EXACT SCIENCES CORP, 10-Q filed on 11/2/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Oct. 30, 2012
Document and Entity Information
 
 
Entity Registrant Name
EXACT SCIENCES CORP 
 
Entity Central Index Key
0001124140 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2012 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
63,767,680 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Current Assets:
 
 
Cash and cash equivalents
$ 12,660 
$ 35,781 
Marketable securities
105,912 
57,580 
Prepaid expenses and other current assets
1,252 
1,034 
Total current assets
119,824 
94,395 
Property and Equipment, at cost:
 
 
Laboratory equipment
3,955 
2,314 
Office and computer equipment
825 
729 
Leasehold improvements
283 
288 
Furniture and fixtures
28 
23 
Property and Equipment, gross
5,091 
3,354 
Less-Accumulated depreciation
(1,462)
(796)
Property and Equipment, net
3,629 
2,558 
TOTAL ASSETS
123,453 
96,953 
Current Liabilities:
 
 
Accounts payable
1,030 
765 
Accrued expenses
4,084 
3,069 
Capital lease obligation, current portion
355 
 
Deferred license fees, current portion
4,143 
4,143 
Total current liabilities
9,612 
7,977 
Long-term debt
1,000 
1,000 
Long-term accrued interest
57 
42 
Capital lease obligation, less current portion
796 
 
Deferred license fees, less current portion
1,331 
4,439 
Commitments and contingencies
   
   
Stockholders' Equity:
 
 
Preferred stock, $0.01 par value Authorized-5,000,000 shares Issued and outstanding-no shares at September 30, 2012 and December 31, 2011
   
   
Common stock, $0.01 par value Authorized-100,000,000 shares Issued and outstanding-63,753,363 and 56,624,763 shares at September 30, 2012 and December 31, 2011
638 
566 
Additional paid-in capital
370,184 
304,767 
Other comprehensive income (loss)
92 
(14)
Accumulated deficit
(260,257)
(221,824)
Total stockholders' equity
110,657 
83,495 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 123,453 
$ 96,953 
Condensed Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Condensed Balance Sheets
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, Authorized shares
5,000,000 
5,000,000 
Preferred stock, Issued shares
Preferred stock, outstanding shares
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, Authorized shares
100,000,000 
100,000,000 
Common stock, Issued shares
63,753,363 
56,624,763 
Common stock, outstanding shares
63,753,363 
56,624,763 
Condensed Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenue:
 
 
 
 
Product royalty fees
 
$ 4 
 
$ 14 
License fees
1,036 
1,035 
3,108 
3,107 
Total revenue
1,036 
1,039 
3,108 
3,121 
Cost of revenue:
 
 
 
 
Product royalty fees
 
 
18 
Gross profit
1,036 
1,033 
3,108 
3,103 
Operating expenses:
 
 
 
 
Research and development
10,491 
6,110 
31,692 
14,296 
General and administrative
2,547 
1,951 
7,085 
5,931 
Sales and marketing
1,006 
815 
2,931 
1,763 
Total operating expenses
14,044 
8,876 
41,708 
21,990 
Loss from operations
(13,008)
(7,843)
(38,600)
(18,887)
Investment income
67 
75 
188 
131 
Interest expense
(11)
(5)
(21)
(15)
Net loss
$ (12,952)
$ (7,773)
$ (38,433)
$ (18,771)
Net loss per share-basic and diluted (in dollars per share)
$ (0.21)
$ (0.15)
$ (0.66)
$ (0.36)
Weighted average common shares outstanding-basic and diluted (in shares)
60,531 
52,443 
58,104 
52,129 
Condensed Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Net loss
$ (12,952)
$ (7,773)
$ (38,433)
$ (18,771)
Unrealized gain (loss) on securities:
 
 
 
 
Unrealized holding gain (loss) on marketable securities
39 
(38)
106 
(51)
Comprehensive loss
$ (12,913)
$ (7,811)
$ (38,327)
$ (18,822)
Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:
 
 
Net loss
$ (38,433)
$ (18,771)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation of property and equipment
666 
262 
Stock-based compensation
4,024 
2,707 
Amortization of deferred license fees
(3,108)
(3,107)
Warrant licensing expense
152 
80 
Restricted stock licensing expense
1,000 
 
Amortization of premium on short-term investments
359 
250 
Changes in assets and liabilities:
 
 
Prepaid expenses and other current assets
(218)
(621)
Accounts payable
265 
(51)
Accrued expenses
1,483 
596 
Accrued interest
15 
15 
Net cash used in operating activities
(33,795)
(18,640)
Cash flows from investing activities:
 
 
Purchases of marketable securities
(90,408)
(71,202)
Maturities of marketable securities
41,823 
17,128 
Purchases of property and equipment
(586)
(1,599)
Net cash used in investing activities
(49,171)
(55,673)
Cash flows from financing activities:
 
