SIENTRA, INC., 10-Q filed on 11/21/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Nov. 3, 2014
Document and Entity Information
 
 
Entity Registrant Name
Sientra, Inc. 
 
Entity Central Index Key
0001551693 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
No 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
14,912,613 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 19,816 
$ 9,722 
Accounts receivable, net of allowances of $10,452 and $8,543 at September 30, 2014 and December 31, 2013, respectively
4,317 
6,111 
Inventories, net
19,247 
21,533 
Prepaid expenses and other current assets
3,782 
884 
Total current assets
47,162 
38,250 
Property and equipment, net
449 
254 
Goodwill
14,278 
14,278 
Other intangible assets, net
138 
207 
Other assets
248 
177 
Total assets
62,275 
53,166 
Current liabilities:
 
 
Current portion of long-term debt
1,487 
 
Accounts payable
2,589 
4,768 
Accrued and other current liabilities
4,593 
4,065 
Customer deposits
7,258 
4,908 
Total current liabilities
15,927 
13,741 
Long-term debt, net of current portion
23,817 
15,092 
Warranty reserve and other long-term liabilities
985 
550 
Total liabilities
40,729 
29,383 
Commitments and contingencies (note 10)
   
   
Convertible preferred stock, $0.01 par value - Authorized, issued and outstanding 24,593,087 shares at September 30, 2014 and December 31, 2013 (Liquidation preference of $151,000 as of September 30, 2014 and December 31, 2013)
150,456 
150,456 
Stockholders' deficit:
 
 
Common stock, $0.01 par value - Authorized 30,200,000 shares; Issued 282,071 and 279,879 and outstanding 209,344 and 207,152 shares at September 30, 2014 and December 31, 2013, respectively
Additional paid-in capital
2,196 
1,819 
Treasury stock, at cost (72,727 shares at September 30, 2014 and December 31, 2013)
(260)
(260)
Accumulated deficit
(130,849)
(128,235)
Total stockholders' deficit
(128,910)
(126,673)
Total liabilities, convertible preferred stock and stockholders' deficit
$ 62,275 
$ 53,166 
Condensed Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Condensed Balance Sheets
 
 
Accounts receivable, allowances (in dollars)
$ 10,452 
$ 8,543 
Convertible preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Convertible preferred stock, shares authorized
24,593,087 
24,593,087 
Convertible preferred stock, shares issued
24,593,087 
24,593,087 
Convertible preferred stock, shares outstanding
24,593,087 
24,593,087 
Liquidation preference (in dollars)
$ 151,000 
$ 151,000 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized
30,200,000 
30,200,000 
Common stock, shares issued
282,071 
279,879 
Common stock, shares outstanding
209,344 
207,152 
Treasury stock, shares
72,727 
72,727 
Condensed Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Condensed Statements of Operations
 
 
 
 
Net sales
$ 10,670 
$ 7,981 
$ 32,617 
$ 25,921 
Cost of goods sold
2,832 
1,968 
8,287 
6,352 
Gross profit
7,838 
6,013 
24,330 
19,569 
Operating expenses:
 
 
 
 
Sales and marketing
4,711 
4,704 
16,574 
15,501 
Research and development
1,246 
1,234 
3,551 
3,400 
General and administrative
2,634 
6,304 
7,542 
16,072 
Total operating expenses
8,591 
12,242 
27,667 
34,973 
Loss from operations
(753)
(6,229)
(3,337)
(15,404)
Other (expense) income, net:
 
 
 
 
Interest expense
(665)
(232)
(1,507)
(612)
Other (expense) income, net:
(34)
(14)
2,230 
(34)
Total other (expense) income, net
(699)
(246)
723 
(646)
Loss before income taxes
(1,452)
(6,475)
(2,614)
(16,050)
Net loss
$ (1,452)
$ (6,475)
$ (2,614)
$ (16,050)
Basic and diluted net loss per share attributable to common stockholders (in dollars per share)
$ (6.94)
$ (31.45)
$ (12.53)
$ (66.58)
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:
 
 
 
 
Basic and diluted (in shares)
209,344 
205,901 
208,648 
241,057 
Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities:
 
 
Net loss
$ (2,614)
$ (16,050)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
196 
209 
Provision for sales return reserve
1,973 
3,186 
(Recovery of) provision for doubtful accounts
(64)
 
Provision for warranties
363 
300 
Change in fair value of warrants
135 
34 
Non cash interest expense
350 
137 
Stock-based compensation expense
368 
256 
Changes in assets and liabilities:
 
 
Accounts receivable
(115)
(6,925)
Prepaid expenses, other current assets and other assets
(1,035)
(258)
Inventories
2,285 
(9,031)
Accounts payable
(2,815)
5,732 
Accrued and other liabilities
169 
(369)
Customer deposits
2,350 
4,421 
Net cash provided by (used in) operating activities
1,546 
(18,358)
Cash flows from investing activities:
 
 
Purchase of property and equipment
(320)
(60)
Contingent payment related to Silimed acquisition
 
(18,000)
Net cash used in investing activities
(320)
(18,060)
Cash flows from financing activities:
 
 
Proceeds from exercise of stock options
10 
Repurchase of common stock
 
(260)
Proceeds from issuance of long-term debt
10,000 
10,000 
Deferred financing costs
(148)
(108)
Deferred equity issuance costs
(993)
 
Net cash provided by financing activities
8,868 
9,642 
Net increase (decrease) in cash and cash equivalents
10,094 
(26,776)
Cash and cash equivalents at:
 
 
Beginning of period
9,722 
39,208 
End of period
19,816 
12,432 
Cash paid during the year for:
 
 
Interest
1,052 
410 
Supplemental disclosure of noncash investing activities:
 
 
Accrued deferred equity issuance costs
$ 818 
 
Formation and Business of the Company
Formation and Business of the Company

1.                                      Formation and Business of the Company

 

a.              Formation

 

Sientra, Inc., or the Company, was incorporated in the State of Delaware on August 29, 2003 under the name Juliet Medical, Inc. and subsequently changed its name to Sientra, Inc. in April 2007. The Company acquired substantially all the assets of Silimed, Inc., or Silimed, on April 4, 2007. The purpose of the acquisition was to acquire the rights to the silicone breast implant clinical trials. Following this acquisition, the Company focused on completing the clinical trials to gain Food and Drug Administration, or FDA, approval to offer its silicone gel breast implants in the United States.

