Quarterly Report (10-q)

Date : 11/01/2019 @ 8:18PM
Source : Edgar (US Regulatory)
Stock : Cytokinetics Inc (CYTK)
Quote : 10.65  0.97 (10.02%) @ 12:10AM
After Hours
Last Trade
Last $ 11.00 ▲ 0.35 (3.29%)

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 000-50633

 

CYTOKINETICS, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-3291317

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

280 East Grand Avenue

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 624-3000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Common Stock, $0.001 par value

Trading symbol

 

CYTK

Name of each exchange on which registered

 

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Number of shares of common stock, $0.001 par value, outstanding as of October 30, 2019: 59,081,899

 

 

 

 


Table of Contents

 

CYTOKINETICS, INCORPORATED

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE three and NINE MONTHS ENDED SEPTEMBER 30, 2019

 

 

Page

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018

4

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

7

Notes to Condensed Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

30

Item 4. Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

31

Item 1. Legal Proceedings

31

Item 1A. Risk Factors

31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3. Defaults Upon Senior Securities

62

Item 4. Mine Safety Disclosures

62

Item 5. Other Information

62

Item 6. Exhibits

63

 

 

SIGNATURES

65

 

 

 

 

 

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data) (Unaudited)

 

 

September 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,634

 

 

$

42,256

 

Short-term investments

 

 

126,405

 

 

 

156,475

 

Accounts receivable

 

 

6,576

 

 

 

2,231

 

Contract assets

 

 

 

 

 

4,554

 

Prepaid and other current assets

 

 

3,920

 

 

 

2,158

 

Total current assets

 

 

176,535

 

 

 

207,674

 

Property and equipment, net

 

 

3,615

 

 

 

3,204

 

Other assets

 

 

7,243

 

 

 

300

 

Total assets

 

$

187,393

 

 

$

211,178

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,412

 

 

$

3,764

 

Accrued liabilities

 

 

13,139

 

 

 

15,757

 

Current portion of long-term debt

 

 

 

 

 

2,607

 

Short-term lease liability

 

 

4,577

 

 

 

 

Other current liabilities

 

 

389

 

 

 

66

 

Total current liabilities

 

 

21,517

 

 

 

22,194

 

Long-term debt, net

 

 

44,762

 

 

 

39,806

 

Liability related to the sale of future royalties, net

 

 

137,726

 

 

 

122,473

 

Long-term lease liability

 

 

3,257

 

 

 

 

Other long-term liabilities

 

 

 

 

 

771

 

Total liabilities

 

 

207,262

 

 

 

185,244

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value

 

 

 

 

 

 

Common stock, $0.001 par value

 

 

59

 

 

 

55

 

Additional paid-in capital

 

 

813,729

 

 

 

768,703

 

Accumulated other comprehensive income

 

 

719

 

 

 

500

 

Accumulated deficit

 

 

(834,376

)

 

 

(743,324

)

Total stockholders’ equity (deficit)

 

 

(19,869

)

 

 

25,934

 

Total liabilities and stockholders’ equity (deficit)

 

$

187,393

 

 

$

211,178

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Table of Contents

 

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data) (Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development revenues

 

$

6,055

 

 

$

8,726

 

 

$

21,656

 

 

$

16,991

 

License revenues

 

 

 

 

 

1,915

 

 

 

 

 

 

5,133

 

Total revenues

 

 

6,055

 

 

 

10,641

 

 

 

21,656

 

 

 

22,124

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

20,229

 

 

 

21,391

 

 

 

67,791

 

 

 

65,858

 

General and administrative

 

 

9,753

 

 

 

7,164

 

 

 

29,026

 

 

 

23,724

 

Total operating expenses

 

 

29,982

 

 

 

28,555

 

 

 

96,817

 

 

 

89,582

 

Operating loss

 

 

(23,927

)

 

 

(17,914

)

 

 

(75,161

)

 

 

(67,458

)

Interest expense

 

 

(1,345

)

 

 

(867

)

 

 

(3,892

)

 

 

(2,628

)

Non-cash interest expense on liability related to the sale of future royalties

 

 

(5,321

)

 

 

(4,559

)

 

 

(15,204

)

 

 

(13,026

)

Interest and other income

 

 

1,020

 

 

 

1,323

 

 

 

3,205

 

 

 

3,291

 

Net loss

 

$

(29,573

)

 

$

(22,017

)

 

$

(91,052

)

 

$

(79,821

)

Net loss per share — basic and diluted

 

$

(0.50

)

 

$

(0.40

)

 

$

(1.60

)

 

$

(1.47

)

Weighted-average shares in net loss per share — basic and diluted

 

 

58,640

 

 

 

54,626

 

 

 

57,050

 

 

