FORTE BIOSCIENCES, INC., 10-K filed on 3/9/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Feb. 28, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2017    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Trading Symbol TOCA    
Entity Registrant Name Tocagen Inc    
Entity Central Index Key 0001419041    
Current Fiscal Year End Date --12-31    
Entity Filer Category Non-accelerated Filer    
Entity Common Stock, Shares Outstanding   19,911,616  
Entity Public Float     $ 217
v3.8.0.1
Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 35,933 $ 5,510
Marketable securities 52,792 25,735
Prepaid expenses and other current assets 1,904 1,216
Total current assets 90,629 32,461
Property and equipment, net 1,217 743
Other assets 227 2,147
Total assets 92,073 35,351
Current liabilities:    
Accounts payable 1,951 1,666
Accrued liabilities 8,120 5,437
Notes payable, current portion 7,200 7,200
Deferred license revenue 36 45
Deferred grant funding 23 34
Total current liabilities 17,330 14,382
Notes payable, net of current portion 3,625 10,241
Convertible promissory notes payable (due to related parties of $0 and $1,025 at December 31, 2017 and December 31, 2016, respectively)   3,398
Convertible promissory notes subscription liability   140
Long-term portion of deferred license revenue 36 68
Preferred stock warrant liabilities   126
Total liabilities 20,991 28,355
Commitments and contingencies
Convertible preferred stock, $0.001 par value; 51,000,000 shares authorized at December 31, 2016; 46,163,605 shares issued and outstanding at December 31, 2016; aggregate liquidation preferences of $131,720 at December 31, 2016   131,413
Stockholders’ equity (deficit):    
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2017; no shares issued or outstanding at December 31, 2017
Common stock, $0.001 par value; 200,000,000 and 77,800,000 shares authorized at December 31, 2017 and December 31, 2016, respectively; 19,882,551 and 2,202,517 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively 20 2
Additional paid-in capital 238,025 3,581
Accumulated deficit (166,929) (128,000)
Accumulated other comprehensive loss (34)  
Total stockholders’ equity (deficit) 71,082 (124,417)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 92,073 $ 35,351
v3.8.0.1
Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]    
Due to related parties $ 0 $ 1,025
Convertible preferred stock, par value   $ 0.001
Convertible preferred stock, shares authorized   51,000,000
Convertible preferred stock, shares issued   46,163,605
Convertible preferred stock, shares outstanding   46,163,605
Convertible preferred stock, liquidation preference   $ 131,720
Preferred stock, par value $ 0.001  
Preferred stock, shares authorized 10,000,000  
Preferred stock, shares issued 0  
Preferred stock, shares outstanding 0  
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 200,000,000 77,800,000
Common stock, shares issued 19,882,551 2,202,517
Common stock, shares outstanding 19,882,551 2,202,517
v3.8.0.1
Statements of Operations and Comprehensive Loss - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]      
License revenue $ 41,000 $ 49,000 $ 51,000
Operating expenses:      
Research and development 29,113,000 27,218,000 19,172,000
General and administrative 8,557,000 4,522,000 3,833,000
Total operating expenses 37,670,000 31,740,000 23,005,000
Loss from operations (37,629,000) (31,691,000) (22,954,000)
Other income (expense), net:      
Interest income 595,000 215,000 126,000
Interest expense (1,932,000) (2,052,000) (339,000)
Change in fair value of preferred stock warrants 37,000 50,000 111,000
Total other income (expense), net (1,300,000) (1,787,000) (102,000)
Net loss (38,929,000) (33,478,000) (23,056,000)
Other comprehensive income (loss):      
Net unrealized gain (loss) on investments (34,000) 58,000 (52,000)
Comprehensive loss $ (38,963,000) $ (33,420,000) $ (23,108,000)
Net loss per common share, basic and diluted $ (2.66) $ (15.22) $ (10.57)
Weighted-average number of common shares outstanding, basic and diluted 14,607,609 2,199,964 2,182,032
v3.8.0.1
Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) - USD ($)
$ in Thousands
Total
Convertible Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2014 $ (70,441)   $ 2 $ 1,019 $ (71,456) $ (6)
Beginning balance, shares at Dec. 31, 2014   39,787,568        
Beginning balance at Dec. 31, 2014   $ 97,973        
Beginning balance, shares at Dec. 31, 2014     2,175,687      
Issuance of Series H convertible preferred stock, net of issuance costs   $ 33,440        
Issuance of Series H convertible preferred stock, net of issuance costs, shares   6,376,037        
Exercise of stock options 157     157    
Exercise of stock options, shares     22,165      
Stock-based compensation 1,062     1,062    
Other comprehensive income (loss) (52)         (52)
Net Loss (23,056)       (23,056)  
Ending balance at Dec. 31, 2015 (92,330)   $ 2 2,238 (94,512) (58)
Ending balance, shares at Dec. 31, 2015   46,163,605        
Ending Balance at Dec. 31, 2015   $ 131,413        
Ending balance, shares at Dec. 31, 2015     2,197,852      
Cumulative effect of accounting change       10 (10)  
