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1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
Vical Incorporated, or the Company, a Delaware corporation, was incorporated in April 1987 and has devoted substantially all of its resources since that time to its research and development programs. The Company researches and develops biopharmaceutical products based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.
All of the Company’s potential products are in research and development phases. No revenues have been generated from the sale of any such products, nor are any such revenues expected for at least the next several years. The Company earns revenue from research and development agreements with pharmaceutical collaborators and grant and contract arrangements with government entities. Most of the Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. There can be no assurance that the Company’s research and development efforts, or those of its collaborators, will be successful. The Company expects to continue to incur substantial losses and not generate positive cash flows from operations for at least the next several years. No assurance can be given that the Company can generate sufficient product revenue to become profitable or generate positive cash flows from operations.
Basis of Presentation
These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make informed estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of cash and highly liquid securities with original maturities at the date of acquisition of ninety days or less and can be liquidated without prior notice or penalty. Investments with an original maturity of more than ninety days are considered marketable securities and have been classified by management as available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income (loss), if any, are determined on a specific identification basis.
Restricted Cash and Marketable Securities
The Company is required to maintain a letter of credit securing an amount equal to twelve months of the current monthly installment of base rent for the term of the lease for its facilities, which ends in August 2017. Under certain circumstances the Company may be able to eliminate the need for the letter of credit. At December 31, 2014 and 2013, restricted cash of $3.2 million and $3.1 million, respectively, was pledged as collateral for the letter of credit.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, marketable securities and receivables. The Company invests its excess cash in debt instruments of financial institutions and of corporations with above average credit ratings, in U.S. government obligations, and in money market funds and certificates of deposits at financial institutions.
Property and Equipment
Property and equipment is recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Assets acquired pursuant to capital lease arrangements and leasehold improvements are amortized using the straight-line method over the shorter of the life of the remaining lease term or the remaining useful life of the asset. Manufacturing equipment has estimated useful lives of ten years. All other property and equipment have estimated useful lives of 3 to 5 years. Maintenance and repairs of property and equipment are expensed as incurred.
Intangible Assets
Intangible assets include licensed technology rights and certain costs related to patent applications. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. Certain costs related to patent applications are amortized over the estimated economic lives of the patents, which is generally 20 years and typically commences at the time the patent application is filed. As of December 31, 2014, the weighted average amortization period of capitalized patent costs is approximately 10 years. Amortization expense for licensed technology and capitalized patent cost is included in research and development expenses.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment at least annually, quarterly for intangible assets, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s estimated fair value and the loss recognized in current earnings. The Company recognized research and development expense of approximately $0.4 million, $0.9 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to patents and licensed technology for which the value was deemed to be impaired.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Certain of the Company’s revenue is generated through manufacturing contracts and stand-alone license agreements.
The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.
Multiple-element arrangements
The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represents separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The delivered item(s) must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control.
A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. If facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the license is identified as a separate unit of accounting and the amounts allocated to the license are recognized upon the delivery of the license, assuming the other revenue recognition criteria have been met. However, if the amounts allocated to the license through the relative selling price allocation exceed the upfront license fee, the amount recognized upon the delivery of the license is limited to the upfront fee received. If facts and circumstances dictate that the license does not have standalone value, the transaction price, including any upfront license fee payments received, are allocated to the identified separate units of accounting and recognized as those items are delivered.
The terms of the Company’s partnership agreements provide for milestone payments upon achievement of certain regulatory and commercial events. Under the Milestone Method, the Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following three criteria: 1) The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) The consideration relates solely to past performance, and 3) The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company.
Contract Services, Grant and Royalty Revenue
The Company recognizes revenues from contract services and federal government research grants during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured. Royalties to be received based on sales of licensed products by the Company’s partners incorporating the Company’s licensed technology are recognized when received.
Accruals for Potential Disallowed Costs on Government Contracts
The Company has contracts with U.S. government agencies under which it bills for direct and indirect costs incurred. These billed costs are subject to audit by government agencies. The Company established accruals of approximately $49,000 at each of December 31, 2014 and 2013 to provide for potential disallowed costs. In the event that the final costs allowed are different from what the Company has estimated, the Company may need to make a change in its estimated accrual, which could also affect its results of operations and cash flow.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related costs, supplies and materials, outside services, costs of conducting preclinical and clinical trials, facilities costs and amortization of intangible assets. The Company accounts for its clinical trial costs by estimating the total cost to treat a patient in each clinical trial, and accruing this total cost for the patient over the estimated treatment period, which corresponds with the period over which the services are performed, beginning when the patient enrolls in the clinical trial. This estimated cost includes payments to the site conducting the trial, and patient-related lab and other costs related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial, the method of administration of the treatment, and the number of treatments that a patient receives. Treatment periods vary depending on the clinical trial. The Company makes revisions to the clinical trial cost estimates in the current period, as clinical trials progress.
Manufacturing and Production Costs
Manufacturing and production costs include expenses related to manufacturing contracts and expenses for the production of plasmid DNA for use in the Company’s research and development efforts. Manufacturing expenses related to manufacturing contracts are deferred and expensed when the related revenue is recognized. Production expenses related to the Company’s research and development efforts are expensed as incurred.
Net Loss Per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options, and the assumed issuance of common stock under restricted stock units, or RSUs, as the effect would be antidilutive. Common stock equivalents of 0.5 million, 0.9 million and 1.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, were excluded from the calculation because of their antidilutive effect.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, restricted cash, marketable securities, receivables, accounts payable and accrued expenses at December 31, 2014 and 2013, are considered to approximate fair value because of the short term nature of those items.
Income Taxes
The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits recorded by the Company as of the date of adoption in 2007. There are no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.
Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates. A valuation allowance is established to reduce a deferred tax asset to the amount that is expected more likely than not to be realized.
Comprehensive Loss
Comprehensive loss consists of net loss and certain changes in equity that are excluded from net loss. Comprehensive loss for the years ended December 31, 2014, 2013 and 2012, has been reflected in the accompanying Statements of Comprehensive Loss. Accumulated other comprehensive income (loss), which is included in stockholders’ equity, represents unrealized gains and losses on marketable securities.
Business Segments
The Company operates in one business segment, which is within the United States, and is dedicated to research and development of DNA delivery technology.
Stock-Based Compensation
The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options includes an estimate for forfeitures and the portion that is ultimately expected to vest is recognized ratably over the vesting period of the option. In addition, the Company records expense related to RSUs granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Stock-based compensation expense related to RSUs includes an estimate for forfeitures and the portion expected to vest is recognized ratably over the requisite service period. The expected forfeiture rate of all equity based compensation is based on observed historical patterns of the Company’s employees and is estimated to be 8.75%, 11.2% and 11.2% annually for each of the years ended December 31, 2014, 2013 and 2012, respectively.
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model using the assumptions noted in the following table. The expected life of options is based on the Company’s observed historical exercise patterns. The expected volatility of stock options is based upon the historical volatility of the Company’s stock commensurate with the expected life of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
Years Ended December 31, | ||||||
2014 | 2013 | 2012 | ||||
Assumptions: |
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Assumed risk-free interest rate |
1.63% | 1.14% | 0.80% | |||
Assumed volatility |
73% | 72% | 72% | |||
Average expected option life |
4.5 years | 4.5 years | 4.5 years | |||
Expected dividend yield |
— | — | — |
Recent Accounting Pronouncements
In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance was effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this standard beginning with the first quarter of 2014 did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and 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. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2017. The Company is evaluating the alternative transition methods and the potential effects of the adoption of this update on its financial statements.