 

In March 2012, Sientra announced it had received approval from the FDA for its portfolio of silicone gel breast implants, and in the second quarter of 2012 the Company began commercialization efforts to sell its products in the United States. The Company, based in Santa Barbara, California, is a medical aesthetics company that focuses on serving board-certified plastic surgeons and offers a portfolio of silicone shaped and round breast implants, tissue expanders, and body contouring products.

 

b.              Initial Public Offering

 

The Company completed an initial public offering, or IPO, of its common stock on November 3, 2014. See note 11, Subsequent Events for disclosures related to the IPO and other related transactions.

 

c.               Reverse Stock Split

 

On October 10, 2014, the board of directors and stockholders approved an amendment to the Company’s fourth amended and restated certificate of incorporation, which was filed on October 17, 2014, which effected a 1 for 2.75 reverse stock split of the Company’s issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock, stock options and warrants and the related per share amounts contained in the Company’s condensed financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. Also, as a result of the reverse stock split of the common stock, the conversion ratios for all of the Company’s convertible preferred stock have been adjusted such that the preferred stock are now convertible into shares of common stock at a conversion rate of 2.75-to-1 instead of 1-to-1. The number of issued and outstanding shares of preferred stock and their related per share amounts have not been affected by the reverse stock split and therefore have not been adjusted in the Company’s condensed financial statements. However, to the extent that the convertible preferred stock are presented on an as converted to common stock basis, such share and per share amounts contained in the Company’s financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

 

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2.                                      Summary of Significant Accounting Policies

 

a.              Basis of Presentation

 

The accompanying unaudited condensed financial statements in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC.  Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial reporting.   The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s final prospectus filed pursuant to Rule 424(b)(1) under the Securities and Exchange Act of 1933, as amended, relating to the Company’s Registration Statement on Form S-1 (File No. 333-198837), filed with the SEC. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014, any other interim periods, or any future year or period.

 

b.              Use of Estimates

 

The preparation of the condensed financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

c.               Significant Accounting Policies

 

There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2014, as compared to the significant accounting policies described in Note 3 of the “Notes to Financial Statements” in the Company’s audited financial statements included in the final prospectus filed with the SEC on October 29, 2014 other than those listed below.

 

Deferred Equity Issuance Costs

 

Deferred equity issuance costs, primarily consisting of legal, accounting and other direct fees and costs relating to the IPO, are capitalized. The deferred equity issuance costs were offset against the IPO proceeds upon the closing of the offering in November 2014. As of September 30, 2014, there was $1,811 in deferred equity issuance costs capitalized in other current assets on the condensed balance sheet. There were no deferred equity issuance costs capitalized as of December 31, 2013.

 

d.              Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued accounting standard update 2014-09, Revenue from Contracts with Customers.  The standard was issued to provide a single framework that replaces existing industry and transaction specific US GAAP with a five step analysis of transactions to determine when and how revenue is recognized.  This accounting standard updated will be effective for the Company beginning in fiscal year 2018.  The Company is currently assessing the impact that the standard will have on the financial statements upon adoption of the guidance.

 

In August 2014, the FASB issued accounting standard update 2014-15, Presentation of Financial Statement — Going Concern.  The standard was issued to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  This accounting standard updated will be effective for the Company beginning in fiscal year 2016.  The Company anticipates there will be no impact on its financial statement upon adoption of this guidance.

 

Fair Value of Financial Instruments
Fair Value of Financial Instruments

3.                                      Fair Value of Financial Instruments

 

The Company has estimated the fair value of its financial instruments using the following methods and assumptions:

 

·                                          Cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and customer deposits are carried at cost, which approximates fair value because of the short term nature of those instruments.

 

·                                          Long-term debt is included in the balance sheet at its amortized cost.  The carrying value of the long-term debt approximates its fair value.  The fair value of the Company’s long-term debt was determined based on the relative timing of the instruments, all under substantially the same terms, including the issuance of each of the three tranches (tranche A, B, and C) drawn in 2013.  In addition, tranches B and C were made available to the Company based on the Company meeting certain performance milestones.  Furthermore, on June 30, 2014, the Company negotiated with Oxford Finance LLC, or Oxford, to amend the Loan and Security Agreement and raise an additional $10,000 in a fourth tranche (tranche D).  The terms for tranche D were substantially the same as for the prior tranches (see Note 8).  Based upon this, for December 31, 2013 and September 30, 2014, the Company has determined the carrying value closely approximates the fair value.

 

Fair Value Measurements
Fair Value Measurements

4.                                      Fair Value Measurements

 

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

·                     Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

·                     Level 2 — Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

·                     Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

 

The Company’s common stock warrant liabilities are carried at fair value determined according to the fair value hierarchy described above. The Company has utilized an option pricing valuation model to determine the fair value of its outstanding common stock warrant liabilities. The inputs to the model include fair value of the common stock related to the warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. The Company determines the fair value per share of the underlying common stock by taking into consideration its most recent sale of its convertible preferred stock, the occurrence of the initial public offering, as well as additional factors that the Company deems relevant. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends. As several significant inputs are not observable, the overall fair value measurement of the warrants is classified as Level 3.

 

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 and indicate the level of the fair value hierarchy utilized to determine such fair value:

 

 

 

Fair Value Measurements as of

 

 

 

September 30, 2014 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

335

 

335

 

 

 

 

Fair Value Measurements as of

 

 

 

December 31, 2013 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

90

 

90

 

 

The following table provides a rollforward of the aggregate fair values of the Company’s common stock warrants for which fair value is determined by Level 3 inputs:

 

Balance, December 31, 2013

 

$

90

 

Fair value of warrants upon issuance during 2014

 

110

 

Increase in fair value through September 30, 2014

 

135

 

Balance, September 30, 2014

 

335

 

 

Product Warranties
Product Warranties

5.                                      Product Warranties

 

The Company offers a limited warranty and a lifetime product replacement program for the Company’s silicone gel breast implants. Under the limited warranty program, the Company will reimburse patients for certain out-of-pocket costs related to revision surgeries performed within ten years from the date of implantation in a covered event. Under the lifetime product replacement program, the Company provides no-charge replacement breast implants under a covered event. The programs are available to all patients implanted with the Company’s silicone breast implants after April 1, 2012 and are subject to the terms, conditions, claim procedures, limitations and exclusions. Timely completion of a device tracking and warranty enrollment form by the patient’s Plastic Surgeon is required to activate the programs and for the patient to be able to receive benefits under either program.