Balance at January 1, 2016 (92,330)   $ 2 2,248 (94,522) (58)
Balance, shares at January 1, 2016   46,163,605        
Balance at January 1, 2016   $ 131,413        
Balance, shares at January 1, 2016     2,197,852      
Exercise of stock options 10     10    
Exercise of stock options, shares     4,665      
Stock-based compensation 1,323     1,323    
Other comprehensive income (loss) 58         58
Net Loss (33,478)       (33,478)  
Ending balance at Dec. 31, 2016 $ (124,417)   $ 2 3,581 (128,000)  
Ending balance, shares at Dec. 31, 2016 46,163,605 46,163,605        
Ending Balance at Dec. 31, 2016 $ 131,413 $ 131,413        
Ending balance, shares at Dec. 31, 2016     2,202,517      
Exercise of stock options 81     81    
Exercise of stock options, shares     55,669      
Issuance of common stock pursuant to employee stock purchase plan $ 426     426    
Issuance of common stock pursuant to employee stock purchase plan, shares 50,121   50,121      
Stock-based compensation $ 4,451     4,451    
Fractional shares adjustment upon reverse stock split, shares     2      
Preferred stock converted into shares of common stock 131,410   $ 7 131,403    
Preferred stock converted into shares of common stock, shares   (46,163,605)        
Preferred stock converted into shares of common stock   $ (131,413)        
Preferred stock converted into shares of common stock, shares     6,690,066      
Initial public offering of common shares, net of issuance costs 86,948   $ 10 86,938    
Initial public offering of common shares, net of issuance costs, shares     9,775,000      
Convertible promissory notes converted into shares of common stock, net of costs to issue 11,057   $ 1 11,056    
Convertible promissory notes converted into shares of common stock, net of costs to issue, shares     1,109,176      
Preferred stock warrant liabilities converted into warrants to purchase shares of common stock 89     89    
Other comprehensive income (loss) (34)         (34)
Net Loss (38,929)       (38,929)  
Ending balance at Dec. 31, 2017 $ 71,082   $ 20 $ 238,025 $ (166,929) $ (34)
Ending balance, shares at Dec. 31, 2017     19,882,551      
v3.8.0.1
Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
OPERATING ACTIVITIES      
Net Loss $ (38,929) $ (33,478) $ (23,056)
Adjustments to reconcile net loss to net cash used in operating activities:      
Stock-based compensation 4,451 1,323 1,062
Depreciation 292 255 232
Noncash interest expense 590 570 94
Change in fair value of preferred stock warrants (37) (50) (111)
Amortization of premium (discount) on investments, net (19) (9) 5
Gain on disposal of property and equipment   (20) (15)
Changes in operating assets and liabilities:      
Prepaid expenses and other current assets (679) (157) (1,072)
Accounts payable 304 586 571
Accrued liabilities 2,946 1,547 1,301
Deferred license revenue (41) (49) (51)
Deferred grant funding (11) (57) (2)
Net cash used in operating activities (31,133) (29,539) (21,042)
INVESTING ACTIVITIES      
Proceeds from the sale/maturity of marketable securities 43,725 48,095 35,158
Purchases of marketable securities (70,797) (23,003) (59,870)
Purchases of property and equipment (655) (525) (231)
Proceeds from sale of property and equipment 20   15
Net cash (used in) provided by investing activities (27,707) 24,567 (24,928)
FINANCING ACTIVITIES      
Proceeds from offering of common stock, net of issuance costs 88,618    
Proceeds from issuance of convertible promissory notes, net of issuance costs 7,338 3,374  
Proceeds from convertible promissory note subscriptions   140  
Proceeds from issuance of notes payable, net of issuance costs     17,666
Proceeds from issuance of convertible preferred stock, net of issuance costs     33,075
Principal payments on notes payable (7,200) (600)  
Proceeds from issuance of common stock 507 10 157
Cash paid for deferred equity issuance costs   (592) (982)
Net cash provided by financing activities 89,263 2,332 49,916
Net increase (decrease) in cash and cash equivalents 30,423 (2,640) 3,946
Cash and cash equivalents, beginning of period 5,510 8,150 4,204
Cash and cash equivalents, end of period 35,933 5,510 8,150
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION      
Cash paid for interest 1,210 1,460 124
Noncash investing and financing activities:      
Convertible preferred stock converted into shares of common stock 131,410    
Convertible promissory notes principal and accrued interest converted into shares of common stock 11,057    
Preferred stock warrant liabilities converted into warrants to purchase shares of common stock 89    
Fair value of preferred stock warrants issued in connection with notes payable     287
Deferred equity issuance costs paid in previous periods reclassified to equity on effective date of initial public offering 1,574    
Deferred equity issuance costs in accounts payable and accrued liabilities 96 226 $ 543
Property and equipment purchases included in accounts payable and accrued liabilities $ 111 $ 28  
v3.8.0.1
Organization and Basis of Presentation
12 Months Ended
Dec. 31, 2017
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Basis of Presentation

