used to compute basic and diluted net loss per share 42,533,641 1,693,150 26,236,007 1,571,905
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flow from operating activities    
Net loss $ (26,488) $ (16,750)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 1,772 203
Depreciation and amortization 1,743 1,114
Share of loss from equity method investee 377 141
Gain on deemed sale from equity method investee (1,229)  
Other non-operating income (177) (53)
Changes in operating assets and liabilities    
Amounts owed by a related party (168) 384
Prepaid expenses and other current assets (409) (366)
Accounts payable 1,347 (1,610)
Accrued liabilities 1,812 821
Other current liabilities 20 20
Deferred revenue (2,500)  
Deferred rent (224) (316)
Net cash used in operating activities (24,124) (16,412)
Cash flow from investing activities    
Purchases of short-term and long-term investments (90,671) (31,440)
Proceeds from maturities of short-term investments 60,415 16,085
Purchases of property and equipment (2,358) (4,381)
Net cash used in investing activities (32,614) (19,736)
Cash flow from financing activities    
Proceeds from initial public offering, net of issuance costs 125,114  
Proceeds from issuance of common stock upon exercise of stock options, net of repurchases 3,331 608
Payment of preferred stock issuance costs (135)  
Net cash provided by financing activities 128,310 608
Net decrease in cash and cash equivalents 71,572 (35,540)
Cash and cash equivalents at beginning of period 98,426 [1] 65,160
Cash and cash equivalents at end of period 169,998 29,620
Non-cash investing and financing activities:    
Unpaid portion of property and equipment purchases included in accounts payable and accrued liabilities 1,007 495
Vesting of early exercised stock options and restricted stock $ 647 $ 86
[1] The Condensed Consolidated Balance Sheet as of December 31, 2017 has been derived from the audited financial statements as of that date.
v3.10.0.1
Organization
6 Months Ended
Jun. 30, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

Note 1. Organization

Description of Business

Arcus Biosciences, Inc. (Company or the Company) is a clinical-stage biopharmaceutical company focused on creating innovative cancer immunotherapies by leveraging underexploited biological opportunities. Specifically, the Company targets well-characterized biological pathways with significant scientific data supporting their importance in regulating the immune response against cancer and for which either there are no molecules in development or those that exist have suboptimal profiles. To exploit these pathways, the Company has built a robust and highly efficient discovery capability to create and optimize highly differentiated small-molecule immuno-oncology product candidates. Since its inception in 2015, the Company has built a broad portfolio of small molecule and antibody product candidates that it plans to develop together as intra-portfolio combinations.

Initial Public Offering

On March 21, 2018, the Company completed its initial public offering (IPO) pursuant to which the Company issued 9,200,000 shares of common stock, including the exercise of the underwriters’ overallotment option to purchase 1,200,000 shares of common stock, at an offering price at $15.00 per share. The Company received aggregate net proceeds of approximately $124.7 million after deducting underwriting discounts and other offering related costs. In addition, in connection with the completion of the Company’s IPO, all outstanding shares of convertible preferred stock were converted into 30,459,574 shares of common stock and the Company amended and restated its certificate of incorporation and bylaws, which, among other things, changed the authorized capital stock to 400,000,000 shares of common stock and 10,000,000 shares of preferred stock, each with a par value of $0.0001 per share.

Liquidity and Capital Resources

As of June 30, 2018, the Company had cash and investments of $277.5 million, of which $265.7 million are cash, cash equivalents, and short-term investments which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the filing date of this report.

v3.10.0.1
Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

Operating results for the three and six month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or for any future period. The balance sheet as of December 31, 2017 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2017 included in our Prospectus.

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2018 as compared to the significant accounting policies described in the Company’s audited financial statements for the year ended December 31, 2017 included in the prospectus dated March 14, 2018 filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1993, as amended.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s condensed consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company will remain an emerging growth company until the earliest of (1) the last day of its first fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Principles of Consolidation

During 2017, the Company established a wholly-owned subsidiary in Australia. The condensed consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiary. All intercompany accounts, transactions and balances have been eliminated.

Reverse Stock Split

On March 9, 2018, the Company effected a reverse split of all shares of its common and preferred stock at a ratio of 1-for-3.96 (the Reverse Split). The par values and the authorized shares of the common and preferred stock were not adjusted as a result of the Reverse Split. All references to shares of common stock outstanding, average number of shares outstanding and per share amounts in these condensed consolidated financial statements and notes to the condensed consolidated financial statements have been adjusted within the condensed consolidated financial statements, on a retroactive basis, to reflect the Reverse Split.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Estimates were used to determine the fair value of common stock prior to the IPO and are used to determine stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, and uncertain tax positions. Actual results could differ materially from the Company’s estimates.

Cash Equivalents, Short-Term and Long-Term Investments

Cash equivalents include marketable securities having an original maturity of three months or less at the time of purchase. Short-term investments have maturities of greater than three months at the time of purchase. Long-term investments have maturities greater than 12 months at the time of purchase. Collectively, cash equivalents, short-term and long-term investments are considered available-for-sale and are recorded at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss. Realized gains and losses are included in interest and other income, net in the condensed consolidated statements of operations and comprehensive loss.