 
Proceeds from exercise of common stock options and stock purchase plan
2,090 
556 
Proceeds from sale of common stock, net of issuance costs
57,755 
 
Net cash provided by financing activities
59,845 
556 
Net decrease in cash and cash equivalents
(23,121)
(73,757)
Cash and cash equivalents, beginning of period
35,781 
78,752 
Cash and cash equivalents, end of period
12,660 
4,995 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized gain (loss) on available-for-sale investments
106 
(51)
Issuance of 32,872 and 27,872 shares of common stock to fund the Company's 401(k) matching contribution for 2011 and 2010, respectively
274 
169 
Conversion of accrued expenses into 34,336 and 27,110 shares of common stock in connection with the Company's Employee Stock Purchase Plan for 2012 and 2011, respectively
194 
148 
Laboratory equipment acquired with a capital lease
$ 1,151 
 
Condensed Statements of Cash Flows (Parenthetical)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Condensed Statements of Cash Flows
 
 
Issuance of shares of common stock to fund the Company's 401(k) matching contribution
32,872 
27,872 
Conversion of accrued expenses shares of common stock
34,336 
27,110 
ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND BASIS OF PRESENTATION

(1) ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Exact Sciences Corporation (“Exact,” “we,” “us” or the “Company”) was incorporated in February 1995. Exact is a molecular diagnostics company focused on the early detection and prevention of colorectal cancer. The Company’s non-invasive stool-based DNA (sDNA) screening technology includes proprietary and patented methods that isolate and analyze human DNA present in stool to screen for the presence of colorectal pre-cancer and cancer.

 

Basis of Presentation

 

The accompanying condensed financial statements of the Company are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K (the “2011 Form 10-K”). These condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2011 Form 10-K.  Management has evaluated subsequent events for disclosure or recognition in the accompanying financial statements up to the filing of this report.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of 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 period.  Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.

 

Marketable Securities

 

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

 

At September 30, 2012 and December 31, 2011, the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives.  The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. All of the Company’s investments are considered current. There were no realized losses for the nine months ended September 30, 2012. Realized losses for the nine months ended September 30, 2011 were $477.  Realized gains for the nine months ended September 30, 2012 were $4,168. There were no realized gains for the nine months ended September 30, 2011. Unrealized gains or losses on investments are recorded in other comprehensive income.

 

Available-for-sale securities at September 30, 2012 consist of the following:

 

 

 

September 30, 2012

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

43,414

 

$

33

 

$

 

$

43,447

 

Corporate bonds

 

51,630

 

41

 

 

51,671

 

Certificates of deposit

 

9,179

 

18

 

 

9,197

 

Commercial paper

 

1,597

 

 

 

1,597

 

Total available-for-sale securities

 

$

105,820

 

$

92

 

$

 

$

105,912

 

 

Available-for-sale securities at December 31, 2011 consist of the following:

 

 

 

December 31, 2011

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

28,004

 

$

 

$

(10

)

$

27,994

 

Corporate bonds

 

19,124

 

 

(2

)

19,122

 

Certificates of deposit

 

9,467

 

 

 

(2

)

9,465

 

Commercial paper

 

999

 

 

 

 

999

 

Total available-for-sale securities

 

$

57,594

 

$

 

$

(14

)

$

57,580

 

 

Net Loss Per Share

 

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period.  Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

 

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

 

 

 

September 30,

 

(In thousands)

 

2012

 

2011

 

Shares issuable upon exercise of stock options

 

6,282

 

6,678

 

Shares issuable upon exercise of outstanding warrants (1)

 

325

 

325

 

Shares of restricted stock awards outstanding

 

945

 

504

 

Shares issuable upon the vesting of restricted stock awards related to a licensing agreement

 

73

 

 

 

 

7,625

 

7,507

 

 

 

(1)  At September 30, 2012 and September 30, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

 

Revenue Recognition

 

License fees.  License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. As more fully described in the 2011 Form 10-K, in connection with our January 2009 strategic transaction with Genzyme Corporation, Genzyme agreed to pay us a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company’s on-going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the “CLP Agreement”), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five-year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest due, from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250, which included accrued interest due, from Genzyme during the third quarter of 2010.  The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration at the time of receipt.

 

In addition, Genzyme purchased 3,000,000 shares of common stock on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company’s common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company’s common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight-line basis into revenue over the initial five-year collaboration period ending in January 2014.

 

The Company recognized approximately $1.0 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme, during each of the three months ended September 30, 2012 and September 30, 2011. The Company recognized approximately $3.1 million in license fee revenue in connection with the amortization of up-front payments from Genzyme during each of the nine months ended September 30, 2012 and September 30, 2011.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation.