 

The Company accrued for warranties issued during the three months ended September 30, 2014 and 2013 in the amounts of $117 and $97, respectively, and accrued for warranties issued during the nine months ended September 30, 2014 and 2013 in the amounts of $363 and $300, respectively.  As of September 30, 2014 and December 31, 2013, the Company held total warranty liabilities of $878 and $515, respectively.

 

Net Loss Per Share
Net Loss Per Share

6.                                      Net Loss Per Share

 

Basic loss per share attributable to common stockholders is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise of stock options and warrants (using the treasury stock method), and the weighted average conversion of the convertible preferred stock into shares of common stock (using the if-converted method). Dilutive loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive.

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net loss

 

$

(1,452

)

(6,475

)

(2,614

)

(16,050

)

Weighted average common shares outstanding, basic and diluted

 

209,344

 

205,901

 

208,648

 

241,057

 

Net loss per share attributable to common stockholders

 

(6.94

)

(31.45

)

(12.53

)

(66.58

)

 

The Company excluded the following potentially dilutive securities, outstanding as of September 30, 2014 and 2013, from the computation of diluted net loss per share attributable to common stockholders for the three months and nine months ended September 30, 2014 and 2013 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Stock options to purchase common stock

 

 

 

 

 

1,631,922

 

1,409,408

 

Warrants for the purchase of common stock

 

 

 

 

 

47,710

 

20,446

 

Convertible preferred stock
(as converted to common stock)

 

 

 

 

 

8,942,925

 

8,942,925

 

 

 

 

 

 

 

10,622,557

 

10,372,779

 

 

Balance Sheet Components
Balance Sheet Components

7.                                      Balance Sheet Components

 

a.              Allowance for Sales Returns and Doubtful Accounts

 

The Company has established an allowance for sales returns of $10,243 and $8,270 as of September 30, 2014 and December 31, 2013, respectively, recorded net against accounts receivable in the balance sheet.

 

The Company has established an allowance for doubtful accounts of $209 and $273 as of September 30, 2014 and December 31, 2013, respectively, recorded net against accounts receivable in the balance sheet.

 

b.              Property and Equipment

 

Property and equipment, net consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Leasehold improvements

 

$

58

 

19

 

Computer equipment

 

202

 

183

 

Software

 

85

 

85

 

Office equipment

 

139

 

128

 

Furniture and fixtures

 

708

 

456

 

 

 

1,192

 

871

 

Less accumulated depreciation and amortization

 

(743

)

(617

)

 

 

$

449

 

254

 

 

Depreciation expense for the three months ended September 30, 2014 and 2013 was $47 and $38, respectively. Depreciation expense for the nine month ended September 30, 2014 and 2013 was $126 and $110, respectively.

 

c.               Goodwill and Other Intangible Assets, net

 

The goodwill on the condensed balance sheets was $14,278 for all periods presented.

 

The components of the Company’s intangible assets are as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Acquired FDA non-gel product approval

 

$

1,713

 

1,713

 

Less accumulated amortization

 

(1,575

)

(1,506

)

 

 

$

138

 

207

 

 

Amortization expense for the three months ended September 30, 2014 and 2013 was $23 and $33, respectively. Amortization expense for the nine months ended September 30, 2014 and 2013 was $70 and $99, respectively.

 

d.              Accrued and Other Current Liabilities

 

Accrued and other current liabilities consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Accrued clinical trial and research and development expenses

 

$

180

 

166

 

Audit, consulting and legal fees

 

181

 

124

 

Payroll and related expenses

 

2,039

 

1,890

 

Accrued commission

 

1,081

 

1,563

 

Other

 

1,112

 

322

 

 

 

$

4,593

 

4,065

 

 

Long-term Debt
Long-term Debt

8.                                      Long-term Debt

 

On January 17, 2013, the Company entered into a Loan and Security Agreement, or the Original Term Loan Agreement, with Oxford providing for a $15,000 term loan facility consisting of original term loans of (i) a $7,500 tranche A term loan, (ii) a $2,500 tranche B term loan and (iii) a $5,000 tranche C term loan, maturing on February 1, 2017.  The term loan facility is collateralized by a first-priority security interest in substantially all of the Company’s assets.  Borrowings under the term loan facility bear interest at a rate equal to 8.4% per annum and the Original Term Loan Agreement provides for interest-only payments through June 30, 2015.  The term loans include an additional lump sum payment of $975 due on February 1, 2017.

 

On June 30, 2014, the Company entered into the Amended and Restated Loan and Security Agreement, or the Amended Term Loan Agreement, with Oxford, under which the interest-only period for the original term loans was extended to August 1, 2015 and raised an additional $10,000 in a fourth tranche (tranche D) maturing on January 1, 2019. The term loans are collateralized by a first-priority security interest in substantially all of the Company’s assets. The term loans bear interest at a rate equal to 8.4% per annum. The interest-only period for the tranche A, B and C term loans ends on August 1, 2015 and the interest-only period for the tranche D term loan ends on the same date, but with a possible extension of another year if the Company raises at least $50,000 in gross proceeds as part of an initial public offering before June 30, 2015 (see Note 11). The tranche D term loan includes an additional lump sum payment of $650 due on January 1, 2019.

 

The Amended Term Loan Agreement contains various negative and affirmative covenants, including certain restrictive covenants that limit the Company’s ability to transfer or dispose of certain assets, engage in new lines of business, change the composition of Company management, merge with or acquire other companies, incur additional debt, create new liens and encumbrances, pay dividends or subordinated debt and enter into material transactions with affiliates, among others. The Amended Term Loan Agreement also contains financial reporting requirements.