Restricted Cash

Restricted cash at June 30, 2018 and December 31, 2017, comprises cash balances primarily held as security in connection with the Company’s facility lease agreement and is included in long-term assets in the condensed consolidated balance sheets.

Concentration of Credit Risk

Cash equivalents, short-term and long-term investments are financial instruments that potentially subject the Company to concentrations of credit risk.  The Company invests in money market funds, treasury bills and notes, government bonds, commercial paper and corporate notes.  The Company limits its credit risk associated with cash equivalents, short-term and long-term investments by placing them with banks and institutions it believes are highly credit worthy and in highly rated investments.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting, filing and other fees directly related to the Company’s IPO, are capitalized. The deferred offering costs, which totaled $3.6 million, were reclassified to additional paid-in capital upon the effectiveness of the IPO in March 2018. As of December 31, 2017, $1.3 million of deferred offering costs were capitalized and included in other long-term assets in the condensed consolidated balance sheet.

Revenue Recognition

The Company generates revenue from its option and license agreement for the development and commercialization of its product candidates. Option and license agreements may include non-refundable upfront research and development fees, option fees to obtain development and commercialization licenses for the Company’s products, milestone payments based on achievement of defined development, regulatory and sales targets, and royalties on sales of commercialized products. To date, the Company has not recognized revenue from sales of its product candidates.

The Company recognizes revenue when all four of the following criteria have been met: (i) collectability is reasonably assured; (ii) delivery has occurred or services have been rendered; (iii) persuasive evidence of an arrangement exists; and (iv) the fee is fixed or determinable. Revenue under option and license arrangements is recognized based on evaluation of the performance obligations of the contract. Collectability is assessed based on evaluation of payment criteria as stated in the contract as well as the creditworthiness of the customer. Determination of whether delivery has occurred, or services rendered are based on management’s evaluation of the performance obligations as stated in the contract and progress made against those obligations. Evidence of arrangement is deemed to exist upon execution of the contract. Fees are considered fixed and determinable when the amount payable to the Company is no longer subject to any acceptance, refund rights or other contingencies that would alter the fixed nature of the fees charged for the deliverables.

Option and license agreements may contain multiple elements as evaluated under Accounting Standards Codification (ASC) 605-25, Revenue Recognition- Multiple-Element Arrangements, including agreements to provide research and development services, participation in development and/or steering committees, manufacturing services, sharing of know-how and other information, and grants of licenses to develop and commercialize product candidates. Each deliverable under the agreement is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has standalone value to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the following hierarchy: (i) vendor-specific objective evidence of the fair value of the deliverable, if it exists; (ii) third-party evidence of selling price, if vendor-specific objective evidence is not available; or (iii) the best estimate of selling price if neither vendor-specific objective evidence or third-party evidence is available.

A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees are recognized as performance obligations related to the final deliverable are completed. In the case of research and development services, performance would generally be expected to be ratable over the estimated performance period unless the Company determines there is a discernible pattern of performance other than straight-line, in which case the Company uses a proportionate performance method to recognize the revenue over the estimated performance period. Amounts received in advance of performance are recorded as deferred revenue. If any of the initial deliverables are determined to have standalone value separate from the research and development services, then the allocated consideration is recorded as revenue when those items are delivered.

Option and license agreements may also contain milestone payments that become due upon the achievement of certain milestones. The Company applies ASC 605-28, Revenue Recognition—Milestone Method. Under the milestone method, payments that are contingent upon achievement of a substantive milestone are recognized in the period in which the milestone is achieved. Milestones are defined as an event that can only be achieved based on the Company’s performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance. Further, for the milestone to be considered substantive, the amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables, and the consideration must be commensurate with the Company’s performance to achieve the milestone. Non-substantive milestone payments are recognized as revenue over the estimated period of any remaining performance obligations.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of personnel costs for the Company’s research and product development employees. Also included are non-personnel costs such as professional fees payable to third parties for preclinical and clinical studies and research services, laboratory supplies and equipment maintenance, product licenses, and other consulting costs.

The Company estimates preclinical and clinical study and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical and clinical studies and research services on its behalf. The Company estimates these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Recently Issued Accounting Standards or Updates Not Yet Effective

In January 2016, the FASB issued ASU No. 2016-01 (Subtopic 825-10), Financial Instruments (ASU 2016-01). ASU 2016-01 requires management to measure equity investments at fair value with changes in fair value recognized in net income or loss. ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 was effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-01 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is not permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18 (Topic 230), Restricted Cash, Statement of Cash Flows (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash and, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statement of cash flows. ASU 2016-18 was effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-18 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is permitted. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, became effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2014-09 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is permitted. ASU 2014-09 also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. The Company is still in the process of evaluating the effect that this guidance will have on revenue recognition for our option and license agreement with Taiho Pharmaceutical Co., Ltd. (Taiho), specifically as it pertains to the non-refundable, non-creditable cash payments to the Company totaling $35.0 million and the future contingent payments the Company may become entitled to. The Company expects its evaluation to be completed during 2018.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases (ASU 2016-02). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2020, and all interim periods thereafter. Early adoption is permitted. The Company has not yet determined the potential effects of this ASU on its condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 (Topic 718), Compensation – Stock Compensation (ASU 2018-07). ASU 2018-07 requires an entity to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For public entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2018-07 is effective for the Company for the year ended December 31, 2020, and all interim periods thereafter. Early adoption is permitted. The Company has not yet determined the potential effects of this ASU on its condensed consolidated financial statements.