MAYO LICENSE AGREEMENT
MAYO LICENSE AGREEMENT

(3) MAYO LICENSE AGREEMENT

 

Overview

 

On June 11, 2009, the Company entered into a license agreement (the “License Agreement”) with MAYO Foundation for Medical Education and Research (“MAYO”). Under the License Agreement, MAYO granted the Company an exclusive, worldwide license within the field (the “Field”) of stool or blood based cancer diagnostics and screening (excluding a specified proteomic target) with regard to certain MAYO patents, and a non-exclusive worldwide license within the Field with regard to certain MAYO know-how. The licensed patents cover advances in sample processing, analytical testing and data analysis associated with non-invasive, stool-based DNA screening for colorectal cancer. Under the License Agreement, the Company assumes the obligation and expense of prosecuting and maintaining the licensed patents and is obligated to make commercially reasonable efforts to bring products covered by the license to market. Pursuant to the License Agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The Company is also required to make payments to MAYO for up-front fees, fees once certain milestones are reached by the Company, and other payments as outlined in the License Agreement. In addition to the license to intellectual property owned by MAYO, the Company receives product development and research and development efforts from MAYO personnel. The Company determined that the payments made for intellectual property should not be capitalized as the future economic benefit derived from the transactions is uncertain. The Company is also obligated to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology.

 

Warrants

 

The warrants granted to MAYO were valued based on a Black-Scholes pricing model at the date of the grant. The warrants were granted with an exercise price of $1.90 per share of common stock. The grant to purchase 1,000,000 shares was immediately exercisable and the grant to purchase 250,000 shares vests and becomes exercisable over a four year period.

 

In March of 2010, MAYO partially exercised its warrant covering 1,000,000 shares by utilizing the cashless exercise provision contained in the warrant.  As a result of this exercise for a gross amount of 200,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 86,596 shares leaving it with a net amount of 113,404 shares.

 

In September of 2010, MAYO partially exercised this warrant by utilizing the cashless exercise provision contained in the warrant.  As a result of this exercise for a gross amount of 300,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 97,853 shares leaving it with a net amount of 202,147 shares.

 

In June of 2011, MAYO partially exercised this warrant by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 60,246 shares leaving it with a net amount of 189,754 shares.

 

In September of 2011, MAYO partially exercised this warrant by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its right with respect to 56,641 shares leaving it with a net amount of 193,359 shares. Following this exercise, the warrant covering 1,000,000 shares was fully exercised.

 

Royalty Payments

 

The Company is required to make royalty payments to MAYO based on a percentage of net sales of products developed from the licensed technology. Minimum royalty payments are $10,000 in 2012 and $25,000 per year thereafter through 2029, the year the last patent expires.

 

Other Payments

 

Other payments under the MAYO agreement include an upfront payment of $80,000, a milestone payment of $250,000 on the commencement of patient enrollment in FDA trials for the Company’s Cologuard pre-cancer and cancer screening test, and a $500,000 payment upon FDA approval of the Company’s Cologuard test.  The upfront payment of $80,000 was made in the third quarter of 2009 and expensed to research and development in the second quarter of 2009. The Company began enrollment in its FDA trial in June of 2011 and the milestone payment of $250,000 was made in June of 2011 and expensed to research and development in the second quarter of 2011.  It is uncertain as to when the FDA will approve the Company’s pre-cancer and cancer screening test. Therefore, the $500,000 milestone payment has not been recorded as a liability. The Company periodically evaluates the status of the FDA trial.

 

In addition, the Company is making payments to MAYO for research and development efforts.  During the three and nine months ended September 2012, the Company made payments of $0.3 million and $0.6 million, respectively. At September 30, 2012 the Company recorded an estimated liability in the amount of $0.2 million for research and development efforts.  During the three and nine months ended September 2011, the Company made payments of $0.3 million and $1.0 million and at September 30, 2011 the Company recorded an estimated liability in the amount of $0.3 million for research and development efforts.

 

May 2012 Amendment

 

In May 2012 the Company expanded its relationship with MAYO through an amendment to the License Agreement. As part of the amendment,  the Company’s license was expanded to include all gastrointestinal cancers and diseases, and new cancer screening applications of stool- and blood-based testing. As consideration, the Company granted MAYO 97,466 shares of restricted stock, one quarter of which vested immediately, with the remainder to vest in three equal annual installments. The Company recognized $1.0 million in licensing expense during the nine months ended September 30, 2012 in connection with the restricted stock grant.

 

As part of the amendment, the Company is required to make additional restricted stock grants to MAYO as certain milestones are met with respect to the commercial launch of the Company’s second and third licensed products. Additionally, the Company will make milestone payments once certain sales levels are reached on the second and third licensed products.  It is uncertain as to when these milestones will be met; therefore, the milestone payments have not been recorded as liabilities. The Company periodically evaluates the status of the milestone payments.