1. Organization and Basis of Presentation

Tocagen Inc. (Tocagen or the Company) is a clinical-stage, cancer-selective gene therapy company focused on developing first-in-class, broadly-applicable product candidates designed to activate a patient’s immune system against their own cancer from within. The Company’s cancer-selective gene therapy platform is built on retroviral replicating vectors which are designed to selectively deliver therapeutic genes into the DNA of cancer cells. Tocagen’s gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies.

From inception through December 31, 2017, the Company has devoted substantially all of its efforts to developing its gene therapy platform and its lead product candidate, Toca 511 & Toca FC, as well as raising capital and building its infrastructure. The Company has not generated revenues from its principal operations.

Initial Public Offering

On April 19, 2017, the Company completed its initial public offering (IPO), whereby the Company sold an aggregate of 9,775,000 shares of its common stock, at $10.00 per share, resulting in net proceeds of $86.9 million after underwriting discounts, commissions and offering costs of $10.8 million, of which $9.1 million of the costs were paid during the twelve months ended December 31, 2017.

In addition, in connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock, warrants to purchase up to 68,572 shares of the Company’s Series H convertible preferred stock were converted into warrants to purchase up to 9,936 shares of the Company’s common stock, each at an exercise price of $36.23 per share, and $11.1 million of aggregate principal and accrued interest underlying convertible promissory notes were automatically converted into an aggregate of 1,109,176 shares of the Company’s common stock at the IPO price of $10.00 per share.

Liquidity

The Company has a limited operating history and the sales and income potential of the Company’s business and patient markets are unproven. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of December 31, 2017, the Company had an accumulated deficit of $166.9 million and working capital of $73.3 million available to fund future operations. As the Company continues to incur net losses, its transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. The Company plans to continue to fund its losses from operations and capital funding needs through debt and equity financing, or through collaborations or partnerships with other entities. Debt or equity financing, or collaborations and partnerships with other entities may not be available on a timely basis on terms acceptable to the Company, or at all.  

In performing the first step of the assessment under Accounting Standards Codification Topic 205-40, Presentation of Financial Statements - Going Concern, the Company concluded that, based on its cash resources available as of December 31, 2017, which include the $86.9 million in net proceeds obtained from its IPO, it will have sufficient resources to fund its business for at least the next 12 months from the date of this filing.

Use of Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which 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 expenses and related disclosures during the reporting period. Significant estimates in the Company’s financial statements relate to clinical trial accruals, the valuation of equity awards, and the development period used for license revenue recognition. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business in one operating segment. No product revenue has been generated since inception and all assets are held in the United States.

v3.8.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Marketable Securities

Cash consists of the balance in a readily available checking account. Cash equivalents consist of money market funds, repurchase agreements, corporate debt securities and certificates of deposit with remaining maturities of three months or less at the time of purchase, and are considered highly liquid investments.

Marketable securities consist of corporate debt securities, certificates of deposit, commercial paper, asset-backed securities and U.S. Treasury securities that have original maturities greater than three months at the time of purchase. The Company classifies its investments as available-for-sale and records such assets at fair value in the balance sheet, with unrealized gains and losses, if any, reported in stockholders’ equity (deficit). Realized gains and losses are calculated on the specific identification method and recorded to interest income.

A decline in the market value of any marketable security below cost that is determined to be other-than-temporary results in a revaluation of its carrying amount to fair value and a new cost basis for the security. Impairment losses are recognized in other expense in the statement of operations.

Concentration of Credit Risk and Off-Balance Sheet Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash equivalents and marketable securities. The Company’s investment policy includes guidelines for the quality of the related institutions and financial instruments, and defines allowable investments that the Company may invest in, which the Company believes minimizes the exposure to concentration of credit risk.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily represent amounts related to insurance, clinical trial and manufacturing agreements, and investment interest receivable.

Property and Equipment

Property and equipment consists of furniture, fixtures, computers and software, laboratory and office equipment, and leasehold improvements. Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method. Leasehold improvements are depreciated using the straight-line method over the lesser of the remaining lease term or an estimated useful life of five years.

Costs of major additions and betterments are capitalized and depreciated on a straight-line basis over their useful lives. Repairs and maintenance costs are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to expense.

Deferred Equity Issuance Costs

Specific incremental costs directly attributable to a proposed or actual offering of securities are deferred and charged against the gross proceeds of the offering through additional paid-in capital.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. 

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, cash equivalents, marketable securities, accounts payable, notes payable, convertible promissory notes payable and preferred stock warrant liabilities.