In August 2014, the FASB issued an amendment to the accounting guidance related to the evaluation of an entity to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The amendment also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. The amended guidance is effective prospectively for fiscal years beginning after December 15, 2016. The new guidance will not have an impact on the Company’s financial position, results of operations or cash flows.
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2. Short-Term Marketable Securities
The following is a summary of short-term marketable securities classified as available-for-sale (in thousands):
December 31, 2014 |
Amortized Cost |
Unrealized Gain |
Unrealized Loss |
Market Value |
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U.S. treasuries |
$ | 5,558 | $ | — | $ | 1 | $ | 5,557 | ||||||||
Government-sponsored enterprise securities |
7,499 | — | 6 | 7,493 | ||||||||||||
Corporate bonds |
2,025 | — | 5 | 2,020 | ||||||||||||
Certificates of deposit |
8,429 | — | — | 8,429 | ||||||||||||
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$ | 23,511 | $ | — | $ | 12 | $ | 23,499 | |||||||||
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December 31, 2013 |
Amortized Cost |
Unrealized Gain |
Unrealized Loss |
Market Value |
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U.S. treasuries |
$ | 1,500 | $ | 3 | $ | — | $ | 1 ,503 | ||||||||
Government-sponsored enterprise securities |
4,500 | — | — | 4,500 | ||||||||||||
Corporate bonds |
4,853 | — | — | 4,853 | ||||||||||||
Certificates of deposit |
685 | — | — | 685 | ||||||||||||
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$ | 11,538 | $ | 3 | $ | — | $ | 11,541 | |||||||||
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At December 31, 2014, $11.0 million of these securities were scheduled to mature outside of one year. There were no net realized gains (losses) on sales of available-for-sale securities for the years ended December 31, 2014, 2013 and 2012. None of these investments have been in a continuous unrealized loss position for more than 12 months as of December 31, 2014 and 2013.
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3. Long-Term Investments
As of December 31, 2014, the Company held an auction rate security with a par value of $2.5 million. This auction rate security has not experienced a successful auction since the liquidity issues experienced in the global credit and capital markets in 2008. As a result the security is classified as a long-term investment as it is scheduled to mature in 2038. The security was rated A- by Standard and Poor’s as of December 31, 2014. The security continues to pay interest according to its stated terms.
The valuation of the Company’s auction rate security is subject to uncertainties that are difficult to predict. The fair value of the security is estimated utilizing a discounted cash flow analysis. The key drivers of the valuation model include the expected term, collateral underlying the security investment, the creditworthiness of the counterparty, the timing of expected future cash flows, discount rates, liquidity and the expected holding period. The security was also compared, when possible, to other observable market data for securities with similar characteristics. Based on the valuation of the security, the Company has recognized cumulative losses of $0.5 million as of December 31, 2014, none of which were realized during the year ended December 31, 2014. The losses when recognized are included in investment and other income. The market value of the security has partially recovered. Included in other comprehensive (loss) income are unrealized (losses) gains of $(9,000), $(0.2) million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, the Company had recorded cumulative unrealized gains of $0.2 million. The resulting carrying value of the auction rate security at December 31, 2014, was $2.0 million. Any future decline in market value may result in additional losses being recognized.
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4. Fair Value Measurements
The Company measures fair value 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 at the measurement date. 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. Fair value measurements are based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
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Level 1: Observable inputs such as quoted prices in active markets; |
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Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
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Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Cash equivalents, marketable securities and long-term investments measured at fair value are classified in the table below in one of the three categories described above (in thousands):
Fair Value Measurements | ||||||||||||||||
December 31, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Certificates of deposit |
$ | 8,674 | $ | — | $ | — | $ | 8,674 | ||||||||
Money market funds |
169 | — | — | 169 | ||||||||||||
U.S. treasuries |
5,557 | — | — | 5,557 | ||||||||||||
Corporate bonds |
— | 2,020 | — | 2,020 | ||||||||||||
Government-sponsored enterprise securities |
— | 7,493 | — | 7,493 | ||||||||||||
Auction rate securities |
— | — | 1,971 | 1,971 | ||||||||||||
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$ | 14,400 | $ | 9,513 | $ | 1,971 | $ | 25,884 | |||||||||
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Fair Value Measurements | ||||||||||||||||
December 31, 2013 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Certificates of deposit |
$ | 685 | $ | — | $ | — | $ | 685 | ||||||||
Money market funds |
2,275 | — | — | 2,275 | ||||||||||||
U.S. treasuries |
1,503 | — | — | 1,503 | ||||||||||||
Corporate bonds |
— | 4,853 | — | 4,853 | ||||||||||||
Government-sponsored enterprise securities |
— | 4,500 | — | 4,500 | ||||||||||||
Auction rate securities |
— | — | 1,980 | 1,980 | ||||||||||||
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$ | 4,463 | $ | 9,353 | $ | 1,980 | $ | 15,796 | |||||||||
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The Company’s investments in U.S. treasury securities, certificates of deposit and money market funds are valued based on publicly available quoted market prices for identical securities as of December 31, 2014. The Company determines the fair value of other government-sponsored enterprise related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company validates the valuations received from its primary pricing vendors for its level 2 securities by examining the inputs used in that vendor’s pricing process and determines whether they are reasonable and observable. The Company also compares those valuations to recent reported trades for those securities. The Company did not adjust any of the valuations received from these third parties with respect to any of its level 2 securities at December 31, 2014. The valuation of the Company’s investment in auction rate securities is more fully described in Note 3.
Activity for assets measured at fair value using significant unobservable inputs (Level 3) is presented in the table below (in thousands):
Balance at December 31, 2013 |
$ | 1,980 | ||
Total net realized gains included in earnings |
— | |||
Total net unrealized losses included in other comprehensive income |
(9 | ) | ||
Net transfers in and/out of Level 3 |
— | |||
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Balance at December 31, 2014 |
$ | 1,971 | ||
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Amount of total losses for the period included in net loss attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2014 |
$ | — | ||
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Total cumulative unrealized losses of $0.5 million relate to Level 3 assets still held as of December 31, 2014, none of which were recognized during the years ended December 31, 2014, 2013 and 2012. The losses, when recognized, are included in investment and other income.
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5. Other Balance Sheet Accounts
Property and equipment consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Equipment |
$ | 17,515 | $ | 18,027 | ||||
Leasehold improvements |
8,048 | 8,048 | ||||||
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25,563 | 26,075 | |||||||
Less accumulated depreciation and amortization |
(22,924 | ) | (22,140 | ) | ||||
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$ | 2,639 | $ | 3,935 | |||||
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Depreciation and amortization of equipment and leasehold improvements for the years ended December 31, 2014, 2013 and 2012, was $1.4 million, $1.6 million and $1.6 million, respectively.
Intangible assets consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Patent application costs |
2,972 | 3,968 | ||||||
Accumulated amortization patent costs |
(1,312 | ) | (1,996 | ) | ||||
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$ | 1,660 | $ | 1,972 | |||||
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Amortization of licensed technology rights and patent application costs for the years ended December 31, 2014, 2013 and 2012, was $0.2 million, $0.4 million and $0.4 million, respectively. Estimated annual amortization for these assets for each of the years in the period from 2015 to 2019 is approximately $0.2 million with $0.7 million being recognized thereafter.