 

54,329

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net

 

 

(42

)

 

 

(3

)

 

 

219

 

 

 

104

 

Comprehensive loss

 

$

(29,615

)

 

$

(22,020

)

 

$

(90,833

)

 

$

(79,717

)

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

4


Table of Contents

 

CYTOKINETICS, INCORPORATED

condensed CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ Equity (Deficit)

(In thousands, except share data) (Unaudited)

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total

Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

54,717,906

 

 

$

55

 

 

$

768,703

 

 

$

500

 

 

$

(743,324

)

 

$

25,934

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,282

 

 

 

 

 

 

 

 

 

2,282

 

Exercise of stock options

 

 

5,116

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Vesting of restricted stock units, net of taxes withheld

 

 

165,347

 

 

 

 

 

 

(732

)

 

 

 

 

 

 

 

 

(732

)

Issuance of common stock under at-the-market offering, net of issuance costs

 

 

562,811

 

 

 

 

 

 

5,117

 

 

 

 

 

 

 

 

 

5,117

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

 

 

 

106

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,366

)

 

 

(29,366

)

Balance, March 31, 2019

 

 

55,451,180

 

 

 

55

 

 

 

775,401

 

 

 

606

 

 

 

(772,690

)

 

 

3,372

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,819

 

 

 

 

 

 

 

 

 

2,819

 

Exercise of stock options

 

 

62,356

 

 

 

 

 

 

441

 

 

 

 

 

 

 

 

 

441

 

Issuance of common stock under at-the-market offering, net of issuance costs

 

 

2,449,984

 

 

 

3

 

 

 

19,694

 

 

 

 

 

 

 

 

 

19,697

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

92,975

 

 

 

 

 

 

548

 

 

 

 

 

 

 

 

 

548

 

Issuance of warrants

 

 

 

 

 

 

 

 

185

 

 

 

 

 

 

 

 

 

185

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,113

)

 

 

(32,113

)

Balance, June 30, 2019

 

 

58,056,495

 

 

 

58

 

 

 

799,088

 

 

 

761

 

 

 

(804,803

)

 

 

(4,896

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,783

 

 

 

 

 

 

 

 

 

2,783

 

Exercise of stock options

 

 

53,350

 

 

 

 

 

 

459

 

 

 

 

 

 

 

 

 

459

 

Issuance of common stock under at-the-market offering, net of issuance costs

 

 

972,054

 

 

 

1

 

 

 

11,399

 

 

 

 

 

 

 

 

 

11,400

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,573

)

 

 

(29,573

)

Balance, September 30, 2019

 

 

59,081,899

 

 

$

59

 

 

$

813,729

 

 

$

719

 

 

$

(834,376

)

 

$

(19,869

)

 

 


5


Table of Contents

 

 

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total

Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

53,960,832

 

 

$

54

 

 

$

755,526

 

 

$

343

 

 

$

(646,081

)

 

$

109,842

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,403

 

 

 

 

 

 

 

 

 

2,403

 

Exercise of stock options

 

 

59,112

 

 

 

 

 

 

342

 

 

 

 

 

 

 

 

 

342

 

Vesting of restricted stock units, net of taxes withheld

 

 

177,602

 

 

 

 

 

 

(866

)

 

 

 

 

 

 

 

 

(866

)

ASC 606 Adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,013

 

 

 

18,013

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

146

 

 

 

 

 

 

146

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,281

)

 

 

(30,281

)

Balance, March 31, 2018

 

 

54,197,546

 

 

 

54

 

 

 

757,405

 

 

 

489

 

 

 

(658,349

)

 

 

99,599

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,505

 

 

 

 

 

 

 

 

 

2,505

 

Exercise of stock options

 

 

306,027

 

 

 

1

 

 

 

2,441

 

 

 

 

 

 

 

 

 

2,442

 

Vesting of restricted stock units, net of taxes withheld

 

 

11,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

75,992

 

 

 

 

 

 

536

 

 

 

 

 

 

 

 

 

536

 

ASC 606 Adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,350

)

 

 

(2,350

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

 

 

 

(39

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,523

)

 

 

(27,523

)

Balance, June 30, 2018

 

 

54,591,396

 

 

 

55

 

 

 

762,887

 

 

 

450

 

 

 

(688,222

)

 

 

75,170

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,572

 

 

 

 

 

 

 

 

 

2,572

 

Exercise of stock options

 

 

50,124

 

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

329

 

Issuance of warrants

 

 

 

 

 

 

 

 

182

 

 

 

 

 

 

 

 

 

182

 

ASC 606 Adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,164

)

 

 

(4,164

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,017

)

 

 

(22,017

)

Balance, September 30, 2018

 

 

54,641,520

 