v3.10.0.1
Fair Value Measurements
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy as of June 30, 2018 and December 31, 2017. The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

Fair Value Measurements at June 30, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

104,286

 

 

$

104,286

 

 

$

 

 

$

 

Overnight repurchase agreements

 

 

40,000

 

 

 

 

 

 

40,000

 

 

 

 

U.S. government agency obligations

 

 

46,755

 

 

 

 

 

 

46,755

 

 

 

 

Corporate securities and commercial paper

 

 

86,449

 

 

 

 

 

 

86,449

 

 

 

 

 

 

$

277,490

 

 

$

104,286

 

 

$

173,204

 

 

$

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

66,478

 

 

$

66,478

 

 

$

 

 

$

 

U.S. government agency obligations

 

 

57,153

 

 

 

 

 

 

57,153

 

 

 

 

Corporate securities and commercial paper

 

 

52,072

 

 

 

 

 

 

52,072

 

 

 

 

 

 

$

175,703

 

 

$

66,478

 

 

$

109,225

 

 

$

 

 

Classified as (with contractual maturities):

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Cash and Cash equivalents (due within 90 days)

 

$

169,998

 

 

$

98,426

 

Short-term investments (due within one year)

 

 

95,700

 

 

 

77,277

 

Long-term investments (due between one and two years)

 

 

11,792

 

 

 

 

 

 

$

277,490

 

 

$

175,703

 

 

The investments are classified as available-for-sale marketable securities. At June 30, 2018 and December 31, 2017, the balance in the Company’s accumulated other comprehensive loss comprised activity related to the Company’s available-for-sale marketable securities. There were no realized gains or losses recognized on the sale or maturity of available-for-sale marketable securities as of June 30, 2018 and December 31, 2017, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss for the periods then ended. The Company has a limited number of available-for-sale marketable securities in loss positions as of June 30, 2018, which the Company does not intend to sell and has concluded it will not be required to sell before recovery of the amortized cost for the investment at maturity (in thousands).

 

 

 

Fair Value Measurements at June 30, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

 

$

104,286

 

 

$

 

 

$

 

 

$

104,286

 

Overnight repurchase agreements

 

 

40,000

 

 

 

 

 

 

 

 

 

 

40,000

 

U.S. government agency obligations

 

 

46,779

 

 

 

 

 

 

 

(24

)

 

 

46,755

 

Corporate securities and commercial paper

 

 

86,509

 

 

 

 

 

 

(60

)

 

 

86,449

 

 

 

$

277,574

 

 

$

 

 

$

(84

)

 

$

277,490

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

 

$

66,478

 

 

$

 

 

$

 

 

$

66,478

 

U.S. government agency obligations

 

 

57,183

 

 

 

 

 

 

(30

)

 

 

57,153

 

Corporate securities and commercial paper

 

 

52,084

 

 

 

 

 

 

(12

)

 

 

52,072

 

 

 

$

175,745

 

 

$

 

 

$

(42

)

 

$

175,703

 

 

v3.10.0.1
Equity Investment
6 Months Ended
Jun. 30, 2018
Inventory Disclosure [Abstract]  
Equity Investment

Note 4: Equity Investment

In September 2016, the Company purchased approximately 3.6 million shares of common stock of PACT Pharma, Inc. (PACT Pharma), a privately funded, early-stage biopharmaceutical company focused on adoptive cell therapy. The Company determined the fair value of such investment to be insignificant to the Company’s 2016 financial statements given the start-up nature of operations of PACT Pharma, and it was recorded at a nominal amount. In December 2016, the Company and PACT Pharma entered into a Master Services Agreement (the PACT Agreement) under which the Company provided PACT Pharma with general administrative support, including finance, human resources, legal, and other operational support. The Company also received certain warrants to purchase PACT Pharma common stock exercisable upon PACT Pharma’s achievement of certain valuation thresholds pursuant to the PACT Agreement. Also, in December 2016, the Company purchased 1.0 million shares of Series A preferred stock of PACT Pharma for $1.0 million. The Company determined PACT Pharma to be a variable interest entity, and that the Company has a variable interest in PACT. However, because the Company is not the primary beneficiary of PACT Pharma, it is not consolidating the results of operations of PACT Pharma in its condensed consolidated financial statements.

The Company’s investment in PACT Pharma is accounted for as an equity method investment, and as a result the Company records its share of PACT Pharma’s operating results in interest and other income, net, in its condensed consolidated statement of operations and comprehensive loss.

