Risk and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of any of the Company’s product candidates that receive regulatory approval, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.
Products developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that any of the Company’s product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approvals, it could have a materially adverse impact on the Company.
The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be on terms acceptable by the Company.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from two to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term. Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment charge would be recorded when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value. Through December 31, 2017, there have been no such impairment charges.
Deferred Offering Costs
Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the IPO and follow-on public offerings were capitalized. The deferred offering costs were offset against the proceeds received upon the closing of the IPO. There were $0.5 million of deferred offering costs capitalized during 2016 and upon the completion of the 2016 follow-on public offering, which were offset against the $61.6 million of proceeds received, net of underwriting discounts and commissions. There were $0.4 million of deferred offering costs capitalized during 2017 and upon the completion of the 2017 follow-on public offering, which were offset against the $134.3 million of proceeds received, net of underwriting discounts and commissions. As of December 31, 2017 and 2016, there were no deferred offering costs capitalized in other long term assets on the consolidated balance sheets.
Redeemable Convertible Preferred Stock Call Option
The Company determined that the Company’s obligation to issue additional shares of the Company’s redeemable convertible preferred stock represented a freestanding financial instrument. The freestanding redeemable convertible preferred stock call option liability was initially recorded at fair value, with fair value changes recognized as increases or reductions in the consolidated statements of operations and comprehensive income (loss). The Company adjusted the liability for changes in fair value until the Series B issuance in April 2015. At that time, the redeemable convertible preferred stock call option liability was reclassified to permanent equity with no further fair value measurement required.