The authoritative accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative accounting guidance establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1:Observable inputs such as quoted prices in active markets;

Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Clinical Trial Accruals

Expenses related to clinical studies are based on estimates of the services received and efforts expended pursuant to the Company’s contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s service providers will temporarily exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients, site initiation and the completion of clinical milestones. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense balance accordingly.

Revenue Recognition

Revenue is comprised of license revenue from the up-front payment that the Company received under its license and collaboration arrangement with Siemens Healthcare Diagnostics Inc. (Siemens).

Revenue is recognized for each unit of accounting when all of the following criteria are met:

Persuasive evidence of an arrangement exists

Delivery of the Company’s obligations under the arrangement has occurred

The seller’s price to the buyer is fixed or determinable

Collectability is reasonably assured

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as long-term deferred revenue.

The Company analyzes multiple-element arrangements based on the relevant authoritative guidance. Pursuant to the guidance, the Company evaluates multiple-element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting, or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (i) the delivered item(s) has value to the customer (a collaboration partner to date) on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in its control. In assessing whether an item has standalone value, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide the undelivered element(s).

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. The Company determines the estimated selling price for units of accounting within each arrangement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE is available. The Company uses BESP to estimate the selling price, since it generally does not have VSOE or TPE of selling price for its units of accounting. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the collaboration partner and estimated costs. The Company validates the BESP for units of accounting by evaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

The Company then applies the applicable revenue recognition criteria to each of the separate units of accounting in determining the appropriate period and pattern of recognition. If there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement on a straight-line basis over the period it expects to complete its performance obligations.

Research and Development Costs

Research and development expenses consist primarily of salaries and other personnel related expenses including stock-based compensation costs, preclinical costs, clinical trial costs, costs related to acquiring and manufacturing clinical trial materials, contract services, facilities costs, overhead costs, and depreciation. All research and development costs are expensed as incurred.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred because recoverability of such expenditures is uncertain.

Grant Funding

The Company receives certain research and development funding through grants from nonprofit organizations that serve the brain cancer community. The Company evaluates the terms of each grant to assess the Company’s obligations, and such funding is recognized in the statement of operations as a reduction to research and development expense as the related costs are incurred to meet those obligations over the grant period. Certain grants contain repayment provisions contingent on future events, such as future revenue milestones related to the Company’s lead product candidate under development. For each repayment provision, the Company assesses if it is obligated to repay the funds provided by the other parties regardless of the outcome of the funded research and development. For each arrangement, the Company also reviews the repayment provisions to determine the likelihood of repayment at the execution of each grant and on an ongoing basis. If the likelihood of repayment of a grant is determined to be remote and the Company is not obligated to repay the funds regardless of the outcome of the funded research and development, the grant is recognized as a reduction to research and development expense as related costs are incurred over the grant period. The Company subsequently reviews the repayment provisions of each grant at each reporting date and will record a related grant repayment liability if and when such repayment obligation is determined to be probable. If, at the execution of a grant with repayment provisions, the probability of repayment is probable, the Company will record the grant as a liability until such time as the grant requirements have been satisfied and the repayment provisions have lapsed.

Debt Issuance Costs

Debt issuance costs incurred to obtain debt financing are deferred and are amortized over the term of the debt using the effective interest method. The costs are recorded as a reduction to the carrying value of the debt and the amortization expense is included in interest expense in the statement of operations.

Warrants for Shares of Preferred Stock

The Company accounts for warrants for shares of preferred stock with conversion features as liabilities in the accompanying balance sheets at their fair value on the date of issuance. The warrant liabilities are revalued at each balance sheet date until such instruments are exercised or expire, with changes in the fair value between reporting periods recorded as other income or expense in the statement of operations.  All preferred stock warrant liabilities were reclassified to equity in connection with the IPO.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company will recognize interest and penalties in income tax expense if and when incurred.

Comprehensive Income (Loss)

All components of comprehensive income (loss) are reported in the financial statements in the period in which they are recognized. Other comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments. The Company’s only component of other comprehensive loss is unrealized gains (losses) on investments. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss for all periods presented.

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of stock awards, including stock options, and stock purchase rights granted to employees. For awards with time-based vesting provisions, the Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognizes the expense over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis. For awards with performance-based vesting provisions, the Company estimates the fair value of stock option grants on the date of grant, or the date when all of the terms of the grant have been agreed to, if later, and recognizes the expense based on the probability of the occurrence of the individual milestones at each reporting period. The expense is recognized over the implicit service period that commences once management believes the performance criteria are probable of being met.  For purchase rights, the Company estimates the fair value of the purchase as of the plan enrollment date and recognizes expense on a straight-line basis over the applicable offering period.  The Company accounts for forfeitures when they occur, and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.