For the three and six month periods ended June 30, 2018, the Company recorded $0.2 million and $0.4 million, respectively, and for the three and six month periods ended June 30, 2017, the Company recorded $70,000 and $0.1 million, respectively relating to its share of PACT Pharma’s operating losses. As of June 30, 2018 and December 31, 2017, the Company had a $0.2 million and $25,000 receivable from PACT Pharma, respectively, for expenses the Company paid for on its behalf.

In May 2018, PACT Pharma closed its Series B convertible preferred stock financing. The Company did not participate in this financing and therefore its equity ownership percentage in PACT Pharma decreased. As a result of the dilution in its equity ownership percentage and an increase in PACT Pharma’s estimated fair value per share, the Company recorded a gain of $1.2 million in interest and other income, net, for the three-month period ended June 30, 2018 and an increase in the fair value of the investment balance in the condensed consolidated balance sheet as of June 30, 2018 by the same amount. The PACT Agreement also expired in accordance with its terms at the closing of PACT Pharma’s Series B convertible preferred stock financing.  

The Company monitors the investment for events or circumstances indicative of potential other-than-temporary impairment and makes appropriate reductions in carrying values if it is determined that an impairment charge is required. As of June 30, 2018 and 2017, no impairment charge was recorded. As of and for the six-month period ended June 30, 2018 and for the year ended December 31, 2017, the Company also determined the fair value of the warrants to be insignificant to the condensed consolidated financial statements.

v3.10.0.1
License and Collaboration Agreements
6 Months Ended
Jun. 30, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
License and Collaboration Agreements

Note 5. License and Collaboration Agreements

Taiho Pharmaceutical Co., Ltd

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) to collaborate on the potential development and commercialization of certain product candidates from the Company’s portfolio in Japan and certain other territories in Asia (excluding China) (the Taiho Territory). The Taiho Agreement provides Taiho with exclusive options, over a five-year period (the Option Period), to obtain an exclusive development and commercialization license to clinical stage product candidates from the Company’s programs (each, an Arcus Program).

In consideration for the exclusive options and other rights contained in the Taiho Agreement, Taiho will make non-refundable, non-creditable cash payments to the Company totaling $35.0 million, of which the Company received $25.0 million during 2017. An additional $5.0 million is payable by Taiho and expected to be received in both October 2018 and 2019.  

In the event that the Company has not initiated IND enabling studies for at least five Arcus Programs prior to the expiration of the Option Period, Taiho may elect to extend the Option Period, up to a maximum of seven years for the Option Period, subject to an extension fee. If Taiho elects to exercise an option they will be obligated to make an exercise option payment for each option exercise of between $3.0 million to $15.0 million, dependent on the development stage of the applicable Arcus Program for which the option is exercised. In addition, the Taiho Agreement provides that the Company is eligible to receive additional clinical and regulatory milestones totaling up to $130.0 million per Arcus Program, and it will be eligible to receive contingent payments of up to $145.0 million per Arcus Program associated with the achievement of specified levels of Taiho net sales in the Taiho Territory.

In addition, the Company will receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory. Royalties will be payable on a licensed product-by-licensed product and country-by-country basis during the period of time commencing on the first commercial sale of a licensed product in a country and ending upon the later of: (a) ten (10) years from the date of first commercial sale of such licensed product in such country; and (b) expiration of the last-to-expire valid claim of the Company’s patents covering the manufacture, use or sale or exploitation of such licensed product in such country (the Royalty Term).

The Taiho Agreement contains multiple elements, and the deliverables under the Taiho Agreement consist of (1) the research and development services, in which the Company will use commercially reasonable efforts to initiate IND enabling studies for at least five Arcus Programs, as well as further develop such Arcus Programs during the term of the Agreement, and (2) the obligation to participate on the joint steering committee. These deliverables are non-contingent in nature. The Company determined that the obligation to participate in the joint steering committee does not have stand-alone value to Taiho because the committee’s primary purpose is to monitor and govern the research and development activities and, hence, it is inseparable from the research and development services. The Company also concluded that, at the inception of the agreement, Taiho’s exclusive options are contingent deliverables as the exclusive options have significant uncertainty and are outside of the control of the Company, since Taiho has sole discretion to determine whether or not to exercise such options. Further, the Company concluded that the exclusive options do not contain a significant and incremental discount. As of June 30, 2018, Taiho had not exercised any exclusive option. In July 2018, Taiho exercised its first option and is obligated to make an exercise payment of $3.0 million.

The Company determined that the level of effort required for it to meet its obligations under the Taiho Agreement is not expected to vary significantly over the Company’s performance period. Accordingly, the Company combined these deliverables into a single unit of accounting and allocated the entire arrangement consideration to that combined unit of accounting. As a result, the $25.0 million non-refundable, non-creditable cash payments received by the Company are being recognized ratably over the estimated performance period of five years, and the remaining $10.0 million of non-refundable, non-creditable cash payments will be recognized ratably over the estimated remaining performance period as they become due and payable by Taiho. During the three and six month periods ended June 30, 2018, the Company recognized $1.3 million and $2.5 million, respectively, of revenue under the Taiho Agreement. As of June 30, 2018, the Company recorded deferred revenue, current and deferred revenue, noncurrent of $5.0 million and $16.1 million, respectively, in its condensed consolidated balance sheet. As of December 31, 2017, the Company recorded as deferred revenue, current and deferred revenue, noncurrent of $5.0 million and $18.6 million, respectively, in its consolidated balance sheet.