Accounts payable and accrued expenses consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Employee compensation |
$ | 2,471 | $ | 1,587 | ||||
Clinical trial accruals |
1,686 | 347 | ||||||
Accounts payable |
227 | 395 | ||||||
Deferred rent |
432 | 369 | ||||||
Post-termination benefit accrual |
— | 369 | ||||||
Other accrued liabilities |
385 | 436 | ||||||
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$ | 5,201 | $ | 3,503 | |||||
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6. Significant Contracts, Grants, License and Royalty Agreements
Contract and Grant Agreements
Astellas
In July 2011, the Company entered into license agreements with Astellas Pharma Inc., or Astellas, granting Astellas exclusive, worldwide, royalty-bearing licenses under certain of the Company’s know-how and intellectual property to develop and commercialize certain products containing plasmids encoding certain forms of glycoprotein B and/or phosphoprotein 65, including ASP0113 but excluding CyMVectin™. Under the agreements, Astellas is responsible for the worldwide development and commercialization of products in the licensed field, at its expense, and has agreed to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize at least one licensed product for use in certain immunocompromised patients in the licensed field in the United States and certain other major markets. Under the terms of the license agreements, Astellas paid a nonrefundable upfront license fee of $25.0 million.
In 2012, the Company received a $10.0 million milestone payment upon finalization of the trial design for a Phase 3 registration trial of ASP0113 in hematopoietic stem cell transplant recipients. The Company is also entitled to receive additional cash payments potentially totaling $95.0 million for achievement of certain milestones through commercial launch and to receive double-digit royalties on net sales of products. In addition, the Company has an option to co-promote ASP0113 in the United States. Under the terms of a supply and services agreement entered into by the Company and Astellas on the same date, the Company agreed to perform certain development and regulatory activities, at Astellas’ expense, and to supply licensed products to Astellas, at Astellas’ expense, for use in development and initial commercialization activities in the licensed field.
In August 2012 the Company amended its license and supply agreements with Astellas to, among other things, extend the time period that the Company is obligated to supply licensed products for commercial use to Astellas, at Astellas’ expense, modify the allocation of $95.0 million of milestone payments among certain milestones through commercial launch and modify the structure of the royalties on net sales from a fixed double digit royalty to tiered double digit royalties.
The Company identified the deliverables at the inception of the agreements. The Company has determined that the license and related know-how, the development and regulatory services and the drug product supply individually represent separate units of accounting, because each deliverable has standalone value. The best estimated selling prices for these units of accounting was determined based on market conditions, the terms of comparable collaborative arrangements for similar technology in the pharmaceutical and biotechnology industry and entity-specific factors, such as the terms of the Company’s previous collaborative agreements, the Company’s pricing practices and pricing objectives and the nature of the research and development services to be performed for the partner. The arrangement consideration was allocated to the deliverables based on the relative selling price method.
The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable; therefore, the amount allocated to the licenses was limited to the extent of cash received. As a result, during the years ended December 31, 2014, 2013 and 2012, the Company recognized $1.6 million, $0.7 million and $10.7 million, respectively, related to the license fee and know-how. The Company will recognize the amounts allocated to research and development services as revenues under the agreements as the related services are delivered and as reimbursements are received. During the years ended December 31, 2014, 2013 and 2012, the Company recognized $7.8 million, $4.4 million and $3.9 million, respectively, of revenue related to contract services delivered. The Company will recognize as revenue the amounts allocated to the sales of drug product when the sale of that drug product has met all required specifications and the related title and risk of loss and damages have passed to Astellas. During the years ended December 31, 2014, 2013 and 2012, the Company recognized $5.5 million, $1.2 million and $1.8 million, respectively, of revenue related to drug product delivered. The Company is eligible to receive additional cash payments upon the achievement of specified regulatory and commercial milestones. The Company has determined that each of the regulatory and commercial milestones meets the definition of a milestone and that each milestone is substantive in accordance with the milestone method of revenue recognition. Accordingly, the Company expects to recognize such regulatory and commercial milestone payments as revenues under the agreements upon achievement of each milestone.
In-licensing Agreements
City of Hope
In 2003 the Company licensed from the City of Hope on an exclusive basis various U.S. patents that provide protection for CMV-related polynucleotide based vaccines, including TransVaxTM and CyMVectinTM vaccine candidates. The agreement expires upon the last to expire of the patent rights licensed by the Company under the agreement, unless earlier terminated as set forth in the agreement. The City of Hope may terminate the agreement early, in accordance with notice provisions set forth in the agreement, if the Company ceases to operate, fails to make payments when due or materially breaches the agreement. Subject to certain conditions, the Company may terminate the agreement early at any time upon prior written notice to the City of Hope. The Company is also obligated to pay a low double-digit percentage of any payments it receives from the sub-license of products that incorporate the licensed technology. The Company paid the City of Hope $0.1 million, $0.1 million and $2.6 million under the agreement for the years ended December 31, 2014, 2013 and 2012, respectively.
CytRx
In 2001, the Company entered into an exclusive agreement with CytRx which grants to the Company the rights to use or sublicense CytRx’s poloxamer technology to enhance viral or non-viral delivery of polynucleotides in all preventive and therapeutic human and animal health applications, including CMV. The agreement excludes applications for four infectious disease vaccine targets that had been licensed to Merck and prostate-specific membrane antigen. In addition, the agreement permits the Company’s use of CytRx’s technology to enhance the delivery of proteins in prime-boost vaccine applications that involve the use of polynucleotides. As part of the agreement, the Company made a $3.8 million up-front payment and agreed to make potential future milestone and royalty payments. The license fee is fully amortized as of December 31, 2013. The Company paid CytRx $0.1 million, $0.3 million and $0.1 million under the agreement for the years ended December 31, 2014, 2013 and 2012, respectively.
Milestone Payments
The Company may be required to make future payments to its licensors based on the achievement of milestones set forth in various in-licensing agreements. In most cases, these milestone payments are based on the achievement of development or regulatory milestones, including the exercise of options to obtain licenses related to specific disease targets, commencement of various phases of clinical trials, filing of product license applications, approval of product licenses from the FDA or a foreign regulatory agency, and the first commercial sale of a related product. Payment for the achievement of milestones under the Company’s in-license agreements is highly speculative and subject to a number of contingencies.
The aggregate amount of additional milestone payments that the Company could be required to pay under its active in-license agreements in place at December 31, 2014, is approximately $7.5 million. These amounts assume that all remaining milestones associated with the milestone payments are met. In the event that product license approval for any of the related products is obtained, the Company may be required to make royalty payments in addition to these milestone payments. Although the Company believes that some of the milestones contained in its in-license agreements may be achieved, it is highly unlikely that a significant number of them will be achieved. Because the milestones are contingent the Company is not in a position to reasonably estimate how much, if any, of the potential milestone payments will ultimately be paid. Additionally, under the in-license agreements, many of the milestone events are related to progress in clinical trials which the Company estimates will take several years to achieve.
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7. Commitments and Contingencies
Facility Leases
The Company is currently leasing its facility which has approximately 68,400 square feet of manufacturing, research laboratory and office space. The lease expires in August 2017. The Company has the option to renew the lease for three additional five-year periods beyond its expiration.
The lease related to the facility is treated as an operating lease. The minimum annual rent on the facility is subject to increases specified in the lease. The Company is also required to pay taxes, insurance and operating costs under the facility lease. The Company recognizes level monthly rent for its facility lease over the entire lease period. The monthly rent is calculated by adding the total rent payments over the entire lease period and then dividing the result by the total term of the lease. The $1.3 million difference between the base rent paid and the rent expensed through December 31, 2014 is recorded as deferred rent in the balance sheet. Rent expense for the years ended December 31, 2014, 2013 and 2012 was $2.8 million, $2.8 million and $2.9 million, respectively.