 

The aggregate maturities of long-term debt as of September 30, 2014 are: $0 in the remaining three months of 2014, $3,757 in 2015, $11,094 in 2016, $5,558 in 2017, $4,223 in 2018 and $368 in 2019.

 

In connection with the Original Term Loan Agreement and the Amended Term Loan Agreement, the Company issued to Oxford (i) seven-year warrants in January 2013 to purchase shares of the Company’s common stock with a value equal to 3.0% of the tranche A, B and C term loans amounts and (ii) seven-year warrants in June 2014 to purchase shares of the Company’s common stock with a value equal to 2.5% of the tranche D term loan amount.  The warrants have an exercise price per share equal to the lesser of (i) the Series C preferred stock conversion price of $14.671 per share or (ii) the price per share in a subsequent qualified round of financing where gross proceeds are greater than $10,000.

 

The fair value of the warrants at September 30, 2014 and December 31, 2013 was $335 and $90, respectively, and was recorded in accrued and other current liabilities in the balance sheet. The Company recognized changes in the fair value of these warrants amounting to $42 and $14 in other (expense) income, net in the statements of operations for the three months ended September 30, 2014 and 2013, respectively, and $135 and $34 for the nine months ended September 30, 2014 and 2013, respectively.

 

Stockholders' Deficit
Stockholders' Deficit

9.                                      Stockholders’ Deficit

 

a.              Convertible Preferred Stock

 

Under the Company’s certificate of incorporation, as amended, the Company’s convertible preferred stock is issued in three series: A, B and C. At September 30, 2014 and December 31, 2013, the Company’s convertible preferred stock consists of the following:

 

 

 

 

 

 

 

Proceeds

 

 

 

 

 

 

 

 

 

 

 

net of

 

 

 

 

 

 

 

Shares

 

 

 

issuance

 

Liquidation

 

Issue

 

Series

 

authorized

 

Outstanding

 

costs

 

value

 

Date

 

A

 

1,000,000

 

1,000,000

 

$

994

 

1,000

 

October 2006

 

B

 

11,409,397

 

11,409,397

 

84,909

 

85,000

 

April 2007 and October 2008

 

C

 

12,183,690

 

12,183,690

 

64,553

 

65,000

 

March 2012

 

 

 

24,593,087

 

24,593,087

 

$

150,456

 

151,000

 

 

 

 

b.              Common Stock

 

The Company’s certificate of incorporation, as amended, authorizes the Company to issue 30,200,000 shares of $0.01 par value common stock. At September 30, 2014 and December 31, 2013, the Company has reserved sufficient shares of common stock for issuance upon conversion of convertible preferred stock and exercise of stock options. Common stockholders are entitled to dividends when and if declared by the board of directors. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.

 

c.               Stock Option Plan

 

In April 2007, the Company adopted the 2007 Equity Incentive Plan, or the 2007 Plan. The 2007 Plan provides for the granting of stock options to employees, directors and consultants of the Company. Options granted under the 2007 Plan may either be incentive stock options or nonstatutory stock options. Incentive stock options, or ISOs, may be granted only to Company employees. Nonstatutory stock options, or NSOs, may be granted to all eligible recipients. A total of 1,690,448 shares of the Company’s common stock were reserved for issuance for the 2007 Plan.

 

Options under the 2007 Plan may be granted for periods of up to ten years as determined by the board of directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a more than 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. An NSO has no such exercise price limitations. The options generally vest over four years. The vesting provisions of individual options may vary but provide for vesting of at least 25% per year.

 

The following summarizes all option activity under the 2007 Equity Incentive Plan:

 

 

 

 

 

Options outstanding

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

Options

 

 

 

Weighted

 

average

 

 

 

available

 

 

 

average

 

remaining

 

 

 

for

 

Number

 

exercise

 

contractual term

 

 

 

grant

 

of options

 

price

 

(years)

 

Balances at December 31, 2013

 

260,980

 

1,422,315

 

$

2.67

 

5.76

 

Additional shares authorized

 

 

 

 

 

 

 

Options granted

 

(224,707

)

224,707

 

11.70

 

 

 

Options exercised

 

 

(2,193

)

3.99

 

 

 

Options forfeited

 

12,907

 

(12,907

)

3.95

 

 

 

Balances at September 30, 2014

 

49,180

 

1,631,922

 

$

3.90

 

5.63

 

 

For stock-based awards the Company recognizes compensation expense based on the grant date fair value using the Black-Scholes option valuation model.  Stock-based compensation expense was $169 and $85 for the three months ended September 30, 2014 and 2013, respectively. Stock-based compensation expense was $368 and $256 for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $1,784 of unrecognized compensation costs related to stock options. The expense is recorded within the operating expense captions in the statement of operations based on the employees receiving the awards.  These costs are expected to be recognized over weighted average period of 2.84 years.

 

Commitments and Contingencies
Commitments and Contingencies

10.                               Commitments and Contingencies

 

a.              Operating Leases

 

The Company’s general office facility in Santa Barbara, California, lease expires in February 2020. The Company also has warehouse leases for additional general office, warehouse and research and development.   Rent expense was $152 and $84 for the three months ended September 30, 2014 and 2013, respectively, and $332 and $256 for the nine months ended September 30, 2014 and 2013, respectively. The Company recognizes rent expense on a straight-line basis over the lease term.

 

b.              Contingencies

 

The Company is subject to claims and assessment from time to time in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no contingent liabilities requiring accrual at September 30, 2014.

 

On March 27, 2012, Mentor Worldwide LLC, or Mentor, a wholly owned subsidiary of Johnson & Johnson, filed thirteen lawsuits against fifteen employees of the Company (all former Mentor employees) and, on June 8, 2012, filed a fourteenth lawsuit against the Company and an additional employee.  In general, these fourteen lawsuits alleged that the former employees of Mentor breached their confidentiality and non-compete agreements when they resigned in favor of employment with the Company; misappropriated confidential Mentor information and trade secrets; and breached their respective duties of loyalty.  Although not a party to thirteen employee lawsuits, the Company provided for the defense of its employees in the lawsuits.  In the employee lawsuits, all of Mentor’s claims for Preliminary Injunctive Relief were denied.  Following that, some of the employee lawsuits were dismissed with prejudice and others dismissed without prejudice.  On October 3, 2013, the last of the thirteen employee lawsuits was dismissed.