The Company determined that the clinical and regulatory milestone payments under the Taiho Agreement do not constitute substantive milestones and, therefore, will not be accounted for under the milestone method of revenue recognition. The events leading to these payments do not meet the definition of a substantive milestone because the achievement of these events depends primarily on Taiho’s performance. Accordingly, any revenue from these payments would be recognized over the remaining period of the performance obligations, if any, relating to this arrangement. If there are no remaining performance obligations under the arrangement at the time the milestone payment is triggered, then such milestone payment will be recognized as revenue in full upon the triggering event being achieved. The Company considers the contingent payments due from Taiho upon the achievement of specified sales volumes to be similar to royalty payments. The Company will recognize royalty payments as revenue in the period when such royalty payments are earned, i.e. in the period when sales of the licensed products in Taiho Territory occur. The Taiho Agreement shall remain in effect until (a) expiration of the last exercise period if Taiho has not exercised any of its exclusive options prior to such expiration or (b) if Taiho has exercised any of its exclusive options prior to the expiration of the applicable exercise period, expiry of all Royalty Terms for the licensed products, in each case subject to certain exceptions.

WuXi Biologics License Agreement

In August 2017, the Company entered into a license agreement (the WuXi Agreement) with WuXi Biologics (Cayman) Inc. (WuXi Biologics) in which it obtained an exclusive license to develop, use, manufacture, and commercialize products including an anti-PD-1 antibody in North America, Europe, Japan and certain other territories. The Company paid upfront and milestone payments of $18.5 million during the second half of 2017 which were recorded within research and development expenses, as the products have not reached technological feasibility and do not have alternate commercial use. No milestone payments were made during the three and six month periods ended June 30, 2018. The WuXi Agreement also provides for clinical and regulatory milestone payments, commercialization milestone payments of up to $375.0 million, and tiered royalty payments to be made to WuXi Biologics that range from the high single-digits to low teens of net sales by the Company of licensed products.

Abmuno License Agreement

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) in which it obtained a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody. The Company made milestone payments of zero and $0.8 million for the three and six month periods ended June 30, 2018, respectively, and upfront and milestone payments of zero and $3.8 million for the three and six month periods ended June 30, 2017, respectively, which were recorded within research and development expenses, as the products have not reached technological feasibility and do not have alternate commercial use and are expensed as incurred. In addition, a $2.0 million milestone was reached and recorded within research and development expenses in June 2018 and paid in July 2018. The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone payments up to $101.0 million which reflects the payment of $2.0 million in milestone payment made in July 2018.

v3.10.0.1
Stock-Based Compensation
6 Months Ended
Jun. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

Note 6: Stock-Based Compensation

In March 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan replaced the 2015 Plan and 3,570,000 shares were reserved under the 2018 Plan, along with any shares remaining available for issuance under our 2015 Plan or outstanding awards under our 2015 Plan that subsequently expire, lapse unexercised or are forfeited to or repurchased by the Company.

Total stock-based compensation expense was recognized in our condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

 

 

 

Three months ended June,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

 

701

 

 

$

67

 

 

 

1,041

 

 

$

108

 

General and administrative

 

 

415

 

 

 

64

 

 

 

731

 

 

 

95

 

Total stock-based compensation

 

$

1,116

 

 

$

131

 

 

$

1,772

 

 

$

203

 

 

The Company granted 210,808 and 1,396,989  stock options for the three and six month periods ended June 30, 2018, respectively, and 190,145 and 866,582 for the three and six month periods ended June 30, 2017, respectively. These options had a weighted average grant-date fair value of $11.23 and $7.29 per share for the three and six month periods ended June 30, 2018, respectively, and $1.76 and $1.75 for the three and six month periods ended June 30, 2017, respectively.

As a result of stock issuances under the Company’s stock plans, the Company issued 5,171 and 713,931 shares of our common stock for the three and six month periods ended June 30, 2018, respectively, and 240,407 and 519,059 for the three and six month periods ended June 30, 2017, respectively.

As a result of early exercises under the 2015 Plan, approximately 1,181,717 and 812,769 shares had not vested and were subject to repurchase as of June 30, 2018 and December 31, 2017, respectively. The Company treats cash received from the exercise of unvested options as a refundable deposit and classifies such amounts as a liability in its condensed consolidated balance sheets. As of June 30, 2018 and December 31, 2017, the Company included cash received from the early exercise of unvested options of $3.5 million and $0.9 million, in its other current and long-term liabilities, respectively based on the timing of their expected vesting. Amounts included in liabilities are transferred into common stock and additional paid-in capital as the shares vest, which is generally over a period of 48 months.

v3.10.0.1
Condensed Consolidated Balance Sheet Components
6 Months Ended
Jun. 30, 2018
Balance Sheet Related Disclosures [Abstract]  
Condensed Consolidated Balance Sheet Components