 

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

(4) STOCK-BASED COMPENSATION

 

Stock-Based Compensation Plans

 

The Company maintains the 2010 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan,  the 2000 Stock Option and Incentive Plan and the 2000 Employee Stock Purchase Plan (collectively, the “Stock Plans”).

 

Stock-Based Compensation Expense

 

The Company recorded $1.5 million and $4.0 million in stock-based compensation expense during the three and nine months ended September 30, 2012 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors.  The Company recorded $1.2 million and $2.7 million in stock-based compensation expense during the three and nine months ended September 30, 2011 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees and non-employee directors.

 

The estimated fair value of stock options and restricted stock and restricted stock unit awards is recognized to expense using the straight-line method over the vesting period.

 

Determining Fair Value

 

Valuation and Recognition - The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below.

 

Expected Term - The Company uses the simplified calculation of expected life, described in the SEC’s Staff Accounting Bulletins 107 and 110, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected life.  Using this method, the expected life is determined using the average of the vesting period and the contractual life of the stock options granted.

 

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

 

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest.  A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Option Plan Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

0.81% - 0.89%

 

1.12% - 1.52%

 

0.81% - 0.89%

 

1.12% - 2.3%

 

Expected term (in years)

 

6

 

6

 

6

 

6

 

Expected volatility

 

86%

 

91% - 92%

 

86% - 92%

 

91% - 92%

 

Dividend yield

 

0%

 

0%

 

0%

 

0%

 

Weighted average fair value per share of options granted during the period

 

$

7.47

 

$

5.92

 

$

6.90

 

$

4.76

 

 

 

 

 

 

 

 

 

 

 

ESPP Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

(1

)

(1

)

0.19% - 0.27%

 

0.22% - 0.61%

 

Expected term (in years)

 

(1

)

(1

)

0.5 - 2

 

0.5 - 2

 

Expected volatility

 

(1

)

(1

)

40% - 55%

 

48% - 63%

 

Dividend yield

 

(1

)

(1

)

0%

 

0%

 

Weighted average fair value per share of options granted during the period

 

(1

)

(1

)

$

3.47

 

$

2.88

 

 

(1)         The Company did not issue stock purchase rights under its 2010 Purchase Plan during the respective period.

 

The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day.

 

Stock Option and Restricted Stock Activity

 

A summary of stock option activity under the Stock Plans during the nine months ended September 30, 2012 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

Options

 

September 30, 2012

 

Exercise

 

Contractual

 

Intrinsic

 

(Aggregate intrinsic value in thousands)

 

Shares

 

Price

 

Term (Years)

 

Value (1)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2012

 

6,453,644

 

$

2.27

 

7.2

 

 

 

Granted

 

489,148

 

$

9.19

 

 

 

 

 

Exercised

 

(598,904

)

$

3.49

 

 

 

 

 

Forfeited

 

(61,875

)

$

8.56

 

 

 

 

 

Outstanding, September 30, 2012

 

6,282,013

 

$

2.63

 

6.8

 

$

52,763

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2012

 

4,520,667

 

$

1.77

 

6.3

 

$

41,879

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, September 30, 2012

 

6,275,263

 

$

2.62

 

6.8

 

$

52,751

 

 

 

(1)The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $11.00 market price of the Company’s common stock at September 30, 2012.  The total intrinsic value of options exercised during the three and nine months ended September 30, 2012 was $0.4 million and $3.8 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $1.2 million and $1.6 million, respectively.

 

As of September 30, 2012, there was $10.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans.  Total unrecognized compensation cost will be adjusted for future changes in forfeitures.  The Company expects to recognize that cost over a weighted average period of 2.57 years.

 

A summary of restricted stock activity under the Stock Plans during the nine months ended September 30, 2012 is as follows:

 

 

 

 

 

Weighted

 

 

 

Restricted

 

Average Grant

 

 

 

Stock

 

Date Fair Value

 

Outstanding, January 1, 2012

 

401,490

 

$

6.24

 

Granted

 

587,268

 

$

9.48

 

Released

 

(44,225

)

$

4.86

 

Forfeited

 

(4,687

)

$

7.69

 

Outstanding, September 30, 2012

 

939,846

 

$

8.32

 

 

During the first quarter of 2012, the Company granted a total of 262,500 restricted stock units to certain executives that will vest based upon the satisfaction of certain service and performance conditions.  The Company performed an evaluation of internal and external factors, and determined the number of shares that are most likely to vest based on the probability of what performance conditions will be met. The expense for the fair value of the awards that are expected to vest, is being recognized ratably over the vesting period.