At December 31, 2014, future minimum rental payments due under the Company’s facilities lease were as follows (in thousands):
Year ending December 31, |
||||
2015 |
$ | 3,536 | ||
2016 |
3,607 | |||
2017 |
2,437 | |||
2018 |
— | |||
2019 |
— | |||
Thereafter |
— | |||
|
|
|||
Total lease payments |
$ | 9,580 | ||
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Other Contingencies
In late October and early November 2013, following the Company’s announcement of the results of its Phase 3 trial of Allovectin® and the subsequent decline of the price of its common stock, two putative securities class action complaints were filed in the U.S. District Court for the Southern District of California against the Company and certain of its current and former officers. On February 26, 2014, the two cases were consolidated into one action and a lead plaintiff and lead counsel were appointed. On April 3, 2014, the lead plaintiff filed a consolidated complaint alleging that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements regarding the Company’s business prospects and the prospects for Allovectin®, thereby artificially inflating the price of the Company’s common stock. The consolidated complaint seeks unspecified monetary damages and other relief. On April 25, 2014, the parties filed a joint motion asking the Court to permit plaintiffs to amend the consolidated complaint, which the Court granted. On May 12, 2014, lead plaintiff filed an amended complaint. On June 9, 2014, defendants filed a motion to dismiss the amended complaint. That same day, defendants also filed a motion to strike certain allegations in the amended complaint. The motions to dismiss and strike are fully briefed. A hearing on the motion to discuss is scheduled for March 2, 2015. The Company plans to vigorously defend against the claims advanced. At this time, the Company is unable to estimate possible losses or ranges of losses for ongoing legal actions.
In the ordinary course of business, the Company may become a party to additional lawsuits involving various matters. The Company is unaware of any such lawsuits presently pending against it which, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.
The Company prosecutes its intellectual property vigorously to obtain the broadest valid scope for its patents. Due to uncertainty of the ultimate outcome of these matters, the impact on future operating results or the Company’s financial condition is not subject to reasonable estimates.
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8. Stockholders’ Equity
As of the date of this filing the Company has on file a shelf registration statement that allows it to raise up to an additional $145.9 million from the sale of common stock, preferred stock, debt securities and/or warrants. Specific terms of any offering under the shelf registration statements and the securities involved would be established at the time of sale.
In April 2014, the Company entered into an At-The-Market Issuance Sales Agreement, or Sales Agreement, with Meyers Associates, L.P. (doing business as Brinson Patrick, a division of Meyers Associates, L.P.), or Brinson Patrick, under which the Company may issue and sell up to $25,000,000 of shares of its common stock from time to time. Under the Sales Agreement, the Company may deliver placement notices that will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, any limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sales Agreement, Brinson Patrick may sell the shares only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including without limitation sales made directly through the Nasdaq Global Market, on any other existing trading market for the Company’s common stock or to or through a market maker. The Sales Agreement may be terminated by the Company upon prior notice to Brinson Patrick or by Brinson Patrick upon prior notice to the Company, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse effect on the Company.
The Sales Agreement provides that Brinson Patrick will be entitled to compensation for its services in an amount up to 2.5% of the gross proceeds from the sale of shares sold through Brinson Patrick under the Sales Agreement. The company has no obligation to sell any shares under the Sales Agreement, and both the Company and Brinson Patrick may at any time suspend the sale of shares under the Sales Agreement. The Company has also agreed to provide indemnification and contribution to Brinson Patrick against certain liabilities. During the year ended December 31, 2014, the Company sold 3,291,521 shares under the Sales Agreement and received gross proceeds of $4,067,751.
In November 2012, the Company entered into an At-The-Market Equity Offering Sales Agreement, or ATM Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, under which the Company may issue and sell up to $50,000,000 of shares of its common stock from time to time. Under the ATM Agreement, the Company will set the parameters for the sale of shares, including the number of shares to be issued and any minimum price below which sales may not be made. Subject to the terms and conditions of the ATM Agreement, shares may be sold through Stifel acting as sales agent or directly to Stifel acting as principal, by means of ordinary brokers’ transactions on the Nasdaq Global Market, in privately negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Any sales other than by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, or the Securities Act, will require the Company’s prior consent. Stifel is obligated to use commercially reasonable efforts in conducting sales activities consistent with its normal trading and sales practices. The ATM Agreement may be terminated by the Company upon prior notice to Stifel or by Stifel upon prior notice to the company, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the company.
The ATM Agreement provides that Stifel will be entitled to compensation for its services in an amount of 2.5% of the gross proceeds from the sale of shares sold through Stifel under the ATM Agreement. The company has no obligation to sell any shares under the ATM Agreement, and may at any time suspend offers under the ATM Agreement. The Company agreed in the ATM Agreement to provide indemnification and contribution to Stifel against certain liabilities, including liabilities under the Securities Act, and to reimburse Stifel for certain legal expenses incurred in connection with the ATM Agreement.
In January 2012, the Company sold 13,333,334 shares of its common stock in a public offering at a price to the public of $3.75 per share. In February 2012, the Company sold an additional 576,358 shares pursuant to a partial exercise of the underwriters’ overallotment option at a price to the public of $3.75 per share. Net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, totaled $48.7 million. All of the shares of common stock were offered pursuant to two effective shelf registration statements.
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9. Stock Based Compensation
The Company has a stock-based compensation plan which is described below. Total stock-based compensation expense of $3.2 million, $3.5 million and $3.3 million was recognized for the years ended December 31, 2014, 2013 and 2012, respectively. Total stock-based compensation expense was allocated to research and development, manufacturing and production and general and administrative expense as follows (in thousands):
Year ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Research and development |
$ | 785 | $ | 908 | $ | 1,035 | ||||||
Manufacturing and production |
229 | 258 | 207 | |||||||||
General and administrative |
2,145 | 2,300 | 2,048 | |||||||||
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|
|
|
|
|
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Total stock-based compensation expense |
$ | 3,159 | $ | 3,466 | $ | 3,290 | ||||||
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|
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Cash received from RSU grants and options exercised |
$ | 2 | $ | 816 | $ | 221 | ||||||
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Stock Incentive Plan
The Company has a stock incentive plan, under which 19,700,000 shares of common stock, subject to adjustment as provided in the plan, are reserved for issuance to employees, non-employee directors and consultants of the Company. As of December 31, 2014 there were 16,796,884 shares reserved for future issuance under the plan. The plan provides for the grant of incentive and nonstatutory stock options and the direct award or sale of shares, including restricted stock. The exercise price of stock options must equal at least the fair market value of the underlying common stock on the date of grant. The maximum term of options granted under the plan is ten years. Except for annual grants to non-employee directors which vest at the next annual meeting, options generally vest 25% on the first anniversary of the date of grant, with the balance vesting quarterly over the remaining three years. The plan also limits the number of options that may be granted to any plan participant in a single calendar year to 1,300,000 shares.