The Company accounts for stock options and stock warrants granted to non-employees using the fair value approach. These option and warrant grants are subject to periodic revaluation over their vesting terms.

Net Loss Per Share

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents as they are anti-dilutive. Common stock equivalents that could potentially dilute earnings in the future are comprised of shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes payable, shares issuable upon the conversion of convertible preferred stock, options to purchase shares of common stock outstanding under the Company’s equity incentive plan and warrants for the purchase of shares of common and preferred stock. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Common stock equivalents from potentially dilutive securities, excluding shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes, that are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Common stock options

 

 

2,589,348

 

 

 

1,385,855

 

 

 

738,809

 

Common stock warrants

 

 

10,660

 

 

 

724

 

 

 

724

 

Convertible preferred stock (as-converted)

 

 

 

 

 

6,690,066

 

 

 

6,690,066

 

Convertible preferred stock warrants (as-converted)

 

 

 

 

 

9,936

 

 

 

9,936

 

Total

 

 

2,600,008

 

 

 

8,086,581

 

 

 

7,439,535

 

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance which outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance provides that an entity 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. The guidance will be effective on January 1, 2018. The guidance allows for either a full retrospective adoption, in which the standard is applied to all of the periods presented, or a modified retrospective adoption, in which the standard is applied to the most current period presented in the financial statements. As of December 31, 2017, revenue has been generated exclusively from the Company’s license and collaboration arrangement with Siemens. The Company has completed its evaluation of the impact that this guidance has on its financial position and results of operations as it relates to this single arrangement, and has elected the modified retrospective adoption method. Overall, the Company does not expect the timing of revenue recognition under the new standards to be materially different from the Company’s current revenue recognition policy. Based on the Company’s analysis of the open contract as of December 31, 2017, the cumulative effect of applying the new standards is not material.  The Company is finalizing the new required disclosures.

In January 2016, the FASB issued guidance that amends certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The amendments include the elimination of the available-for-sale classification of equity investments and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income (loss). The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Early adoption is not permitted. The Company’s marketable securities are currently accounted for as available-for-sale financial instruments with changes in fair value recognized in other comprehensive income (loss). At the time of adoption, any amounts in accumulated other comprehensive income (loss) related to such financial instruments would be reclassified to non-operating income (expense) in the statement of operations. As of December 31, 2017, a net unrealized loss of $34,000 related to these investments was recorded in accumulated other comprehensive loss in the accompanying balance sheet.

In February 2016, the FASB issued accounting guidance that amends the existing accounting standards for leases. Under the guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is still in the process of evaluating the effect of adoption on its financial statements and expects to adopt the standard on January 1, 2019. The adoption will lead to an increase in the assets and liabilities recorded on the balance sheets primarily due to the lease agreement attributable to leased lab and office space.  

v3.8.0.1
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

Fair Values of Assets and Liabilities Measured on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

8,274

 

 

$

 

 

$

8,274

 

 

$

 

Repurchase agreements

 

 

5,000

 

 

 

 

 

 

5,000

 

 

 

 

 

 

$

13,274

 

 

$

 

 

$

13,274

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

24,713

 

 

$

 

 

$

24,713

 

 

$

 

Certificates of deposit

 

 

13,651

 

 

 

 

 

 

13,651

 

 

 

 

Commercial paper

 

 

12,329

 

 

 

 

 

 

12,329

 

 

 

 

Asset-backed securities

 

 

2,099

 

 

 

 

 

 

2,099

 

 

 

 

 

 

$

52,792

 

 

$

 

 

$

52,792

 

 

$

 

 

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

240

 

 

$

 

 

$

240

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

22,777

 

 

$

 

 

$

22,777

 

 

$

 

U.S. Treasury securities

 

 

2,958

 

 

 

2,958

 

 

 

 

 

 

 

 

 

$

25,735

 

 

$

2,958

 

 

$

22,777

 

 

$

 

Preferred stock warrant liabilities

 

$

126

 

 

$

 

 

$

 

 

$

126

 

 

Marketable Securities. For fair values determined by Level 1 inputs, which utilize quoted prices in active markets for identical assets, the level of judgment required to estimate fair value is relatively low. The fair values of investments in U.S. treasury securities were determined using Level 1 inputs. 

Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Investments in corporate debt securities, certificates of deposit, commercial paper, repurchase agreements and asset-backed securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.

There were no transfers in or out of Level 1 or Level 2 investments during the years ended December 31, 2017 or 2016.

At December 31, 2017 and 2016, the Company had investments in money market funds of $20.2 million and $2.2 million, respectively, that were measured at fair value using the net asset value per share (or its equivalent) that have not been classified in the fair value hierarchy. The funds invest primarily in U.S. government securities.

Warrant Liabilities. The Company’s preferred stock warrants are accounted for as liabilities and measured at fair value on a recurring basis as they are convertible into preferred stock which is contingently redeemable under conditions that are not in the control of the Company. The Company estimates fair values of these warrant liabilities utilizing the Black-Scholes option pricing model, which requires Level 3 inputs.