 

In the sole lawsuit against the Company, the Company and its employee prevailed at trial with verdicts of “no liability” rendered by the jury and judge.  Final judgment in this case was entered on October 3, 2013 with the plaintiff ordered to reimburse defendants for certain court costs, and in 2014, Mentor waived its right to appeal.

 

In 2012, the Company filed a claim with the Hartford Insurance Company, or Hartford, for reimbursement of legal costs incurred in connection with litigation with Mentor.  The Company held a D&O insurance policy with Hartford, and the Company and Hartford settled the matter in May of 2014.  The Company received settlement payments from Hartford and recovery of costs associated with the Mentor litigation of $0 and $0 for the three months ended September 30, 2014 and 2013, respectively, and $2,358 and $0 for the nine months ended September 2014 and 2013, respectively.

 

Subsequent Events
Subsequent Events

11.                               Subsequent Events

 

a.              Reverse Stock Split

 

On October 10, 2014, the board of directors and stockholders approved an amendment to the Company’s fourth amended and restated certificate of incorporation, which was filed on October 17, 2014, which effected a 1 for 2.75 reverse stock split of the Company’s issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock, stock options and warrants and the related per share amounts contained in the Company’s condensed financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. Also, as a result of the reverse stock split of the common stock, the conversion ratios for all of the Company’s convertible preferred stock have been adjusted such that the preferred stock are now convertible into shares of common stock at a conversion rate of 2.75-to-1 instead of 1-to-1. The number of issued and outstanding shares of preferred stock and their related per share amounts have not been affected by the reverse stock split and therefore have not been adjusted in the Company’s condensed financial statements. However, to the extent that the convertible preferred stock are presented on an as converted to common stock basis, such share and per share amounts contained in the Company’s financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

 

b.              Initial Public Offering

 

On November 3, 2014, the Company completed the IPO whereby it sold a total of 5,750,000 shares of common stock at $15.00 per share including 750,000 shares sold to underwriters for the exercise of their option to purchase additional shares.  The Company received net proceeds from the IPO of approximately $77,213, after deducting underwriting discounts and commissions and offering expenses of approximately $9,038.  These expenses will be recorded against the proceeds received from the IPO.

 

The interest-only period for the tranche D term loan was extended from August 1, 2015 to August 1, 2016 as a result of having raised at least $50,000 in gross proceeds in the IPO and the completion of the IPO before June 30, 2015.

 

The outstanding shares of convertible preferred stock were converted on a 2.75-to-1 basis into shares of common stock concurrent with the closing of the IPO. All of the outstanding shares of Series A, Series B and Series C preferred stock converted into 8,942,925 shares of common stock. Following the closing of the IPO, there were no shares of preferred stock outstanding.

 

The accompanying unaudited pro forma balance sheet data as of September 30, 2014 has been prepared to give effect to the automatic conversion of all outstanding shares of convertible preferred stock into 8,942,925 shares of common stock and the issuance of 5,750,000 shares of common stock at a price of $15.00 per share, net of deducting underwriting discounts and estimated offering costs in connection with the closing of this IPO.

 

 

 

As of September 30, 2014 (Unaudited)
(In thousands)

 

Balance sheet data (at end of period):

 

Actual

 

Pro Forma As
Adjusted

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,816

 

97,029

 

Total assets

 

62,275

 

139,488

 

Long-term debt

 

25,304

 

25,304

 

Convertible preferred stock

 

150,456

 

 

Total stockholders’ (deficit) equity

 

(128,910

)

98,759

 

 

c.               2014 Equity Incentive Plan

 

Our board of directors adopted our 2014 Equity Incentive Plan, or 2014 Plan, in July 2014, and our stockholders approved the 2014 Plan in October 2014. The 2014 Plan became effective upon completion of the IPO, at which time the Company ceased making awards under the 2007 Plan. Under the 2014 Plan, the Company may issue ISO, NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards, or collectively, stock awards, all of which may be granted to employees, including officers, non-employee directors and consultants of us and our affiliates. ISOs may be granted only to employees.  A total of 1,027,500 shares of common stock were initially reserved for issuance under the 2014 Plan, subject to certain annual increases.

 

d.              2014 Employee Stock Purchase Plan

 

Our board of directors adopted our 2014 Employee Stock Purchase Plan, or our ESPP, in July 2014, and our stockholders approved the ESPP in October 2014. Our ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code.  The ESPP became effective upon the completion of the IPO. A total of 255,500 shares were initially reserved for issuance under the ESPP, subject to certain annual increases.

 

Summary of Significant Accounting Policies (Policies)

a.              Basis of Presentation

 

The accompanying unaudited condensed financial statements in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC.  Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial reporting.   The interim financial information is unaudited, but reflects all normal adjustments and accruals which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s final prospectus filed pursuant to Rule 424(b)(1) under the Securities and Exchange Act of 1933, as amended, relating to the Company’s Registration Statement on Form S-1 (File No. 333-198837), filed with the SEC. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014, any other interim periods, or any future year or period.

 

b.              Use of Estimates

 

The preparation of the condensed financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

c.               Significant Accounting Policies

 

There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2014, as compared to the significant accounting policies described in Note 3 of the “Notes to Financial Statements” in the Company’s audited financial statements included in the final prospectus filed with the SEC on October 29, 2014 other than those listed below.

 

Deferred Equity Issuance Costs

 

Deferred equity issuance costs, primarily consisting of legal, accounting and other direct fees and costs relating to the IPO, are capitalized. The deferred equity issuance costs were offset against the IPO proceeds upon the closing of the offering in November 2014. As of September 30, 2014, there was $1,811 in deferred equity issuance costs capitalized in other current assets on the condensed balance sheet. There were no deferred equity issuance costs capitalized as of December 31, 2013.

 

d.              Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued accounting standard update 2014-09, Revenue from Contracts with Customers.  The standard was issued to provide a single framework that replaces existing industry and transaction specific US GAAP with a five step analysis of transactions to determine when and how revenue is recognized.  This accounting standard updated will be effective for the Company beginning in fiscal year 2018.  The Company is currently assessing the impact that the standard will have on the financial statements upon adoption of the guidance.