The Company has granted RSUs to executive officers, other executives, and employees under the stock incentive plan. In 2014, 2013, and 2012 the Company granted RSUs covering an aggregate of 828,000, 409,189, and 258,456 shares of common stock, respectively. These RSUs generally vest 25% on the first anniversary date of the grant, with the remaining rights vesting quarterly over the remaining three years and, once vested, allow the participants to acquire the underlying shares of common stock at par value. The participants are not entitled to sell or transfer any unvested RSUs and are not entitled to vote or receive dividends on any shares of common stock covered by the RSUs prior to the acquisition of such shares. Granted but unvested RSUs are forfeited at termination of employment. Compensation expense related to the RSUs for the years ended December 31, 2014, 2013, and 2012 was approximately $1.1 million, $1.0 million and $0.8 million, respectively.
The following table summarizes stock option transactions under the Company’s stock incentive plans for the years ended December 31, 2014, 2013 and 2012:
Shares | Weighted Average Exercise Price |
|||||||
Outstanding December 31, 2011 |
6,955,100 | $ | 3.51 | |||||
Granted |
1,687,257 | $ | 3.50 | |||||
Exercised |
(96,345 | ) | $ | 2.29 | ||||
Forfeited |
(549,443 | ) | $ | 5.94 | ||||
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|
|||||||
Outstanding December 31, 2012 |
7,996,569 | $ | 3.36 | |||||
Granted |
2,876,382 | $ | 2.56 | |||||
Exercised |
(347,450 | ) | $ | 2.34 | ||||
Forfeited |
(2,121,313 | ) | $ | 3.27 | ||||
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|
|||||||
Outstanding December 31, 2013 |
8,404,188 | $ | 3.15 | |||||
Granted |
1,889,614 | $ | 1.40 | |||||
Exercised |
— | $ | — | |||||
Forfeited |
(1,699,370 | ) | $ | 3.69 | ||||
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|
|||||||
Outstanding December 31, 2014 |
8,594,432 | $ | 2.66 | |||||
|
|
|||||||
Vested and unvested options expected to vest as of December 31, 2014 |
8,188,766 | $ | 2.70 |
The number of underlying shares and weighted average exercise price of options exercisable at December 31, 2014, 2013 and 2012, were 6,037,169 shares at $2.89, 5,212,897 shares at $3.49, and 5,031,587 shares at $3.55, respectively. The weighted average remaining contractual term of options outstanding and options exercisable at December 31, 2014, was 6.7 years and 6.0 years, respectively. The weighted average remaining contractual term of vested and unvested options expected to vest at December 31, 2014, was 6.6 years. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2014, was $0.0 million and $0.0 million, respectively. As of December 31, 2014, the total unrecognized compensation cost related to unvested options was $1.0 million, which is expected to be recognized over a weighted-average period of 1.23 years.
The weighted average grant-date fair value of options granted during the years ended December 31, 2014, 2013 and 2012, was $0.73, $1.31 and $1.88 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012, was $0.0 million, $0.5 million and $0.1 million, respectively. At December 31, 2014, there were 6,915,536 shares available for grant under the Company’s stock incentive plans.
A summary of the outstanding RSUs as of December 31, 2014, and changes during the year then ended is presented below:
Shares | Weighted Average Grant-Date Fair Value per Share |
|||||||
Unvested at December 31, 2013 |
496,397 | $ | 2.59 | |||||
Granted |
828,000 | $ | 1.42 | |||||
Vested |
(346,164 | ) | $ | 2.30 | ||||
Cancelled |
(18,167 | ) | $ | 1.58 | ||||
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|
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Unvested at December 31, 2014 |
960,066 | $ | 1.70 | |||||
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The aggregate grant-date fair value of RSUs granted during the years ended December 31, 2014, 2013 and 2012, was $1.2 million, $1.0 million and $0.9 million, respectively. As of December 31, 2014, the total unrecognized compensation cost related to unvested RSUs was $0.6 million, which is expected to be recognized over a weighted average period of 1.21 years. The aggregate grant-date fair value of shares subject to RSUs vested during the years ended December 31, 2014, 2013 and 2012, was $0.8 million, $1.0 million and $1.1 million, respectively. As of December 31, 2014, there were 326,850 shares of common stock underlying RSUs that were fully vested but the issuance of such shares has been deferred.
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10. Restructuring Costs
In August 2013, the Company announced that its recently completed Phase 3 clinical trial of Allovectin®, the Company’s investigational cancer immunotherapy, failed to meet the pre-established endpoints. As a result, the Company restructured its operations to conserve capital, which included a staff reduction of 47 employees and the impairment of certain intangible assets. The Company recorded charges for employee termination benefits during the year ended December 31, 2013 of $2.2 million, of which $1.2 million, $0.5 million and $0.5 million is included in research and development, manufacturing and production and general and administrative expenses, respectively. The Company also recorded an asset impairment charge during the year ended December 31, 2013 of $0.7 million, which is included in research and development expenses.
The following table sets forth activity in the restructuring liability for the year ended December 31, 2014, which is wholly comprised of employee severance costs (in thousands):
Accrued Employee Termination Benefits |
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Balance at December 31, 2013 |
$ | 281 | ||
Accruals |
— | |||
Payments |
$ | (281 | ) | |
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|
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Balance at December 31, 2014 |
$ | — | ||
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11. Income Taxes
At December 31, 2014, the Company had deferred tax assets of $124.9 million. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the net deferred tax asset. Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company’s net operating loss and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company determined that such an ownership change occurred on December 29, 2006, as defined in the provisions of Section 382 of the IRC as a result of various stock issuances used to finance the Company’s operations. Such ownership change resulted in annual limitations on the utilization of tax attributes, including net operating loss carryforwards and tax credits. The Company estimates that $101.2 million of its net operating loss carryforwards were effectively eliminated under Section 382 for federal tax purposes. A portion of the remaining net operating losses limited by Section 382 become available each year. The Company also estimates that $12.2 million of its research and development credits and other tax credits were effectively eliminated under Section 383 for federal purposes. As a result of the Section 382 analysis completed during 2012, the Company has included in the deferred tax asset schedule the deferred tax assets for net operating losses of $82.7 million and tax credits of $19.9 million. The company’s Section 382 analysis was completed through December 31, 2011. There is a risk that additional changes in ownership could have occurred since that date. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company has not completed an analysis of uncertain tax positions related to the net operating losses and credits recorded as deferred tax assets. If such analysis is performed at a later date and an uncertain tax position is identified, the related deferred tax asset would be reduced along with a corresponding reduction in the valuation allowance.
The Company’s practice is to recognize interest and/or penalties related to uncertain tax positions and income tax matters as income tax expense. The Company had no accrual for interest or penalties on its balance sheets at December 31, 2014 and 2013, and has not recognized interest and/or penalties in its statement of operations for any of the years ended December 31, 2014, 2013 or 2012.
The Company is subject to taxation in the United States and California. The Company’s tax years for 1997 and forward are subject to examination by the United States and California tax authorities due to the carryforward of unutilized net operating losses and R&D credits.