Estimating fair values of derivative financial instruments, including Level 3 instruments, requires the use of significant and subjective inputs that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors, including changes in the estimated fair value of the Company’s equity securities.

The following table summarizes the activity in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3 inputs) (in thousands):

 

 

 

Preferred

Stock Warrant

Liabilities

 

Balance at December 31, 2015

 

$

176

 

Gain on warrant valuation included in other income (expense), net

 

 

(50

)

Balance at December 31, 2016

 

 

126

 

Gain on warrant valuation included in other income (expense), net

 

 

(37

)

Conversion of preferred stock warrant liabilities into warrants to purchase

   shares of common stock

 

 

(89

)

Balance at December 31, 2017

 

$

 

 

Fair Values of Other Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable, approximate their respective fair values due to their short-term nature. The carrying amount of the Company’s notes payable of $10.8 million at December 31, 2017 approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles of one of the lenders as of those dates (Level 3 inputs).

v3.8.0.1
Certain Financial Statement Caption Information
12 Months Ended
Dec. 31, 2017
Balance Sheet Related Disclosures [Abstract]  
Certain Financial Statement Caption Information

4. Certain Financial Statement Caption Information

Marketable Securities

The following is a summary of the Company’s marketable securities (in thousands):

 

 

 

Maturity

(in years)

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

1 or less

 

$

21,097

 

 

$

 

 

$

(16

)

 

$

21,081

 

Corporate debt securities

 

>1 and <5

 

 

3,636

 

 

 

 

 

 

(4

)

 

 

3,632

 

Certificates of deposit

 

1 or less

 

 

13,658

 

 

 

 

 

 

(7

)

 

 

13,651

 

Commercial paper

 

1 or less

 

 

12,333

 

 

 

 

 

 

(4

)

 

 

12,329

 

Asset-backed securities

 

1 or less

 

 

2,099

 

 

 

 

 

 

 

 

 

2,099

 

 

 

 

 

$

52,823

 

 

$

 

 

$

(31

)

 

$

52,792

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

1 or less

 

$

19,299

 

 

$

1

 

 

$

(2

)

 

$

19,298

 

Certificates of deposit

 

>1 and <5

 

 

3,478

 

 

 

1

 

 

 

 

 

 

3,479

 

U.S. Treasury securities

 

1 or less

 

 

1,678

 

 

 

 

 

 

 

 

 

1,678

 

U.S. Treasury securities

 

>1 and <5

 

 

1,280

 

 

 

4

 

 

 

(4

)

 

 

1,280

 

 

 

 

 

$

25,735

 

 

$

6

 

 

$

(6

)

 

$

25,735

 

 

The Company has classified all of its available-for-sale investment securities, including those with maturity greater than one year, as current assets on the balance sheet based on the highly liquid nature of these investment securities and because these investment securities are considered available for use in current operations.

There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. Gross realized gains and losses on sales of marketable securities were immaterial for all periods presented.

Property and Equipment

Property and equipment is comprised of (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Laboratory equipment

 

$

3,553

 

 

$

2,841

 

Computers, software and office equipment

 

 

232

 

 

 

187

 

Furniture and fixtures

 

 

21

 

 

 

21

 

Leasehold improvements

 

 

117

 

 

 

108

 

 

 

 

3,923

 

 

 

3,157

 

Less: accumulated depreciation

 

 

(2,706

)

 

 

(2,414

)

 

 

$

1,217

 

 

$

743

 

 

Depreciation expense was $0.3 million for each of the years ended December 31, 2017 and 2016. 

Accrued Liabilities

Accrued liabilities are comprised of (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Clinical trial expenses

 

$

2,809

 

 

$

2,196

 

Payroll and other employee-related expenses

 

 

2,489

 

 

 

728

 

Contract manufacturing services

 

 

1,536

 

 

 

1,508

 

Professional fees

 

 

276

 

 

 

459

 

Contract research services

 

 

104

 

 

 

114

 

Interest payable

 

 

77

 

 

 

120

 

Other

 

 

829

 

 

 

312

 

Total accrued liabilities

 

$

8,120

 

 

$

5,437

 

 

v3.8.0.1
Notes Payable
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Notes Payable

5. Notes Payable

Loan Agreement

On October 30, 2015, the Company entered into a Loan and Security Agreement (the Loan Agreement) with two lenders whereby it borrowed $18.0 million (the Loans). Balances under the Loan Agreement bear a floating rate of interest equal to the greater of 7.75% or the monthly prime rate plus 4.50% (8.75% and 8.00% at December 31, 2017 and 2016, respectively), and are due in monthly principal and interest payments, with final maturity of the Loans in May 2019. Each Loan bears a final payment fee of 7.95% of the original principal amount due upon maturity.