 

In August 2014, the FASB issued accounting standard update 2014-15, Presentation of Financial Statement — Going Concern.  The standard was issued to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  This accounting standard updated will be effective for the Company beginning in fiscal year 2016.  The Company anticipates there will be no impact on its financial statement upon adoption of this guidance.

 

Fair Value Measurements (Tables)

 

 

 

Fair Value Measurements as of

 

 

 

September 30, 2014 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

335

 

335

 

 

 

 

Fair Value Measurements as of

 

 

 

December 31, 2013 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

90

 

90

 

 

 

 

Balance, December 31, 2013

 

$

90

 

Fair value of warrants upon issuance during 2014

 

110

 

Increase in fair value through September 30, 2014

 

135

 

Balance, September 30, 2014

 

335

 

 

Net Loss Per Share (Tables)

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net loss

 

$

(1,452

)

(6,475

)

(2,614

)

(16,050

)

Weighted average common shares outstanding, basic and diluted

 

209,344

 

205,901

 

208,648

 

241,057

 

Net loss per share attributable to common stockholders

 

(6.94

)

(31.45

)

(12.53

)

(66.58

)

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Stock options to purchase common stock

 

 

 

 

 

1,631,922

 

1,409,408

 

Warrants for the purchase of common stock

 

 

 

 

 

47,710

 

20,446

 

Convertible preferred stock
(as converted to common stock)

 

 

 

 

 

8,942,925

 

8,942,925

 

 

 

 

 

 

 

10,622,557

 

10,372,779

 

 

Balance Sheet Components (Tables)

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Leasehold improvements

 

$

58

 

19

 

Computer equipment

 

202

 

183

 

Software

 

85

 

85

 

Office equipment

 

139

 

128

 

Furniture and fixtures

 

708

 

456

 

 

 

1,192

 

871

 

Less accumulated depreciation and amortization

 

(743

)

(617

)

 

 

$

449

 

254

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Acquired FDA non-gel product approval

 

$

1,713

 

1,713

 

Less accumulated amortization

 

(1,575

)

(1,506

)

 

 

$

138

 

207

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Accrued clinical trial and research and development expenses

 

$

180

 

166

 

Audit, consulting and legal fees

 

181

 

124

 

Payroll and related expenses

 

2,039

 

1,890

 

Accrued commission

 

1,081

 

1,563

 

Other

 

1,112

 

322

 

 

 

$

4,593

 

4,065

 

 

Stockholders' Deficit (Tables)

 

 

 

 

 

 

 

Proceeds

 

 

 

 

 

 

 

 

 

 

 

net of

 

 

 

 

 

 

 

Shares

 

 

 

issuance

 

Liquidation

 

Issue

 

Series

 

authorized

 

Outstanding

 

costs

 

value

 

Date

 

A

 

1,000,000

 

1,000,000

 

$

994

 

1,000

 

October 2006

 

B

 

11,409,397

 

11,409,397

 

84,909

 

85,000

 

April 2007 and October 2008

 

C

 

12,183,690

 

12,183,690

 

64,553

 

65,000

 

March 2012

 

 

 

24,593,087

 

24,593,087

 

$

150,456

 

151,000

 

 

 

 

 

 

 

 

Options outstanding

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

Options

 

 

 

Weighted

 

average

 

 

 

available

 

 

 

average

 

remaining

 

 

 

for

 

Number

 

exercise

 

contractual term

 

 

 

grant

 

of options

 

price

 

(years)

 

Balances at December 31, 2013

 

260,980

 

1,422,315

 

$

2.67

 

5.76

 

Additional shares authorized

 

 

 

 

 

 

 

Options granted

 

(224,707

)

224,707

 

11.70

 

 

 

Options exercised

 

 

(2,193

)

3.99

 

 

 

Options forfeited

 

12,907

 

(12,907

)

3.95

 

 

 

Balances at September 30, 2014

 

49,180

 

1,631,922

 

$

3.90

 

5.63

 

Subsequent Events (Tables)
Schedule of pro forma balance sheet

 

 

 

As of September 30, 2014 (Unaudited)
(In thousands)

 

Balance sheet data (at end of period):

 

Actual

 

Pro Forma As
Adjusted

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,816

 

97,029

 

Total assets

 

62,275

 

139,488

 

Long-term debt

 

25,304

 

25,304

 

Convertible preferred stock

 

150,456

 

 

Total stockholders’ (deficit) equity

 

(128,910

)

98,759

 

 

Formation and Business of the Company (Details) (Subsequent events)
0 Months Ended
Oct. 10, 2014
Subsequent events
 
Conversion rate
0.364 
Summary of Significant Accounting Policies (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Summary of Significant Accounting Policies
 
 
Deferred equity issuance costs
$ 1,811 
$ 0 
Fair Value of Financial Instruments (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended
Jan. 17, 2013
Term loan agreement
item
Jan. 17, 2013
Term loan agreement
Jun. 30, 2014
Tranche D term loan
Long-term Debt
 
 
 
Number of tranches
 
 
Face amount
 
$ 15,000 
$ 10,000 
Fair Value Measurements (Details) (Warrants, USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Recurring
Dec. 31, 2013
Recurring
Sep. 30, 2014
Recurring
Level 3
Dec. 31, 2013
Recurring
Level 3
Fair Value Measurements
 
 
 
 
 
Estimated dividend yield
0.00% 
 
 
 
 
Liabilities
 
$ 335 
$ 90 
$ 335 
$ 90 
Fair Value Measurements (Details 2) (Warrants, USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Warrants
 
Fair values of the Company's common stock warrants determined by Level 3 inputs
 
Balance at beginning of the period
$ 90 
Fair value upon issuance
110 
Increase in fair value
135 
Balance at the end of the period
$ 335 
Product Warranties (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Product Warranties
 
 
 
 
 
Period to claim reimbursement under limited warranty program
 
 
10 years 
 
 
Warranties issued
$ 117 
$ 97 
$ 363 
$ 300 
 
Total warranty liabilities
$ 878 
 
$ 878 
 
$ 515 
Net Loss Per Share (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net loss per share
 
 
 