 

FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS

(5) FAIR VALUE MEASUREMENTS

 

The FASB has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.  The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs.  Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

The three levels of the fair value hierarchy established are as follows:

 

Level 1

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

 

 

Level 3

 

Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

 

Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.  The estimated fair value of our long-term debt based on a market approach was approximately $1.0 million as of September 30, 2012 and December 31, 2011 and represent Level 2 measurements.  When determining the estimated fair value of our long-term debt, we used market-based risk measurements, such as credit risk.

 

The following table presents the Company’s fair value measurements as of September 30, 2012 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

 

 

 

 

 

Fair Value Measurement at September 30, 2012 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

September 30, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

$

10,166

 

$

10,166

 

$

 

$

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. governement agency securities

 

43,447

 

 

43,447

 

 

Corporate bonds

 

51,671

 

 

51,671

 

 

Certificates of deposit

 

9,197

 

 

9,197

 

 

Commercial paper

 

1,597

 

 

1,597

 

 

Total

 

$

116,078

 

$

10,166

 

$

105,912

 

$

 

 

 

(1)  The $10.2 million of cash equivalents above is included in the cash and cash equivalents balance of $12.7 million at September 30, 2012.

 

The following table presents the Company’s fair value measurements as of December 31, 2011 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

 

 

 

 

 

Fair Value Measurement at December 31, 2011 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

December 31, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

$

35,385

 

$

35,385

 

$

 

$

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

27,994

 

 

27,994

 

 

Certificates of deposit

 

9,465

 

 

9,465

 

 

Corporate bonds

 

19,122

 

 

19,122

 

 

Commercial paper

 

999

 

 

999

 

 

Total

 

$

92,965

 

$

35,385

 

$

57,580

 

$

 

 

(1) The $35.4 million of cash equivalents above is included in the cash and cash equivalents balance of $35.8 million at December 31, 2011.

EQUITY
EQUITY

(6) EQUITY

 

On August 13, 2012, the Company completed an underwritten public offering of 6,325,000 shares of common stock at a price of $9.75 per share to the public. The Company received approximately $57.8 million of net proceeds from the offering, after deducting $3.9 million for the underwriting discount and other stock issuance costs paid by the Company.

CAPITAL LEASE
CAPITAL LEASE

(7) CAPITAL LEASE

 

The Company entered into a lease agreement during the three months ended September 30, 2012, which is accounted for as a capital lease. The leased equipment is recorded at $1,151,000 and is included in the balance sheet as laboratory equipment at September 30, 2012. The cost of the leased equipment is depreciated over the three year lease term, and the expense is recorded as depreciation expense. Accumulated depreciation of the leased equipment at September 30, 2012 was approximately $32,000. The Company is required to make payments of approximately $32,000 per month over the three year term of the lease agreement.

 

The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of September 30, 2012 are as follows (in thousands):

 

Year Ending December 31,

 

 

 

2012

 

$

127

 

2013

 

381

 

2014

 

381

 

2015

 

368

 

Total lease obligations

 

$

1,257

 

 

 

 

 

Less imputed interest

 

(106

)

 

 

 

 

Present value of minimum lease payments

 

1,151

 

 

 

 

 

Less current maturities of capital lease obligations

 

(355

)

 

 

 

 

Long term capital lease obligations

 

$

796

 

RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

(8) RELATED PARTY TRANSACTIONS

 

During the three months ended September 30, 2012, the Company entered into a one year consulting agreement with a non-employee director under which the director will provide advisory services in support of the Company’s commercialization activities. In accordance with the agreement, the Company granted a restricted stock award for 4,873 shares of common stock that vests over one year, and will make cash payments totaling $60,000 over the one year term of the agreement.

 

INCOME TAXES
INCOME TAXES

(9) INCOME TAXES

 

The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.

 

Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period.

 

A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, management has determined that a full valuation allowance at September 30, 2012 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the Company’s effective tax rate.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  At September 30, 2012 the Company had no unrecognized tax benefits, nor are there any tax positions where it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the 12 months following September 30, 2012.

RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS

(10) RECENT ACCOUNTING PRONOUNCEMENTS

 

Presentation of Comprehensive Income

 

In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity, and is effective for interim and annual periods beginning after December 15, 2011, and shall be applied retrospectively. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.

 

Amendments to Fair Value Measurements

 

In May 2011, the FASB issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between GAAP and International Financial Reporting Standards (IFRS). The accounting standard update changes fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update did not have a material effect on our financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

Use of Estimates

 

The preparation of 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 period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

 

The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.

Marketable Securities

 

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

 

At September 30, 2012 and December 31, 2011, the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives.  The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. All of the Company’s investments are considered current. There were no realized losses for the nine months ended September 30, 2012. Realized losses for the nine months ended September 30, 2011 were $477.  Realized gains for the nine months ended September 30, 2012 were $4,168. There were no realized gains for the nine months ended September 30, 2011. Unrealized gains or losses on investments are recorded in other comprehensive income.