Note 7. Condensed Consolidated Balance Sheet Components

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

As of June

30, 2018

 

 

As of December

31, 2017

 

Scientific equipment

 

$

6,197

 

 

$

5,053

 

Furniture and equipment

 

 

730

 

 

 

625

 

Capitalized software

 

 

146

 

 

 

131

 

Leasehold improvements

 

 

10,824

 

 

 

9,280

 

Construction in progress

 

 

338

 

 

 

119

 

Total

 

 

18,235

 

 

 

15,208

 

Less: Accumulated depreciation and amortization

 

 

(5,722

)

 

 

(3,978

)

Property and equipment, net

 

$

12,513

 

 

$

11,230

 

 

Depreciation and amortization expense was $0.9 million and $1.7 million for the three and six month periods ended June 30, 2018, respectively, and $0.6 million and $1.1 million for the three and six month periods ended June 30, 2017, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

As of June

30, 2018

 

 

As of December

31, 2017

 

Accrued personnel expenses

 

$

1,902

 

 

$

1,026

 

Accrued research and development expenses

 

 

2,082

 

 

 

1,193

 

Professional fees

 

 

100

 

 

 

706

 

Other

 

 

258

 

 

 

212

 

Total

 

$

4,342

 

 

$

3,137

 

 

v3.10.0.1
Net Loss per Share
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]  
Net Loss per Share

Note 8. Net Loss per Share

Effective as of the completion of the IPO, all of the Company’s preferred stock was converted to common stock. For purposes of calculating net loss per share for the three and six month periods ended June 30, 2018, the preferred stock converted to common stock was included in the net loss per common share calculation on a post-conversion basis based on the conversion date.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,533

)

 

$

(9,550

)

 

$

(26,488

)

 

$

(16,750

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

44,450,312

 

 

 

3,900,271

 

 

 

28,248,337

 

 

 

3,725,487

 

Less: weighted-average common shares subject to repurchase

 

 

(1,916,671

)

 

 

(2,207,121

)

 

 

(2,012,330

)

 

 

(2,153,582

)

Weighted-average common shares used to compute basic and diluted net loss per share

 

 

42,533,641

 

 

 

1,693,150

 

 

 

26,236,007

 

 

 

1,571,905

 

Net loss per share: basic and diluted

 

$

(0.32

)

 

$

(5.64

)

 

$

(1.01

)

 

$

(10.66

)

 

The following outstanding potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Convertible preferred stock

 

 

 

 

 

21,307,645

 

Common stock options issued and outstanding

 

 

1,221,862

 

 

 

471,891

 

Unvested restricted common stock

 

 

636,574

 

 

 

1,331,018

 

Unvested early exercised common stock options

 

 

1,181,717

 

 

 

867,958

 

Total

 

 

3,040,153

 

 

 

23,978,512

 

 

v3.10.0.1
Subsequent Event
6 Months Ended
Jun. 30, 2018
Subsequent Events [Abstract]  
Subsequent Event

Note 9. Subsequent Event

In July 2018, Taiho exercised its option under the Option and License Agreement entered into in September 2017 to obtain an exclusive development and commercialization license to the Company’s adenosine receptor antagonist program, which includes AB928 and back-up compounds, in Japan and certain other territories in Asia (excluding China).  Taiho is obligated to make the $3.0 million option exercise payment in August 2018.

v3.10.0.1
Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

Operating results for the three and six month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or for any future period. The balance sheet as of December 31, 2017 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2017 included in our Prospectus.

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2018 as compared to the significant accounting policies described in the Company’s audited financial statements for the year ended December 31, 2017 included in the prospectus dated March 14, 2018 filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1993, as amended.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s condensed consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company will remain an emerging growth company until the earliest of (1) the last day of its first fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Principles of Consolidation

Principles of Consolidation

During 2017, the Company established a wholly-owned subsidiary in Australia. The condensed consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiary. All intercompany accounts, transactions and balances have been eliminated.

Reverse Stock Split

Reverse Stock Split

On March 9, 2018, the Company effected a reverse split of all shares of its common and preferred stock at a ratio of 1-for-3.96 (the Reverse Split). The par values and the authorized shares of the common and preferred stock were not adjusted as a result of the Reverse Split. All references to shares of common stock outstanding, average number of shares outstanding and per share amounts in these condensed consolidated financial statements and notes to the condensed consolidated financial statements have been adjusted within the condensed consolidated financial statements, on a retroactive basis, to reflect the Reverse Split.

Use of Estimates

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Estimates were used to determine the fair value of common stock prior to the IPO and are used to determine stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, and uncertain tax positions. Actual results could differ materially from the Company’s estimates.

Cash Equivalents, Short-Term and Long-Term Investments

Cash Equivalents, Short-Term and Long-Term Investments

Cash equivalents include marketable securities having an original maturity of three months or less at the time of purchase. Short-term investments have maturities of greater than three months at the time of purchase. Long-term investments have maturities greater than 12 months at the time of purchase. Collectively, cash equivalents, short-term and long-term investments are considered available-for-sale and are recorded at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss. Realized gains and losses are included in interest and other income, net in the condensed consolidated statements of operations and comprehensive loss.