Significant components of the Company’s deferred tax assets as of December 31, 2014 and 2013 are listed below. A valuation allowance of $124.9 million and $119.8 million at December 31, 2014 and 2013, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts for the years ended December 31 were as follows (in thousands):
Deferred Tax Assets |
2014 | 2013 | ||||||
Net operating losses |
$ | 85,510 | $ | 82,753 | ||||
Credit carryovers |
19,903 | 19,903 | ||||||
Depreciation and amortization |
14,922 | 12,915 | ||||||
Accruals and reserves |
808 | 322 | ||||||
Capital loss carryover |
100 | 100 | ||||||
Other |
3,660 | 3,808 | ||||||
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|
|
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Total deferred tax assets |
124,903 | 119,801 | ||||||
Less valuation allowance |
(124,903 | ) | (119,801 | ) | ||||
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|
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Net deferred tax assets |
$ | — | $ | — | ||||
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The reconciliation between the provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate were as follows for the years ended December 31 (in thousands):
2014 | 2013 | 2012 | ||||||||||
Computed “expected” tax benefit |
$ | (5,607 | ) | $ | (10,621 | ) | $ | (7,712 | ) | |||
State income taxes, net of federal benefit |
(444 | ) | (1,947 | ) | 451 | |||||||
Tax effect of: |
||||||||||||
Change in valuation allowance |
5,102 | 13,074 | (37,179 | ) | ||||||||
Expiration of prior year credits and net operating losses |
675 | (237 | ) | 45,382 | ||||||||
Research and development and other tax credits carryovers |
— | (672 | ) | (1,097 | ) | |||||||
Stock compensation |
274 | 337 | 358 | |||||||||
Other |
— | 66 | (203 | ) | ||||||||
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Provision for income taxes |
$ | — | $ | — | $ | — | ||||||
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As of December 31, 2014 and 2013, the Company had available federal net operating loss carryforwards of approximately $307.3 million and $300.8 million, respectively, which expire from 2018 through 2034. In addition, the Company had federal research and development credit and orphan drug credit carryforwards of $26.3 million and $26.3 million as of December 31, 2014 and 2013, respectively, to reduce future federal income taxes, if any. These carryforwards expire from 2018 through 2033 and are subject to review and possible adjustment by the Internal Revenue Service. The Company also has available California state net operating loss carryforwards of approximately $275.0 million and $282.1 million as of December 31, 2014 and 2013, respectively, which expire from 2015 to 2034. In addition, the Company had California research and development credits of approximately $8.8 million as of December 31, 2014 and 2013, respectively, to reduce future California income tax, if any. The California research and development credits do not expire.
The Company generated windfall tax benefits from the settlement of certain stock awards. The tax benefit will be recorded as a credit to additional paid-in capital in the year the deduction reduces income taxes payable. The net operating loss carryforwards related to these windfall tax benefits of approximately $1.6 million are included in the net operating loss carryforwards disclosed above.
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12. Employee Benefit Plan
The Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $0.1 million, $0.2 million and $0.2 million for the years ended 2014, 2013 and 2012, respectively.
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13. Summary of (Unaudited) Quarterly Financial Information
The following is a summary of the Company’s (unaudited) quarterly results of operations for the years ended December 31 (in thousands, except per share amounts):
2014: |
March 31, | June 30, | Sept. 30, | Dec. 31, | ||||||||||||
Total revenues |
$ | 2,447 | $ | 4,505 | $ | 3,442 | $ | 4,823 | ||||||||
Total operating expenses |
5,930 | 8,570 | 7,838 | 9,505 | ||||||||||||
Net loss |
(3,455 | ) | (4,040 | ) | (4,364 | ) | (4,633 | ) | ||||||||
Basic and diluted net loss per share(1) |
(0.04 | ) | (0.05 | ) | (0.05 | ) | (0.05 | ) | ||||||||
2013: |
March 31, | June 30, | Sept. 30, | Dec. 31, | ||||||||||||
Total revenues |
$ | 1,574 | $ | 1,456 | $ | 1,543 | $ | 3,145 | ||||||||
Total operating expenses |
10,881 | 11,299 | 11,523 | 5,367 | ||||||||||||
Net income (loss) |
(9,282 | ) | (9,881 | ) | (9,883 | ) | (2,192 | ) | ||||||||
Basic and diluted net loss per share(1) |
(0.11 | ) | (0.11 | ) | (0.11 | ) | (0.03 | ) |
(1) |
Net income (loss) per share is computed independently for each quarter and the full year based upon respective shares outstanding. Therefore, the sum of the quarterly loss per share amounts may not equal the annual amounts reported. |
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Organization and Business Activity
Vical Incorporated, or the Company, a Delaware corporation, was incorporated in April 1987 and has devoted substantially all of its resources since that time to its research and development programs. The Company researches and develops biopharmaceutical products based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.
All of the Company’s potential products are in research and development phases. No revenues have been generated from the sale of any such products, nor are any such revenues expected for at least the next several years. The Company earns revenue from research and development agreements with pharmaceutical collaborators and grant and contract arrangements with government entities. Most of the Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. There can be no assurance that the Company’s research and development efforts, or those of its collaborators, will be successful. The Company expects to continue to incur substantial losses and not generate positive cash flows from operations for at least the next several years. No assurance can be given that the Company can generate sufficient product revenue to become profitable or generate positive cash flows from operations.
Basis of Presentation
These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make informed estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of cash and highly liquid securities with original maturities at the date of acquisition of ninety days or less and can be liquidated without prior notice or penalty. Investments with an original maturity of more than ninety days are considered marketable securities and have been classified by management as available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income (loss), if any, are determined on a specific identification basis.
Restricted Cash and Marketable Securities
The Company is required to maintain a letter of credit securing an amount equal to twelve months of the current monthly installment of base rent for the term of the lease for its facilities, which ends in August 2017. Under certain circumstances the Company may be able to eliminate the need for the letter of credit. At December 31, 2014 and 2013, restricted cash of $3.2 million and $3.1 million, respectively, was pledged as collateral for the letter of credit.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, marketable securities and receivables. The Company invests its excess cash in debt instruments of financial institutions and of corporations with above average credit ratings, in U.S. government obligations, and in money market funds and certificates of deposits at financial institutions.
Property and Equipment
Property and equipment is recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Assets acquired pursuant to capital lease arrangements and leasehold improvements are amortized using the straight-line method over the shorter of the life of the remaining lease term or the remaining useful life of the asset. Manufacturing equipment has estimated useful lives of ten years. All other property and equipment have estimated useful lives of 3 to 5 years. Maintenance and repairs of property and equipment are expensed as incurred.
Intangible Assets
Intangible assets include licensed technology rights and certain costs related to patent applications. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. Certain costs related to patent applications are amortized over the estimated economic lives of the patents, which is generally 20 years and typically commences at the time the patent application is filed. As of December 31, 2014, the weighted average amortization period of capitalized patent costs is approximately 10 years. Amortization expense for licensed technology and capitalized patent cost is included in research and development expenses.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment at least annually, quarterly for intangible assets, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s estimated fair value and the loss recognized in current earnings. The Company recognized research and development expense of approximately $0.4 million, $0.9 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to patents and licensed technology for which the value was deemed to be impaired.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Certain of the Company’s revenue is generated through manufacturing contracts and stand-alone license agreements.
The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.
Multiple-element arrangements
The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represents separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The delivered item(s) must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control.
A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. If facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the license is identified as a separate unit of accounting and the amounts allocated to the license are recognized upon the delivery of the license, assuming the other revenue recognition criteria have been met. However, if the amounts allocated to the license through the relative selling price allocation exceed the upfront license fee, the amount recognized upon the delivery of the license is limited to the upfront fee received. If facts and circumstances dictate that the license does not have standalone value, the transaction price, including any upfront license fee payments received, are allocated to the identified separate units of accounting and recognized as those items are delivered.
The terms of the Company’s partnership agreements provide for milestone payments upon achievement of certain regulatory and commercial events. Under the Milestone Method, the Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following three criteria: 1) The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) The consideration relates solely to past performance, and 3) The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company.