 

Available-for-sale securities at September 30, 2012 consist of the following:

 

 

 

September 30, 2012

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

43,414

 

$

33

 

$

 

$

43,447

 

Corporate bonds

 

51,630

 

41

 

 

51,671

 

Certificates of deposit

 

9,179

 

18

 

 

9,197

 

Commercial paper

 

1,597

 

 

 

1,597

 

Total available-for-sale securities

 

$

105,820

 

$

92

 

$

 

$

105,912

 

 

Available-for-sale securities at December 31, 2011 consist of the following:

 

 

 

December 31, 2011

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

28,004

 

$

 

$

(10

)

$

27,994

 

Corporate bonds

 

19,124

 

 

(2

)

19,122

 

Certificates of deposit

 

9,467

 

 

 

(2

)

9,465

 

Commercial paper

 

999

 

 

 

 

999

 

Total available-for-sale securities

 

$

57,594

 

$

 

$

(14

)

$

57,580

 

Net Loss Per Share

 

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period.  Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

 

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

 

 

 

September 30,

 

(In thousands)

 

2012

 

2011

 

Shares issuable upon exercise of stock options

 

6,282

 

6,678

 

Shares issuable upon exercise of outstanding warrants (1)

 

325

 

325

 

Shares of restricted stock awards outstanding

 

945

 

504

 

Shares issuable upon the vesting of restricted stock awards related to a licensing agreement

 

73

 

 

 

 

7,625

 

7,507

 

 

 

(1)  At September 30, 2012 and September 30, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

 

Revenue Recognition

 

License fees.  License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. As more fully described in the 2011 Form 10-K, in connection with our January 2009 strategic transaction with Genzyme Corporation, Genzyme agreed to pay us a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company’s on-going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the “CLP Agreement”), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five-year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest due, from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250, which included accrued interest due, from Genzyme during the third quarter of 2010.  The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration at the time of receipt.

 

In addition, Genzyme purchased 3,000,000 shares of common stock on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company’s common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company’s common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight-line basis into revenue over the initial five-year collaboration period ending in January 2014.

 

The Company recognized approximately $1.0 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme, during each of the three months ended September 30, 2012 and September 30, 2011. The Company recognized approximately $3.1 million in license fee revenue in connection with the amortization of up-front payments from Genzyme during each of the nine months ended September 30, 2012 and September 30, 2011.

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

 

 

 

September 30, 2012

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

43,414

 

$

33

 

$

 

$

43,447

 

Corporate bonds

 

51,630

 

41

 

 

51,671

 

Certificates of deposit

 

9,179

 

18

 

 

9,197

 

Commercial paper

 

1,597

 

 

 

1,597

 

Total available-for-sale securities

 

$

105,820

 

$

92

 

$

 

$

105,912

 

  

 

 

December 31, 2011

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

28,004

 

$

 

$

(10

)

$

27,994

 

Corporate bonds

 

19,124

 

 

(2

)

19,122

 

Certificates of deposit

 

9,467

 

 

 

(2

)

9,465

 

Commercial paper

 

999

 

 

 

 

999

 

Total available-for-sale securities

 

$

57,594

 

$

 

$

(14

)

$

57,580

 

 

 

 

 

September 30,

 

(In thousands)

 

2012

 

2011

 

Shares issuable upon exercise of stock options

 

6,282

 

6,678

 

Shares issuable upon exercise of outstanding warrants (1)

 

325

 

325

 

Shares of restricted stock awards outstanding

 

945

 

504

 

Shares issuable upon the vesting of restricted stock awards related to a licensing agreement

 

73

 

 

 

 

7,625

 

7,507

 

 

 

(1)  At September 30, 2012 and September 30, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

STOCK-BASED COMPENSATION (Tables)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Option Plan Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

0.81% - 0.89%

 

1.12% - 1.52%

 

0.81% - 0.89%

 

1.12% - 2.3%

 

Expected term (in years)

 

6

 

6

 

6

 

6

 

Expected volatility

 

86%

 

91% - 92%

 

86% - 92%

 

91% - 92%

 

Dividend yield

 

0%

 

0%

 

0%

 

0%

 

Weighted average fair value per share of options granted during the period

 

$

7.47

 

$

5.92

 

$

6.90

 

$

4.76

 

 

 

 

 

 

 

 

 

 

 

ESPP Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

(1

)

(1

)

0.19% - 0.27%

 

0.22% - 0.61%

 

Expected term (in years)

 

(1

)

(1

)

0.5 - 2

 

0.5 - 2

 

Expected volatility

 

(1

)

(1

)

40% - 55%

 

48% - 63%

 

Dividend yield

 

(1

)

(1

)

0%

 

0%

 

Weighted average fair value per share of options granted during the period

 

(1

)

(1

)

$

3.47

 

$

2.88

 

 

(1)         The Company did not issue stock purchase rights under its 2010 Purchase Plan during the respective period.