Restricted Cash

Restricted Cash

Restricted cash at June 30, 2018 and December 31, 2017, comprises cash balances primarily held as security in connection with the Company’s facility lease agreement and is included in long-term assets in the condensed consolidated balance sheets.

Concentration of Credit Risk

Concentration of Credit Risk

Cash equivalents, short-term and long-term investments are financial instruments that potentially subject the Company to concentrations of credit risk.  The Company invests in money market funds, treasury bills and notes, government bonds, commercial paper and corporate notes.  The Company limits its credit risk associated with cash equivalents, short-term and long-term investments by placing them with banks and institutions it believes are highly credit worthy and in highly rated investments.

Deferred Offering Costs

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting, filing and other fees directly related to the Company’s IPO, are capitalized. The deferred offering costs, which totaled $3.6 million, were reclassified to additional paid-in capital upon the effectiveness of the IPO in March 2018. As of December 31, 2017, $1.3 million of deferred offering costs were capitalized and included in other long-term assets in the condensed consolidated balance sheet.

Revenue Recognition

Revenue Recognition

The Company generates revenue from its option and license agreement for the development and commercialization of its product candidates. Option and license agreements may include non-refundable upfront research and development fees, option fees to obtain development and commercialization licenses for the Company’s products, milestone payments based on achievement of defined development, regulatory and sales targets, and royalties on sales of commercialized products. To date, the Company has not recognized revenue from sales of its product candidates.

The Company recognizes revenue when all four of the following criteria have been met: (i) collectability is reasonably assured; (ii) delivery has occurred or services have been rendered; (iii) persuasive evidence of an arrangement exists; and (iv) the fee is fixed or determinable. Revenue under option and license arrangements is recognized based on evaluation of the performance obligations of the contract. Collectability is assessed based on evaluation of payment criteria as stated in the contract as well as the creditworthiness of the customer. Determination of whether delivery has occurred, or services rendered are based on management’s evaluation of the performance obligations as stated in the contract and progress made against those obligations. Evidence of arrangement is deemed to exist upon execution of the contract. Fees are considered fixed and determinable when the amount payable to the Company is no longer subject to any acceptance, refund rights or other contingencies that would alter the fixed nature of the fees charged for the deliverables.

Option and license agreements may contain multiple elements as evaluated under Accounting Standards Codification (ASC) 605-25, Revenue Recognition- Multiple-Element Arrangements, including agreements to provide research and development services, participation in development and/or steering committees, manufacturing services, sharing of know-how and other information, and grants of licenses to develop and commercialize product candidates. Each deliverable under the agreement is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has standalone value to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the following hierarchy: (i) vendor-specific objective evidence of the fair value of the deliverable, if it exists; (ii) third-party evidence of selling price, if vendor-specific objective evidence is not available; or (iii) the best estimate of selling price if neither vendor-specific objective evidence or third-party evidence is available.

A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees are recognized as performance obligations related to the final deliverable are completed. In the case of research and development services, performance would generally be expected to be ratable over the estimated performance period unless the Company determines there is a discernible pattern of performance other than straight-line, in which case the Company uses a proportionate performance method to recognize the revenue over the estimated performance period. Amounts received in advance of performance are recorded as deferred revenue. If any of the initial deliverables are determined to have standalone value separate from the research and development services, then the allocated consideration is recorded as revenue when those items are delivered.

Option and license agreements may also contain milestone payments that become due upon the achievement of certain milestones. The Company applies ASC 605-28, Revenue Recognition—Milestone Method. Under the milestone method, payments that are contingent upon achievement of a substantive milestone are recognized in the period in which the milestone is achieved. Milestones are defined as an event that can only be achieved based on the Company’s performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance. Further, for the milestone to be considered substantive, the amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables, and the consideration must be commensurate with the Company’s performance to achieve the milestone. Non-substantive milestone payments are recognized as revenue over the estimated period of any remaining performance obligations.

Research and Development Expenses

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of personnel costs for the Company’s research and product development employees. Also included are non-personnel costs such as professional fees payable to third parties for preclinical and clinical studies and research services, laboratory supplies and equipment maintenance, product licenses, and other consulting costs.

The Company estimates preclinical and clinical study and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical and clinical studies and research services on its behalf. The Company estimates these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Recently Issued Accounting Standards or Updates Not Yet Effective