Contract Services, Grant and Royalty Revenue
The Company recognizes revenues from contract services and federal government research grants during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured. Royalties to be received based on sales of licensed products by the Company’s partners incorporating the Company’s licensed technology are recognized when received.
Accruals for Potential Disallowed Costs on Government Contracts
The Company has contracts with U.S. government agencies under which it bills for direct and indirect costs incurred. These billed costs are subject to audit by government agencies. The Company established accruals of approximately $49,000 at each of December 31, 2014 and 2013 to provide for potential disallowed costs. In the event that the final costs allowed are different from what the Company has estimated, the Company may need to make a change in its estimated accrual, which could also affect its results of operations and cash flow.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related costs, supplies and materials, outside services, costs of conducting preclinical and clinical trials, facilities costs and amortization of intangible assets. The Company accounts for its clinical trial costs by estimating the total cost to treat a patient in each clinical trial, and accruing this total cost for the patient over the estimated treatment period, which corresponds with the period over which the services are performed, beginning when the patient enrolls in the clinical trial. This estimated cost includes payments to the site conducting the trial, and patient-related lab and other costs related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial, the method of administration of the treatment, and the number of treatments that a patient receives. Treatment periods vary depending on the clinical trial. The Company makes revisions to the clinical trial cost estimates in the current period, as clinical trials progress.
Manufacturing and Production Costs
Manufacturing and production costs include expenses related to manufacturing contracts and expenses for the production of plasmid DNA for use in the Company’s research and development efforts. Manufacturing expenses related to manufacturing contracts are deferred and expensed when the related revenue is recognized. Production expenses related to the Company’s research and development efforts are expensed as incurred.
Net Loss Per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options, and the assumed issuance of common stock under restricted stock units, or RSUs, as the effect would be antidilutive. Common stock equivalents of 0.5 million, 0.9 million and 1.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, were excluded from the calculation because of their antidilutive effect.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, restricted cash, marketable securities, receivables, accounts payable and accrued expenses at December 31, 2014 and 2013, are considered to approximate fair value because of the short term nature of those items.
Income Taxes
The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits recorded by the Company as of the date of adoption in 2007. There are no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.
Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates. A valuation allowance is established to reduce a deferred tax asset to the amount that is expected more likely than not to be realized.
Comprehensive Loss
Comprehensive loss consists of net loss and certain changes in equity that are excluded from net loss. Comprehensive loss for the years ended December 31, 2014, 2013 and 2012, has been reflected in the accompanying Statements of Comprehensive Loss. Accumulated other comprehensive income (loss), which is included in stockholders’ equity, represents unrealized gains and losses on marketable securities.
Business Segments
The Company operates in one business segment, which is within the United States, and is dedicated to research and development of DNA delivery technology.
Stock-Based Compensation
The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options includes an estimate for forfeitures and the portion that is ultimately expected to vest is recognized ratably over the vesting period of the option. In addition, the Company records expense related to RSUs granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Stock-based compensation expense related to RSUs includes an estimate for forfeitures and the portion expected to vest is recognized ratably over the requisite service period. The expected forfeiture rate of all equity based compensation is based on observed historical patterns of the Company’s employees and is estimated to be 8.75%, 11.2% and 11.2% annually for each of the years ended December 31, 2014, 2013 and 2012, respectively.
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model using the assumptions noted in the following table. The expected life of options is based on the Company’s observed historical exercise patterns. The expected volatility of stock options is based upon the historical volatility of the Company’s stock commensurate with the expected life of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
Years Ended December 31, | ||||||
2014 | 2013 | 2012 | ||||
Assumptions: |
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Assumed risk-free interest rate |
1.63% | 1.14% | 0.80% | |||
Assumed volatility |
73% | 72% | 72% | |||
Average expected option life |
4.5 years | 4.5 years | 4.5 years | |||
Expected dividend yield |
— | — | — |
Recent Accounting Pronouncements
In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance was effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this standard beginning with the first quarter of 2014 did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and 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. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2017. The Company is evaluating the alternative transition methods and the potential effects of the adoption of this update on its financial statements.
In August 2014, the FASB issued an amendment to the accounting guidance related to the evaluation of an entity to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. The amendment also gives guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. The amended guidance is effective prospectively for fiscal years beginning after December 15, 2016. The new guidance will not have an impact on the Company’s financial position, results of operations or cash flows.
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The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
Years Ended December 31, | ||||||
2014 | 2013 | 2012 | ||||
Assumptions: |
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Assumed risk-free interest rate |
1.63% | 1.14% | 0.80% | |||
Assumed volatility |
73% | 72% | 72% | |||
Average expected option life |
4.5 years | 4.5 years | 4.5 years | |||
Expected dividend yield |
— | — | — |
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The following is a summary of short-term marketable securities classified as available-for-sale (in thousands):
December 31, 2014 |
Amortized Cost |
Unrealized Gain |
Unrealized Loss |
Market Value |
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U.S. treasuries |
$ | 5,558 | $ | — | $ | 1 | $ | 5,557 | ||||||||
Government-sponsored enterprise securities |
7,499 | — | 6 | 7,493 | ||||||||||||
Corporate bonds |
2,025 | — | 5 | 2,020 | ||||||||||||
Certificates of deposit |
8,429 | — | — | 8,429 | ||||||||||||
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$ | 23,511 | $ | — | $ | 12 | $ | 23,499 | |||||||||
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December 31, 2013 |
Amortized Cost |
Unrealized Gain |
Unrealized Loss |
Market Value |
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U.S. treasuries |
$ | 1,500 | $ | 3 | $ | — | $ | 1 ,503 | ||||||||
Government-sponsored enterprise securities |
4,500 | — | — | 4,500 | ||||||||||||
Corporate bonds |
4,853 | — | — | 4,853 | ||||||||||||
Certificates of deposit |
685 | — | — | 685 | ||||||||||||
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$ | 11,538 | $ | 3 | $ | — | $ | 11,541 | |||||||||
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Cash equivalents, marketable securities and long-term investments measured at fair value are classified in the table below in one of the three categories described above (in thousands):
Fair Value Measurements | ||||||||||||||||
December 31, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Certificates of deposit |
$ | 8,674 | $ | — | $ | — | $ | 8,674 | ||||||||
Money market funds |
169 | — | — | 169 | ||||||||||||
U.S. treasuries |
5,557 | — | — | 5,557 | ||||||||||||
Corporate bonds |
— | 2,020 | — | 2,020 | ||||||||||||
Government-sponsored enterprise securities |
— | 7,493 | — | 7,493 | ||||||||||||
Auction rate securities |