 
Net loss
$ (1,452)
$ (6,475)
$ (2,614)
$ (16,050)
Weighted average common shares outstanding, basic and diluted
209,344 
205,901 
208,648 
241,057 
Net loss per share attributable to common stockholders
$ (6.94)
$ (31.45)
$ (12.53)
$ (66.58)
Potentially dilutive securities
 
 
 
 
Potentially dilutive securities
 
 
10,622,557 
10,372,779 
Stock options to purchase common stock
 
 
 
 
Potentially dilutive securities
 
 
 
 
Potentially dilutive securities
 
 
1,631,922 
1,409,408 
Warrants for the purchase of common stock
 
 
 
 
Potentially dilutive securities
 
 
 
 
Potentially dilutive securities
 
 
47,710 
20,446 
Convertible preferred stock
 
 
 
 
Potentially dilutive securities
 
 
 
 
Potentially dilutive securities
 
 
8,942,925 
8,942,925 
Balance Sheet Components (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Balance Sheet Components
 
 
 
 
 
Allowance for sales returns
$ 10,243 
 
$ 10,243 
 
$ 8,270 
Allowance for doubtful accounts
209 
 
209 
 
273 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
1,192 
 
1,192 
 
871 
Less accumulated depreciation and amortization
(743)
 
(743)
 
(617)
Property and equipment, net
449 
 
449 
 
254 
Depreciation expense
47 
38 
126 
110 
 
Leasehold improvements
 
 
 
 
 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
58 
 
58 
 
19 
Computer equipment
 
 
 
 
 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
202 
 
202 
 
183 
Software
 
 
 
 
 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
85 
 
85 
 
85 
Office equipment
 
 
 
 
 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
139 
 
139 
 
128 
Furniture and fixtures
 
 
 
 
 
Property and equipment, net
 
 
 
 
 
Property and equipment, gross
$ 708 
 
$ 708 
 
$ 456 
Balance Sheet Components (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Goodwill and intangible assets
 
 
 
 
 
Goodwill
$ 14,278 
 
$ 14,278 
 
$ 14,278 
Intangible assets, net
138 
 
138 
 
207 
Amortization expense
23 
33 
70 
99 
 
Accrued and Other Current Liabilities
 
 
 
 
 
Accrued clinical trial and research and development expenses
180 
 
180 
 
166 
Audit, consulting and legal fees
181 
 
181 
 
124 
Payroll and related expenses
2,039 
 
2,039 
 
1,890 
Accrued commission
1,081 
 
1,081 
 
1,563 
Other
1,112 
 
1,112 
 
322 
Total
4,593 
 
4,593 
 
4,065 
Acquired FDA non-gel product approval
 
 
 
 
 
Goodwill and intangible assets
 
 
 
 
 
Intangible assets, gross
1,713 
 
1,713 
 
1,713 
Less accumulated amortization
$ (1,575)
 
$ (1,575)
 
$ (1,506)
Long-term Debt (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Warrants
Sep. 30, 2013
Warrants
Sep. 30, 2014
Warrants
Sep. 30, 2013
Warrants
Dec. 31, 2013
Warrants
Jan. 17, 2013
Term loan agreement
Jan. 31, 2013
Term loan agreement
Warrants
Jan. 17, 2013
Tranche A term loan
Jan. 31, 2013
Tranche A term loan
Warrants
Jan. 17, 2013
Tranche B term loan
Jan. 31, 2013
Tranche B term loan
Warrants
Jan. 17, 2013
Tranche C term loan
Jan. 31, 2013
Tranche C term loan
Warrants
Jun. 30, 2014
Tranche D term loan
Jun. 30, 2014
Tranche D term loan
Warrants
Long-term Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
 
 
 
$ 15,000 
 
$ 7,500 
 
$ 2,500 
 
$ 5,000 
 
$ 10,000 
 
Interest rate (as a percent)
 
 
 
 
 
 
 
8.40% 
 
 
 
 
 
 
 
8.40% 
 
Additional lump sum payment
 
 
 
 
 
 
 
975 
 
 
 
 
 
 
 
650 
 
Threshold amount of gross proceeds in IPO to determine extended interest period of debt instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50,000 
 
Aggregate maturities of long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining 3 months of 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
3,757 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
11,094 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
5,558 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
4,223 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
368 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term of warrants
 
 
 
 
 
 
 
 
7 years 
 
 
 
 
 
 
 
7 years 
Value of common stock that can be purchased as a percentage of term loan
 
 
 
 
 
 
 
 
 
 
3.00% 
 
3.00% 
 
3.00% 
 
2.50% 
Share price (in dollars per share)
 
 
 
 
 
 
 
 
$ 14.671 
 
 
 
 
 
 
 
 
Minimum gross proceeds to calculate exercise price of warrants
 
 
 
 
 
 
 
 
10,000 
 
 
 
 
 
 
 
 
Fair value of warrants
 
 
335 
 
335 
 
90 
 
 
 
 
 
 
 
 
 
 
Changes in the fair value of warrants
$ 135 
$ 34 
$ 42 
$ 14 
$ 135 
$ 34 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Deficit (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2014
item
Dec. 31, 2013
item
Stockholders' Deficit
 
 
Number of Series in Convertible Preferred Stock
Convertible Preferred Stock
 
 
Shares authorized
24,593,087 
24,593,087 
Outstanding (in shares)
24,593,087 
24,593,087 
Proceeds net of issuance costs
$ 150,456 
$ 150,456 
Liquidation value
151,000 
151,000 
Common Stock
 
 
Common stock, shares authorized
30,200,000 
30,200,000 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Dividends declared
 
Number of votes entitled to each holder of common stock
 
Series A preferred stock
 
 
Convertible Preferred Stock
 
 
Shares authorized
1,000,000 
1,000,000 
Outstanding (in shares)
1,000,000 
1,000,000 
Proceeds net of issuance costs
994 
994 
Liquidation value
1,000 
1,000 
Series B preferred stock
 
 
Convertible Preferred Stock
 
 
Shares authorized
11,409,397 
11,409,397 
Outstanding (in shares)
11,409,397 
11,409,397 
Proceeds net of issuance costs
84,909 
84,909 
Liquidation value
85,000 
85,000 
Series C preferred stock
 