Recently Issued Accounting Standards or Updates Not Yet Effective

In January 2016, the FASB issued ASU No. 2016-01 (Subtopic 825-10), Financial Instruments (ASU 2016-01). ASU 2016-01 requires management to measure equity investments at fair value with changes in fair value recognized in net income or loss. ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 was effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-01 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is not permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18 (Topic 230), Restricted Cash, Statement of Cash Flows (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash and, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statement of cash flows. ASU 2016-18 was effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-18 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is permitted. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, became effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2014-09 will be effective for the Company for the year ended December 31, 2019, and all interim periods thereafter.  Early adoption is permitted. ASU 2014-09 also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. The Company is still in the process of evaluating the effect that this guidance will have on revenue recognition for our option and license agreement with Taiho Pharmaceutical Co., Ltd. (Taiho), specifically as it pertains to the non-refundable, non-creditable cash payments to the Company totaling $35.0 million and the future contingent payments the Company may become entitled to. The Company expects its evaluation to be completed during 2018.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases (ASU 2016-02). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2020, and all interim periods thereafter. Early adoption is permitted. The Company has not yet determined the potential effects of this ASU on its condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 (Topic 718), Compensation – Stock Compensation (ASU 2018-07). ASU 2018-07 requires an entity to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For public entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2018-07 is effective for the Company for the year ended December 31, 2020, and all interim periods thereafter. Early adoption is permitted. The Company has not yet determined the potential effects of this ASU on its condensed consolidated financial statements.

v3.10.0.1
Fair Value Measurements (Tables)
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Schedule of Fair Value, Assets Measured on Recurring Basis

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

Fair Value Measurements at June 30, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

104,286

 

 

$

104,286

 

 

$

 

 

$

 

Overnight repurchase agreements

 

 

40,000

 

 

 

 

 

 

40,000

 

 

 

 

U.S. government agency obligations

 

 

46,755

 

 

 

 

 

 

46,755

 

 

 

 

Corporate securities and commercial paper

 

 

86,449

 

 

 

 

 

 

86,449

 

 

 

 

 

 

$

277,490

 

 

$

104,286

 

 

$

173,204

 

 

$

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

66,478

 

 

$

66,478

 

 

$

 

 

$

 

U.S. government agency obligations

 

 

57,153

 

 

 

 

 

 

57,153

 

 

 

 

Corporate securities and commercial paper

 

 

52,072

 

 

 

 

 

 

52,072

 

 

 

 

 

 

$

175,703

 

 

$

66,478

 

 

$

109,225

 

 

$

 

 

Schedule of Investments Classified as Available for Sale Securities with Contractual Maturities

Classified as (with contractual maturities):

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Cash and Cash equivalents (due within 90 days)

 

$

169,998

 

 

$

98,426

 

Short-term investments (due within one year)

 

 

95,700

 

 

 

77,277

 

Long-term investments (due between one and two years)

 

 

11,792

 

 

 

 

 

 

$

277,490

 

 

$

175,703

 

 

Schedule of Available for Sale Securities at Fair Value Measurements

 

 

 

Fair Value Measurements at June 30, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

 

$

104,286

 

 

$

 

 

$

 

 

$

104,286

 

Overnight repurchase agreements

 

 

40,000

 

 

 

 

 

 

 

 

 

 

40,000

 

U.S. government agency obligations

 

 

46,779

 

 

 

 

 

 

 

(24

)

 

 

46,755

 

Corporate securities and commercial paper

 

 

86,509

 

 

 

 

 

 

(60

)

 

 

86,449

 

 

 

$

277,574

 

 

$

 

 

$

(84

)

 

$

277,490

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

 

$

66,478

 

 

$

 

 

$

 

 

$

66,478

 

U.S. government agency obligations

 

 

57,183

 

 

 

 

 

 

(30

)

 

 

57,153

 

Corporate securities and commercial paper

 

 

52,084

 

 

 

 

 

 

(12

)

 

 

52,072

 

 

 

$

175,745

 

 

$

 

 

$

(42

)

 

$

175,703

 

 

v3.10.0.1
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Summary of Stock-Based Compensation Expense

Total stock-based compensation expense was recognized in our condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

 

 

 

Three months ended June,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

 

701

 

 

$

67

 

 

 

1,041

 

 

$

108

 

General and administrative

 

 

415

 

 

 

64

 

 

 

731

 

 

 

95

 

Total stock-based compensation

 

$

1,116

 

 

$

131

 

 

$

1,772

 

 

$

203

 

 

v3.10.0.1
Condensed Consolidated Balance Sheet Components (Tables)
6 Months Ended
Jun. 30, 2018
Balance Sheet Related Disclosures [Abstract]  
Summary of Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

As of June

30, 2018

 

 

As of December

31, 2017

 

Scientific equipment

 

$

6,197

 

 

$

5,053

 

Furniture and equipment

 

 

730

 

 

 

625

 

Capitalized software

 

 

146

 

 

 

131

 

Leasehold improvements

 

 

10,824

 

 

 

9,280

 

Construction in progress

 

 

338

 

 

 

119

 

Total

 

 

18,235

 

 

 

15,208

 

Less: Accumulated depreciation and amortization

 

 

(5,722

)

 

 

(3,978

)

Property and equipment, net

 

$

12,513

 

 

$

11,230

 

 

Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

As of June

30, 2018

 

 

As of December

31, 2017

 

Accrued personnel expenses

 

$

1,902

 

 

$

1,026

 

Accrued research and development expenses

 

 

2,082

 

 

 

1,193

 

Professional fees

 

 

100

 

 

 

706

 

Other

 

 

258

 

 

 

212

 

Total

 

$

4,342

 

 

$

3,137

 

 

v3.10.0.1
Net Loss per Share (Tables)
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]  
Computation of Basic and Diluted Net Loss Per Share