The costs incurred to issue the Loans of $0.6 million were deferred and are included in the discount to the carrying value of the Loans in the accompanying balance sheets. The Loans also include a final payment fee of $1.4 million due at the earlier of prepayment or the maturity date of the Loans. The deferred costs and the final payment fee are amortized to interest expense over the expected term of the Loans using the effective interest method. The effective interest rates on the Loans at December 31, 2017 and 2016 are 11.94% and 11.19%, respectively.

The aggregate carrying amounts of the Loans are comprised of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Principal

 

$

10,200

 

 

$

17,400

 

Add: accreted liability for final payment fee

 

869

 

 

 

462

 

Less: unamortized discount

 

 

(244

)

 

 

(421

)

 

 

$

10,825

 

 

$

17,441

 

 

The Loans are secured by substantially all of the Company’s assets other than its intellectual property, except rights to payment from the sale, licensing or disposition of such intellectual property. The Company is also required to maintain its primary operating accounts at all times with one of the lenders. The Loan Agreement contains customary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. Should an event of default occur, including the occurrence of a material adverse change, the Company could be liable for immediate repayment of all obligations under the Loan Agreement. At December 31, 2017, the Company was in compliance with the covenants contained in the Loan Agreement.

Future maturities of the Loans, including the final payment fee, as of December 31, 2017 are as follows (in thousands):

 

 

 

December 31,

2017

 

Year ending December 31, 2018

 

$

7,200

 

Year ending December 31, 2019

 

 

4,431

 

 

 

 

11,631

 

Unaccreted balance for final payment fee on Loans

 

 

(562

)

Unamortized discounts

 

 

(244

)

 

 

 

10,825

 

Less current portion

 

 

(7,200

)

Noncurrent portion

 

$

3,625

 

 

Convertible Promissory Notes Payable and Subscription Liability

During the three months ended March 31, 2017 and December 31, 2016, the Company issued convertible promissory notes to investors in aggregate principal amount of $7.5 million and $3.4 million, respectively, for a total aggregate principal amount of $10.9 million (the Convertible Notes). Of the Convertible Notes issued during the three months ended March 31, 2017, $140,000 was subscribed for at December 31, 2016, $250,000 was issued to a member of the Company’s board of directors and $10,000 was issued to the Company’s chief executive officer. The Convertible Notes, which bore interest at 7% per annum, were unsecured and were subordinated to the Loans.

At December 31, 2016, the aggregate carrying amount of the Convertible Notes was $3.4 million, which is net of an unamortized discount of $34,000. At December 31, 2016, the Convertible Notes included $1.0 million issued to members of the Company’s board of directors and $25,000 issued to the Company’s chief executive officer. The effective interest rate on the Convertible Notes at December 31, 2016 was 7.54%.

Upon completion of the Company’s IPO on April 19, 2017, $11.1 million of aggregate principal and accrued interest underlying the Convertible Notes were automatically converted into an aggregate of 1,109,176 shares of the Company’s common stock at the IPO price of $10.00 per share. 

v3.8.0.1
Stockholders' Equity (Deficit)
12 Months Ended
Dec. 31, 2017
Equity [Abstract]  
Stockholders' Equity (Deficit)

6. Stockholders’ Equity (Deficit)

In March 2017, the Company’s board of directors and stockholders approved a 1-for-6.9 reverse stock split of the Company’s outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.

Upon completion of the Company’s IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock.  As of December 31, 2017, the Company’s authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

The Company had 19,882,551 and 2,202,517 shares of common stock outstanding as of December 31, 2017 and 2016, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance at December 31, 2017 and 2016 is as follows and for 2016 excludes shares issued upon conversion of all outstanding principal and accrued interest related to the convertible promissory notes payable upon completion of the Company’s IPO on April 19, 2017:

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Issued and Outstanding:

 

 

 

 

 

 

 

 

Stock options

 

 

2,589,348

 

 

 

1,385,855

 

Warrants for common stock

 

 

10,660

 

 

 

724

 

Shares reserved for issuance under the ESPP

 

 

199,879

 

 

 

 

Shares reserved for future award grants

 

 

513,333

 

 

 

172,495

 

Conversion of all outstanding convertible preferred stock

 

 

 

 

 

6,690,070

 

Conversion of preferred stock warrants issued and outstanding

 

 

 

 

 

9,936

 

 

v3.8.0.1
Equity Incentive Plans and Stock-Based Compensation
12 Months Ended
Dec. 31, 2017
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Equity Incentive Plans and Stock-Based Compensation

7. Equity Incentive Plans and Stock-Based Compensation

2017 Equity Incentive Plan

In March 2017, the Company’s board of directors and stockholders approved and adopted the Company’s 2017 Equity Incentive Plan (the 2017 Plan), which became effective on April 12, 2017. The 2017 Plan provides for the grant of incentive stock options (ISOs), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants of the Company and its affiliates.