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

Options

 

September 30, 2012

 

Exercise

 

Contractual

 

Intrinsic

 

(Aggregate intrinsic value in thousands)

 

Shares

 

Price

 

Term (Years)

 

Value (1)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2012

 

6,453,644

 

$

2.27

 

7.2

 

 

 

Granted

 

489,148

 

$

9.19

 

 

 

 

 

Exercised

 

(598,904

)

$

3.49

 

 

 

 

 

Forfeited

 

(61,875

)

$

8.56

 

 

 

 

 

Outstanding, September 30, 2012

 

6,282,013

 

$

2.63

 

6.8

 

$

52,763

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2012

 

4,520,667

 

$

1.77

 

6.3

 

$

41,879

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, September 30, 2012

 

6,275,263

 

$

2.62

 

6.8

 

$

52,751

 

 

 

(1)The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $11.00 market price of the Company’s common stock at September 30, 2012.  The total intrinsic value of options exercised during the three and nine months ended September 30, 2012 was $0.4 million and $3.8 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $1.2 million and $1.6 million, respectively.

 

 

 

 

 

Weighted

 

 

 

Restricted

 

Average Grant

 

 

 

Stock

 

Date Fair Value

 

Outstanding, January 1, 2012

 

401,490

 

$

6.24

 

Granted

 

587,268

 

$

9.48

 

Released

 

(44,225

)

$

4.86

 

Forfeited

 

(4,687

)

$

7.69

 

Outstanding, September 30, 2012

 

939,846

 

$

8.32

 

FAIR VALUE MEASUREMENTS (Tables)
Schedule of fair value measurements along with the level within the fair value hierarchy in which the fair value measurements fall

 

 

 

Fair Value Measurement at September 30, 2012 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

September 30, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

$

10,166

 

$

10,166

 

$

 

$

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. governement agency securities

 

43,447

 

 

43,447

 

 

Corporate bonds

 

51,671

 

 

51,671

 

 

Certificates of deposit

 

9,197

 

 

9,197

 

 

Commercial paper

 

1,597

 

 

1,597

 

 

Total

 

$

116,078

 

$

10,166

 

$

105,912

 

$

 

 

 

(1)  The $10.2 million of cash equivalents above is included in the cash and cash equivalents balance of $12.7 million at September 30, 2012.

  

 

 

 

 

Fair Value Measurement at December 31, 2011 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

December 31, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

$

35,385

 

$

35,385

 

$

 

$

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

27,994

 

 

27,994

 

 

Certificates of deposit

 

9,465

 

 

9,465

 

 

Corporate bonds

 

19,122

 

 

19,122

 

 

Commercial paper

 

999

 

 

999

 

 

Total

 

$

92,965

 

$

35,385

 

$

57,580

 

$

 

 

(1) The $35.4 million of cash equivalents above is included in the cash and cash equivalents balance of $35.8 million at December 31, 2011.

CAPITAL LEASE (Tables)
Schedule of future minimum lease payments required under the capital lease and the present value of the net minimum lease payments

Year Ending December 31,

 

 

 

2012

 

$

127

 

2013

 

381

 

2014

 

381

 

2015

 

368

 

Total lease obligations

 

$

1,257

 

 

 

 

 

Less imputed interest

 

(106

)

 

 

 

 

Present value of minimum lease payments

 

1,151

 

 

 

 

 

Less current maturities of capital lease obligations

 

(355

)

 

 

 

 

Long term capital lease obligations

 

$

796

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
objective
Sep. 30, 2011
Dec. 31, 2011
Marketable Securities
 
 
 
Number of objectives of the entity's investment strategy
 
 
Realized losses
 
$ 477 
 
Realized gains
4,168 
 
 
Available-for-sale securities
 
 
 
Amortized Cost
105,820 
 
57,594 
Gains in Accumulated Other Comprehensive Income
92 
 
 
Losses in Accumulated Other Comprehensive Income
 
 
(14)
Estimated Fair Value
105,912 
 
57,580 
U.S. government agency securities
 
 
 
Available-for-sale securities
 
 
 
Amortized Cost
43,414 
 
28,004 
Gains in Accumulated Other Comprehensive Income
33 
 
 
Losses in Accumulated Other Comprehensive Income
 
 
(10)
Estimated Fair Value
43,447 
 
27,994 
Corporate bonds
 
 
 
Available-for-sale securities
 
 
 
Amortized Cost
51,630 
 
19,124 
Gains in Accumulated Other Comprehensive Income
41 
 
 
Losses in Accumulated Other Comprehensive Income
 
 
(2)
Estimated Fair Value
51,671 
 
19,122 
Certificates of deposit
 
 
 