 

$

55

 

 

$

765,970

 

 

$

447

 

 

$

(714,403

)

 

$

52,069

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


Table of Contents

 

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(91,052

)

 

$

(79,821

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-cash interest expense on liability related to sale of future royalties

 

 

15,204

 

 

 

13,026

 

Non-cash equity-related expense

 

 

7,884

 

 

 

7,480

 

Depreciation of property and equipment

 

 

902

 

 

 

1,559

 

Interest receivable and amortization on investments

 

 

(1,583

)

 

 

(1,237

)

Non-cash interest expense related to debt

 

 

807

 

 

412

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,345

)

 

 

(8,044

)

Contract assets

 

 

4,554

 

 

 

13,537

 

Prepaid and other assets

 

 

(1,745

)

 

 

2,026

 

Operating lease right-of-use assets

 

 

2,631

 

 

 

 

Accounts payable

 

 

(352

)

 

 

(3,230

)

Accrued and other liabilities

 

 

(1,903

)

 

 

(2,109

)

Contract liabilities

 

 

 

 

 

(18,750

)

Operating lease liabilities

 

 

(2,854

)

 

 

 

Deferred revenue

 

 

 

 

 

(13,737

)

Net cash used in operating activities

 

 

(71,852

)

 

 

(88,888

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(141,798

)

 

 

(188,428

)

Sales and maturities of investments

 

 

173,670

 

 

 

167,732

 

Purchases of property and equipment

 

 

(1,313

)

 

 

(679

)

Net cash provided by (used in) investing activities

 

 

30,559

 

 

 

(21,375

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock under at the market offering, net of issuance costs

 

 

36,214

 

 

 

 

Proceeds from stock based award activities, net

 

 

747

 

 

 

2,783

 

Net proceeds from long-term debt, net of debt discount and issuance cost

 

 

1,710

 

 

 

9,898

 

Net cash provided by financing activities

 

 

38,671

 

 

 

12,681

 

Net decrease in cash and cash equivalents

 

 

(2,622

)

 

 

(97,582

)

Cash and cash equivalents, beginning of period

 

 

42,256

 

 

 

125,206

 

Cash and cash equivalents, end of period

 

$

39,634

 

 

$

27,624

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosure - non-cash investing and financing activity:

 

 

 

 

 

 

 

 

Right-of-use assets recognized in exchange for lease obligations

 

$

10,687

 

 

$

 

Issuance of warrants in connection with long-term debt

 

 

185

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


Table of Contents

 

CYTOKINETICS, INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Significant Accounting Policies

Cytokinetics, Incorporated (the “Company”, “we” or “our”) was incorporated under the laws of the state of Delaware on August 5, 1997. The Company is a late stage biopharmaceutical company focused on the discovery and development of novel small molecule therapeutics that modulate muscle function for the potential treatment of serious diseases and medical conditions.

Our financial statements contemplate the conduct of our operations in the normal course of business. We have incurred an accumulated deficit of $834.4 million since inception and there can be no assurance that we will attain profitability. The Company anticipates that it will have operating losses and net cash outflows in future periods.

We are subject to risks common to late stage biopharmaceutical companies including, but not limited to, development of new drug candidates, dependence on key personnel, and the ability to obtain additional capital as needed to fund our future plans. Our liquidity will be impaired if sufficient additional capital is not available on terms acceptable to us. To date, we have funded operations primarily through sales of our common stock, contract payments under our collaboration agreements, sale of future royalties, debt financing arrangements, government grants and interest income. Until we achieve profitable operations, we intend to continue to fund operations through payments from strategic collaborations, additional sales of equity securities, grants and debt financings. We have never generated revenues from commercial sales of our drugs and may not have drugs to market for at least several years, if ever. Our success is dependent on our ability to enter into new strategic collaborations and/or raise additional capital and to successfully develop and market one or more of our drug candidates. As a result, we may choose to raise additional capital through equity or debt financings to continue to fund operations in the future. We cannot be certain that sufficient funds will be available from such a financing or through a collaborator when required or on satisfactory terms. Additionally, there can be no assurance that our drug candidates will be accepted in the marketplace or that any future products can be developed or manufactured at an acceptable cost. These factors could have a material adverse effect on our future financial results, financial position and cash flows.

Based on the current status of our research and development activities, we believe that our existing cash, cash equivalents and investments will be sufficient to fund cash requirements for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q. If, at any time, our prospects for financing research and development programs decline, we may decide to reduce research and development expenses by delaying, discontinuing or reducing funding of one or more of our research or development programs. Alternatively, we might raise funds through strategic collaborations, public or private financings or other arrangements. Such funding, if needed, may not be available on favorable terms, or at all. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

Our condensed consolidated financial statements include the accounts of Cytokinetics and our wholly-owned subsidiary. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The financial statements include all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of results to be expected for the full fiscal year or any future interim period. The balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, accrued research and development expenses, other long-lived assets, stock-based compensation, operating lease assets and liabilities, and the valuation of deferred tax assets. We base our estimates on our historical experience and also on assumptions that we believe are reasonable; however, actual results could significantly differ from those estimates.