Initially, 1,600,000 new shares of common stock were approved for issuance under the 2017 Plan and, on April 12, 2017, 75,517 shares of common stock reserved for issuance under the Company’s 2009 Equity Incentive Plan, as amended (the 2009 Plan), were added to the shares initially reserved under the 2017 Plan. No further grants will be made under the 2009 Plan and any shares subject to outstanding stock options under the 2009 Plan that would otherwise be returned to the 2009 Plan will instead be added to the shares reserved under the 2017 Plan. Additionally, the number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on January 1 of each calendar year through January 1, 2027, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors.

As of December 31, 2017, awards for up to 3,102,681 shares of common stock are reserved under the 2009 Plan and the 2017 Plan, of which 2,589,348 shares are reserved for issuance upon exercise of granted and outstanding stock options and 513,333 shares are available for future grants. On January 1, 2018, the number of shares available for future grants under the 2017 Plan was increased by 795,302 shares such that the total number of shares available for future grants as of January 1, 2018 was 1,308,635 shares.

All grants of options to purchase common stock under the 2017 Plan expire in 10 years. Grants with time-based vesting provisions are subject to a four-year vesting schedule with 25% vesting after the first year, and the balance vesting monthly over the remaining 36 months. Grants with performance-based vesting provisions vest upon the achievement of three separate development and regulatory milestones, with one-third of the options vesting upon the achievement of each milestone.

The following table summarizes stock option activity under the 2009 Plan and the 2017 Plan:

 

 

 

Shares

Subject to

Options

 

 

Weighted-

Average

Exercise

Price per

Share

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic Value

(in thousands)

 

Outstanding at December 31, 2016

 

 

1,385,855

 

 

$

11.35

 

 

 

 

 

 

 

 

 

Granted

 

 

1,400,245

 

 

$

14.92

 

 

 

 

 

 

 

 

 

Exercised

 

 

(55,669

)

 

$

1.45

 

 

 

 

 

 

 

 

 

Forfeitures and cancellations

 

 

(141,083

)

 

$

14.39

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

2,589,348

 

 

$

13.33

 

 

8.1

 

 

$

2,643

 

Time-based options at December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

2,400,697

 

 

$

13.09

 

 

8.1

 

 

$

2,643

 

Vested and expected to vest

 

 

2,400,697

 

 

$

13.09

 

 

8.1

 

 

$

2,643

 

Exercisable

 

 

742,213

 

 

$

8.68

 

 

5.6

 

 

$

2,602

 

Performance-based options at December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

188,651

 

 

$

16.30

 

 

8.9

 

 

 

 

Vested and expected to vest

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes certain information regarding stock options (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Fair value of options vested during the period

 

$

2,194

 

 

$

1,087

 

 

$

862

 

Cash received from options exercised during the period

 

$

81

 

 

$

10

 

 

$

157

 

Intrinsic value of options exercised during the period

 

$

677

 

 

$

62

 

 

$

160

 

 

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.

2017 Employee Stock Purchase Plan

In March 2017, the Company’s board of directors and stockholders approved and adopted the Company’s 2017 Employee Stock Purchase Plan (ESPP) whereby eligible employees may elect to withhold up to 15% of their earnings to purchase shares of the Company’s common stock at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company’s common stock on the first date of an offering or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of purchase (purchase right). The ESPP became effective on April 12, 2017.  Initially, 250,000 shares of the Company’s common stock were approved for issuance under the ESPP pursuant to purchase rights granted to the Company’s employees or to employees of any of the Company’s designated affiliates. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2027, by the lesser of (a) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (b) 300,000 shares, or (c) a number determined by the Company’s board of directors that is less than (a) and (b).          

As of December 31, 2017, the Company had issued 50,121 shares of common stock at a per share price of $8.50 under the ESPP and had 199,879 shares available for future issuance. During the year ended December 31, 2017, the weighted average per share fair value of purchase rights granted was $4.61. During the year ended December 31, 2017, the Company recorded cash received from the exercise of purchase rights of $0.4 million. On January 1, 2018, the number of shares available for future issuance under the ESPP was increased by 198,826 shares such that the total number of shares available for future issuance as of January 1, 2018 was 398,705 shares.

Stock-Based Compensation Expense

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants with both time-based and performance-based vesting provisions and stock purchase rights were as follows:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

Time-Based

Vesting Provisions

 

 

Performance-Based

Vesting Provisions

 

 

ESPP Purchase Rights

 

 

Time-Based Vesting Provisions

 

Risk-free interest rate

 

1.83% - 2.27%

 

 

1.98% - 2.17%

 

 

1.04% - 1.82%

 

 

1.63%

 

 

1.61%

 

Expected volatility

 

75.9% - 87.5%

 

 

75.2% - 76.3%