— | — | 1,971 | 1,971 | ||||||||||||
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$ | 14,400 | $ | 9,513 | $ | 1,971 | $ | 25,884 | |||||||||
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Fair Value Measurements | ||||||||||||||||
December 31, 2013 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Certificates of deposit |
$ | 685 | $ | — | $ | — | $ | 685 | ||||||||
Money market funds |
2,275 | — | — | 2,275 | ||||||||||||
U.S. treasuries |
1,503 | — | — | 1,503 | ||||||||||||
Corporate bonds |
— | 4,853 | — | 4,853 | ||||||||||||
Government-sponsored enterprise securities |
— | 4,500 | — | 4,500 | ||||||||||||
Auction rate securities |
— | — | 1,980 | 1,980 | ||||||||||||
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$ | 4,463 | $ | 9,353 | $ | 1,980 | $ | 15,796 | |||||||||
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Activity for assets measured at fair value using significant unobservable inputs (Level 3) is presented in the table below (in thousands):
Balance at December 31, 2013 |
$ | 1,980 | ||
Total net realized gains included in earnings |
— | |||
Total net unrealized losses included in other comprehensive income |
(9 | ) | ||
Net transfers in and/out of Level 3 |
— | |||
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Balance at December 31, 2014 |
$ | 1,971 | ||
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Amount of total losses for the period included in net loss attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2014 |
$ | — | ||
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Property and equipment consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Equipment |
$ | 17,515 | $ | 18,027 | ||||
Leasehold improvements |
8,048 | 8,048 | ||||||
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25,563 | 26,075 | |||||||
Less accumulated depreciation and amortization |
(22,924 | ) | (22,140 | ) | ||||
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$ | 2,639 | $ | 3,935 | |||||
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Intangible assets consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Patent application costs |
2,972 | 3,968 | ||||||
Accumulated amortization patent costs |
(1,312 | ) | (1,996 | ) | ||||
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$ | 1,660 | $ | 1,972 | |||||
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Accounts payable and accrued expenses consisted of the following at December 31 (in thousands):
2014 | 2013 | |||||||
Employee compensation |
$ | 2,471 | $ | 1,587 | ||||
Clinical trial accruals |
1,686 | 347 | ||||||
Accounts payable |
227 | 395 | ||||||
Deferred rent |
432 | 369 | ||||||
Post-termination benefit accrual |
— | 369 | ||||||
Other accrued liabilities |
385 | 436 | ||||||
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$ | 5,201 | $ | 3,503 | |||||
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At December 31, 2014, future minimum rental payments due under the Company’s facilities lease were as follows (in thousands):
Year ending December 31, |
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2015 |
$ | 3,536 | ||
2016 |
3,607 | |||
2017 |
2,437 | |||
2018 |
— | |||
2019 |
— | |||
Thereafter |
— | |||
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Total lease payments |
$ | 9,580 | ||
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Year ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Research and development |
$ | 785 | $ | 908 | $ | 1,035 | ||||||
Manufacturing and production |
229 | 258 | 207 | |||||||||
General and administrative |
2,145 | 2,300 | 2,048 | |||||||||
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Total stock-based compensation expense |
$ | 3,159 | $ | 3,466 | $ | 3,290 | ||||||
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Cash received from RSU grants and options exercised |
$ | 2 | $ | 816 | $ | 221 | ||||||
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The following table summarizes stock option transactions under the Company’s stock incentive plans for the years ended December 31, 2014, 2013 and 2012:
Shares | Weighted Average Exercise Price |
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Outstanding December 31, 2011 |
6,955,100 | $ | 3.51 | |||||
Granted |
1,687,257 | $ | 3.50 | |||||
Exercised |
(96,345 | ) | $ | 2.29 | ||||
Forfeited |
(549,443 | ) | $ | 5.94 | ||||
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Outstanding December 31, 2012 |
7,996,569 | $ | 3.36 | |||||
Granted |
2,876,382 | $ | 2.56 | |||||
Exercised |
(347,450 | ) | $ | 2.34 | ||||
Forfeited |
(2,121,313 | ) | $ | 3.27 | ||||
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Outstanding December 31, 2013 |
8,404,188 | $ | 3.15 | |||||
Granted |
1,889,614 | $ | 1.40 | |||||
Exercised |
— | $ | — | |||||
Forfeited |
(1,699,370 | ) | $ | 3.69 | ||||
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Outstanding December 31, 2014 |
8,594,432 | $ | 2.66 | |||||
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Vested and unvested options expected to vest as of December 31, 2014 |
8,188,766 | $ | 2.70 |
A summary of the outstanding RSUs as of December 31, 2014, and changes during the year then ended is presented below:
Shares | Weighted Average Grant-Date Fair Value per Share |
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Unvested at December 31, 2013 |
496,397 | $ | 2.59 | |||||
Granted |
828,000 | $ | 1.42 | |||||
Vested |
(346,164 | ) | $ | 2.30 | ||||
Cancelled |
(18,167 | ) | $ | 1.58 | ||||
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Unvested at December 31, 2014 |
960,066 | $ | 1.70 | |||||
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The following table sets forth activity in the restructuring liability for the year ended December 31, 2014, which is wholly comprised of employee severance costs (in thousands):
Accrued Employee Termination Benefits |
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Balance at December 31, 2013 |
$ | 281 | ||
Accruals |
— | |||
Payments |
$ | (281 | ) | |
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Balance at December 31, 2014 |
$ | — | ||
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Deferred Tax Assets |
2014 | 2013 | ||||||
Net operating losses |
$ | 85,510 | $ | 82,753 | ||||
Credit carryovers |
19,903 | 19,903 | ||||||
Depreciation and amortization |
14,922 | 12,915 | ||||||
Accruals and reserves |
808 | 322 | ||||||
Capital loss carryover |
100 | 100 | ||||||
Other |
3,660 | 3,808 | ||||||
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Total deferred tax assets |
124,903 | 119,801 | ||||||
Less valuation allowance |
(124,903 | ) | (119,801 | ) | ||||
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Net deferred tax assets |
$ | — | $ | — | ||||
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The reconciliation between the provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate were as follows for the years ended December 31 (in thousands):
2014 | 2013 | 2012 | ||||||||||
Computed “expected” tax benefit |
$ | (5,607 | ) | $ | (10,621 | ) | $ | (7,712 | ) | |||
State income taxes, net of federal benefit |
(444 | ) | (1,947 | ) | 451 | |||||||
Tax effect of: |
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Change in valuation allowance |
5,102 | 13,074 | (37,179 | ) | ||||||||
Expiration of prior year credits and net operating losses |
675 | (237 | ) | 45,382 | ||||||||
Research and development and other tax credits carryovers |
— | (672 | ) | (1,097 | ) | |||||||
Stock compensation |
274 | 337 | 358 | |||||||||
Other |
— | 66 | (203 | ) | ||||||||
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Provision for income taxes |
$ | — | $ | — | $ | — | ||||||
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The following is a summary of the Company’s (unaudited) quarterly results of operations for the years ended December 31 (in thousands, except per share amounts):
2014: |
March 31, | June 30, | Sept. 30, | Dec. 31, | ||||||||||||
Total revenues |
$ | 2,447 | $ | 4,505 | $ | 3,442 | $ | 4,823 | ||||||||
Total operating expenses |
5,930 | 8,570 | 7,838 | 9,505 | ||||||||||||
Net loss |
(3,455 | ) | (4,040 | ) | (4,364 | ) | (4,633 | ) | ||||||||
Basic and diluted net loss per share(1) |
(0.04 | ) | (0.05 | ) | (0.05 | ) | (0.05 | ) | ||||||||
2013: |
March 31, | June 30, | Sept. 30, | Dec. 31, | ||||||||||||
Total revenues |
$ | 1,574 | $ | 1,456 | $ | 1,543 | $ | 3,145 | ||||||||
Total operating expenses |
10,881 | 11,299 | 11,523 | 5,367 | ||||||||||||
Net income (loss) |
(9,282 | ) | (9,881 | ) | (9,883 | ) | (2,192 | ) | ||||||||
Basic and diluted net loss per share(1) |
(0.11 | ) | (0.11 | ) | (0.11 | ) | (0.03 | ) |
(1) |
Net income (loss) per share is computed independently for each quarter and the full year based upon respective shares outstanding. Therefore, the sum of the quarterly loss per share amounts may not equal the annual amounts reported. |
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