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Leases

We adopted Accounting Standards Update No. 2016-02, Leases (“ASC 842”) on January 1, 2019 using the modified retrospective approach. There was no cumulative-effect adjustment as of January 1, 2019. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840, Lease Accounting.

We elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease classification of those leases in place as of January 1, 2019. We also elected to exclude from our condensed consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term facilities lease.

In adopting ASC 842, we recognized a right-of-use asset in other assets and a short-term and long-term lease liability on our condensed consolidated balance sheets for our existing facilities lease that expires in 2021 (the “Lease”). The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. We determined the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. In determining the present value of lease payments, we estimated our incremental borrowing rate based on information available when we adopted ASC 842. We base the lease liability on the present value of remaining lease payments over the remaining term of the Lease, using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

We evaluated our other contracts and determined that, except for the Lease, none of our contracts contained a lease as defined in ASC 842. The impact on the condensed consolidated balance sheets as of January 1, 2019 of adopting ASC 842 is as follows (in thousands):

 

Balance sheet account description

 

ASC 840

January 1, 2019

 

 

ASC 842

January 1, 2019

 

 

Impact of adoption

 

Deferred rent classified as accrued liabilities

 

$

(323

)

 

$

 

 

$

323

 

Deferred rent classified as other long-term liabilities

 

 

(773

)

 

 

 

 

 

773

 

Short-term lease liability

 

 

 

 

 

(4,460

)

 

 

(4,460

)

Long-term lease liability

 

 

 

 

 

(6,227

)

 

 

(6,227

)

Other assets

 

 

 

 

 

9,591

 

 

 

9,591

 

 

We recognize rent expense for the operating lease on a straight-line basis over the lease term in operating expenses on the condensed consolidated statements of operations.

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. On January 1, 2018, for contracts within the scope of ASC 606, we recognized a contract asset or liability and reduced our accumulated deficit for the effect of adopting ASC 606 and did not revise our prior period financial statements. Pursuant to ASC 606, to recognize revenue from a contract with a customer, we:

(i) identify our contracts with our customers;

(ii) identify our distinct performance obligations in each contract;

(iii) determine the transaction price of each contract;

(iv) allocate the transaction price to the performance obligations; and

(v) recognize revenue as we satisfy our performance obligations.

At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Collaborative Arrangements

We enter into collaborative arrangements with partners that typically include payment to us for one of more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; and (iv) research and development cost reimbursements. Each of these payments results in collaboration or other revenues. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.

As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The stand-alone selling price may include such items as, forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, to determine the transaction price to allocate to each performance obligation.

For our collaboration agreements that include more than one performance obligation, such as a license combined with a commitment to perform research and development services, we make judgments to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate our progress each reporting period and, if necessary, adjust the measure of a performance obligation and related revenue recognition.

License Fees: If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments: We use judgment to determine whether a milestone is considered probable of being reached. Using the most likely amount method, we include the value of a milestone payment in the consideration for a contract at inception if we then conclude achieving the milestone is more likely than not. Otherwise, we exclude the value of a milestone payment from contract consideration at inception and recognize revenue for a milestone at a later date, when we judge that it is probable the milestone will be achieved. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone is included in the transaction price. We then allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment.

Royalties: For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, we have not recognized any royalty revenues resulting from contracts.

Research and Development Cost Reimbursements: Our arrangement with Astellas Pharma Inc. (“Astellas”) and Amgen Inc. (“Amgen”) include promises of research and development services. We have determined that these services collectively are distinct from the licenses provided to Astellas and Amgen and as such, these promises are accounted for as a separate performance obligation recorded over time. We record revenue for these services as the performance obligations are satisfied, which we estimate using internal development costs incurred.

Recent Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”), which make targeted improvements to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2018-18.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses — Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments and is effective for annual and interim reporting periods beginning after December 15, 2019. We are currently evaluating the impact of adopting ASU 2016-13.

Note 2 — Net Loss Per Share

We excluded the following from diluted net loss per share because inclusion would have been antidilutive (in thousands):

 

 

September 30, 2019

 

 

September 30, 2018

 

Options to purchase common stock

 

 

7,787

 

 

 

5,451

 

Warrants to purchase common stock

 

 

165

 

 

 

107

 

Restricted Stock and Performance units

 

 

867