Available-for-sale securities
 
 
 
Amortized Cost
9,179 
 
9,467 
Gains in Accumulated Other Comprehensive Income
18 
 
 
Losses in Accumulated Other Comprehensive Income
 
 
(2)
Estimated Fair Value
9,197 
 
9,465 
Commercial paper
 
 
 
Available-for-sale securities
 
 
 
Amortized Cost
1,597 
 
999 
Estimated Fair Value
$ 1,597 
 
$ 999 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Common shares not included in the computation of diluted net loss per share
 
 
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect
7,625,000 
7,507,000 
Additional disclosure
 
 
Number of shares of common stock that can be purchased through issuance of warrants under a licensing agreement
250,000 
250,000 
Number of shares of common stock that can be purchased through issuance of warrants under a consulting agreement
75,000 
75,000 
Shares issuable upon exercise of stock options
 
 
Common shares not included in the computation of diluted net loss per share
 
 
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect
6,282,000 
6,678,000 
Shares issuable upon exercise of outstanding warrants
 
 
Common shares not included in the computation of diluted net loss per share
 
 
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect
325,000 
325,000 
Shares of restricted stock awards outstanding
 
 
Common shares not included in the computation of diluted net loss per share
 
 
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect
945,000 
504,000 
Shares issuable upon the vesting of restricted stock awards related to licensing agreement
 
 
Common shares not included in the computation of diluted net loss per share
 
 
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect
73,000 
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $)
3 Months Ended 9 Months Ended 1 Months Ended 3 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Aug. 13, 2012
Dec. 31, 2011
Jan. 31, 2009
CLP Agreement
Genzyme Corporation
Sep. 30, 2010
CLP Agreement
Genzyme Corporation
Mar. 31, 2010
CLP Agreement
Genzyme Corporation
Jan. 27, 2009
CLP Agreement
Genzyme Corporation
License fees
 
 
 
 
 
 
 
 
 
 
Amount received
 
 
 
 
 
 
$ 16,650,000 
$ 934,250 
$ 962,000 
 
Total agreed consideration amount
 
 
 
 
 
 
18,500,000 
 
 
 
Amount subject to holdback
 
 
 
 
 
 
1,850,000 
 
 
 
Initial collaboration period (in years)
 
 
 
 
 
 
5 years 
 
 
 
Sale of common stock (in shares)
63,753,363 
 
63,753,363 
 
 
56,624,763 
 
 
 
3,000,000 
Price at which share of common stock are sold (in dollars per share)
 
 
 
 
 
 
 
 
 
$ 2.00 
Premium above closing price of common stock at which shares are sold (in dollars per share)
 
 
 
 
 
 
 
 
 
$ 0.51 
Closing price of common stock (in dollars per share)
 
 
 
 
$ 9.75 
 
 
 
 
$ 1.49 
Aggregate premium received over the closing price of common stock
 
 
 
 
 
 
 
 
 
1,530,000 
License fee revenue
$ 1,036,000 
$ 1,035,000 
$ 3,108,000 
$ 3,107,000 
 
 
 
 
 
 
MAYO LICENSE AGREEMENT (Details) (License Agreement, MAYO, USD $)
1 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended
May 31, 2012
item
Jun. 30, 2011
Jun. 30, 2009
warrant
Sep. 30, 2012
Sep. 30, 2011
Jun. 30, 2011
Sep. 30, 2009
Sep. 30, 2012
Sep. 30, 2011
Jun. 11, 2009
Sep. 30, 2011
Warrant covering 1,000,000 shares of common stock
Jun. 30, 2011
Warrant covering 1,000,000 shares of common stock
Sep. 30, 2010
Warrant covering 1,000,000 shares of common stock
Mar. 31, 2010
Warrant covering 1,000,000 shares of common stock
Jun. 11, 2009
Warrant covering 1,000,000 shares of common stock
Sep. 30, 2012
Warrant covering 250,000 shares of common stock
Jun. 11, 2009
Warrant covering 250,000 shares of common stock
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of common stock purchase warrants granted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise price (in dollars per share)
 
 
 
 
 
 
 
 
 
$ 1.90 
 
 
 
 
 
 
 
Number of shares of common stock covered by warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,000,000 
 
250,000 
Vesting period of warrant (in years)
 
 
 
 
 
 
 
4 years 
 
 
 
 
 
 
 
4 years 
 
Warrants exercised, gross (in shares)
 
 
 
 
 
 
 
 
 
 
250,000 
250,000 
300,000 
200,000 
 
 
 
Warrants forfeited (in shares)
 
 
 
 
 
 
 
 
 
 
56,641 
60,246 
97,853 
86,596