 
Convertible Preferred Stock
 
 
Shares authorized
12,183,690 
12,183,690 
Outstanding (in shares)
12,183,690 
12,183,690 
Proceeds net of issuance costs
64,553 
64,553 
Liquidation value
$ 65,000 
$ 65,000 
Stockholders' Deficit (Details 2) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 30, 2007
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Stock options
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
Common stock reserved for issuance (in shares)
1,690,448 
 
 
 
 
 
Vesting period
4 years 
 
 
 
 
 
Options available for grant
 
 
 
 
 
 
Balance at the beginning of period (in shares)
 
 
 
260,980 
 
 
Options granted (in shares)
 
 
 
(224,707)
 
 
Options forfeited (in shares)
 
 
 
12,907 
 
 
Balance at the end of the period (in shares)
 
49,180 
 
49,180 
 
260,980 
Number of options
 
 
 
 
 
 
Balance at the beginning of period (in shares)
 
 
 
1,422,315 
 
 
Options granted (in shares)
 
 
 
224,707 
 
 
Options exercised (in shares)
 
 
 
(2,193)
 
 
Options forfeited (in shares)
 
 
 
(12,907)
 
 
Balance at the end of the period (in shares)
 
1,631,922 
 
1,631,922 
 
1,422,315 
Weighted average exercise price
 
 
 
 
 
 
Balance at the beginning of period (in dollars per share)
 
 
 
$ 2.67 
 
 
Options granted (in dollars per share)
 
 
 
$ 11.70 
 
 
Options exercised (in dollars per share)
 
 
 
$ 3.99 
 
 
Options forfeited (in dollars per share)
 
 
 
$ 3.95 
 
 
Balance at the end of period (in dollars per share)
 
$ 3.90 
 
$ 3.90 
 
$ 2.67 
Weighted average remaining contractual term
 
 
 
5 years 7 months 17 days 
 
5 years 9 months 4 days 
Additional information
 
 
 
 
 
 
Stock-based compensation expense (in dollars)
 
$ 169 
$ 85 
$ 368 
$ 256 
 
Unrecognized compensation costs (in dollars)
 
$ 1,784 
 
$ 1,784 
 
 
Weighted average period over which unrecognized compensation costs are expected to be recognized
 
 
 
2 years 10 months 2 days 
 
 
Stock options |
Minimum
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
Vesting percentage
25.00% 
 
 
 
 
 
Stock options |
Maximum
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
Grant period of stock awards
10 years 
 
 
 
 
 
Incentive stock options |
Minimum
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
Purchase price of awards expressed as a percentage of fair value of shares on the date of grant
100.00% 
 
 
 
 
 
Incentive stock options |
Minimum |
Shareholder owning more than 10% voting power
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
Purchase price of awards expressed as a percentage of fair value of shares on the date of grant
110.00% 
 
 
 
 
 
Percentage of voting power owned by shareholder
10.00% 
 
 
 
 
 
Commitments and Contingencies (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended 3 Months Ended 9 Months Ended
Oct. 3, 2013
item
Jun. 8, 2012
item
Mar. 27, 2012
item
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Operating Leases
 
 
 
 
 
 
 
Rent expense
 
 
 
$ 152 
$ 84 
$ 332 
$ 256 
Mentor litigation
 
 
 
 
 
 
 
Contingencies
 
 
 
 
 
 
 
Number of lawsuits filed
 
14 
13 
 
 
 
 
Number of employees against which lawsuits is filed
 
 
15 
 
 
 
 
Number of lawsuits dismissed
13 
 
 
 
 
 
 
Settlement payments received
 
 
 
$ 0 
$ 0 
$ 2,358 
$ 0 
Subsequent Events (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Sep. 30, 2013
Dec. 31, 2012
Jun. 30, 2014
Tranche D term loan
Oct. 10, 2014
Subsequent events
Nov. 3, 2014
Subsequent events
Nov. 3, 2014
Subsequent events
2014 Equity Incentive Plan
Nov. 3, 2014
Subsequent events
2014 Employee Stock Purchase Plan
Sep. 30, 2014
Subsequent events
Pro Forma As Adjusted
Nov. 3, 2014
Subsequent events
Common stock
Nov. 3, 2014
Subsequent events
IPO
Common stock
Nov. 3, 2014
Subsequent events
IPO
Common stock
Nov. 3, 2014
Subsequent events
IPO
Warrants
Tranche D term loan
Nov. 3, 2014
Subsequent events
Over allotment option exercised by underwriters
Common stock
Subsequent events
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion rate
 
 
 
 
 
0.364 
 
 
 
 
 
 
 
 
 
Shares issued
 
 
 
 
 
 
 
 
 
 
 
5,750,000 
 
 
750,000 
Initial public offering price (in dollars per share)
 
 
 
 
 
 
 
 
 
 
 
 
$ 15.00 
 
 
Net proceeds after deducting underwriting discounts and commissions and offering expenses
 
 
 
 
 
 
 
 
 
 
 
$ 77,213 
 
 
 
Payment of underwriting discounts and commissions and offering expenses
993 
 
 
 
 
 
 
 
 
 
 
9,038 
 
 
 
Threshold amount of gross proceeds in IPO to determine extended interest period of debt instruments
 
 
 
 
50,000 
 
 
 
 
 
 
 
 
50,000 
 
Shares issued on conversion of Series A, Series B and Series C preferred stock
 
 
 
 
 
 
 
 
 
 
8,942,925 
 
 
 
 
Convertible preferred stock, shares outstanding
24,593,087 
24,593,087 
 
 
 
 
 
 
 
 
 
 
 
 
Balance sheet data (at end of period):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
19,816 
9,722 
12,432 
39,208 
 
 
 
 
 
97,029 
 
 
 
 
 
Total assets
62,275 
53,166 
 
 
 
 
 
 
 
139,488 
 
 
 
 
 
Long-term debt
25,304 
 
 
 
 
 
 
 
 
25,304 
 
 
 
 
 
Total stockholders' (deficit) equity
$ (128,910)
$ (126,673)
 
 
 
 
 
 
 
$ 98,759 
 
 
 
 
 
Common stock reserved for issuance (in shares)
 
 
 
 
 
 
 
1,027,500 
255,500