XML 21 R6.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Note 1 - Significant Accounting Policies | 3 Months Ended
--- | ---
Mar. 31, 2018
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | Note 1 — Significant Accounting Policies Agreement and Plan of Merger On January 21, 2018, BioCryst Pharmaceuticals, Inc. (the “Company” or “BioCryst”), Idera Pharmaceuticals, Inc. (“Idera”), a Delaware corporation, Nautilus Holdco, Inc., a Delaware corporation and a direct, wholly owned subsidiary of BioCryst (“Holdco”), Island Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Holdco (“Merger Sub A”), and Boat Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Holdco (“Merger Sub B”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions specified therein, (a) Merger Sub A shall be merged with and into Idera (the “Idera Merger”), with Idera surviving as a wholly owned subsidiary of Holdco, and (b) Merger Sub B shall be merged with and into BioCryst (the “BioCryst Merger”, and, together with the Idera Merger, the “Mergers”), with BioCryst surviving as a wholly owned subsidiary of Holdco. At the effective time of the mergers, Holdco will be renamed Valenscion Incorporated. Pursuant to the Merger Agreement, u pon completion of the Mergers, each issued and outstanding share of Idera common stock will be converted into the right to receive 0.20 shares of Holdco common stock (the "Idera exchange ratio"), and each issued and outstanding share of BioCryst common stock will be converted into the right to receive 0.50 shares of Holdco common stock (the "BioCryst exchange ratio" and together with the Idera exchange ratio, the "exchange ratios"). The exchange ratios will not be adjusted for changes in the market price of either BioCryst common stock or Idera common stock between the date of signing of the Merger Agreement and completion of the Mergers. Upon completion of the Mergers, each issued and outstanding share of Idera preferred stock (with certain exceptions) will be converted into the right to receive an amount of Holdco common stock based on its liquidation preference. The Merger Agreement has been unanimously approved by the boards of directors of BioCryst and Idera. The transaction is subject to approval by the stockholders of both companies, as well as regulatory approvals and satisfaction of other customary closing conditions. On February 15, 2018, the Federal Trade Commission notified BioCryst that its request for early termination of the waiting period under the HSR Act had been granted. The stockholders’ meeting for both companies has been scheduled for July 10, 2018. Affiliates of Baker Bros. Advisors, LP are the beneficial owners of approximately 14% of issued and outstanding BioCryst common stock and approximately 18% of issued and outstanding Idera common stock, have agreed, among other things, to vote their shares of BioCryst common stock and Idera common stock in favor of the proposal to adopt the Merger Agreement at each of the BioCryst special meeting and Idera special meeting. The combined company, which will be renamed Valenscion Incorporated, will be headquartered in Exton, PA, at the current Idera headquarters, with a consolidated research center in Birmingham, AL, at the current BioCryst facility. The transaction is expected to be completed during the third quarter of 2018. However, this Form 10 -Q and the forward-looking statements contained in this Form 10 -Q are prepared as an independent company without giving effect to the Mergers. The Company BioCryst is a biotechnology company that designs, optimizes and develops novel small molecule drugs that block key enzymes involved in the pathogenesis of diseases. The Company focuses on oral treatments for rare diseases in which significant unmet medical needs exist and that align with its capabilities and expertise. The Company was incorporated in Delaware in 1986 and its headquarters is located in Durham, North Carolina. The Company integrates the disciplines of biology, crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design. BioCryst has incurred losses and negative cash flows from operations since inception. With the funds available at March 31, 2018, the Company believes these resources will be sufficient to fund its operations at least through the third quarter of 2019. The Company has sustained operating losses for the majority of its corporate history and expects that its 2018 expenses will exceed its 2018 revenues. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. Accordingly, its planned operations raise doubt about its ability to continue as a going concern beyond the third quarter of 2019. The Company’s liquidity needs will be largely determined by the success of operations in regards to the progression of its product candidates in the future. The Company also may consider other plans to fund operations beyond the third quarter of 2019 including: ( 1 ) securing or increasing U.S. Government funding of its programs, including obtaining procurement contracts; ( 2 ) out-licensing rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestones; ( 3 ) raising additional capital through equity or debt financings or from other sources; ( 4 ) obtaining additional product candidate regulatory approvals, which would generate revenue, milestones and cash flow; ( 5 ) reducing spending on one or more research and development programs, including by discontinuing development; and/or ( 6 ) restructuring operations to change its overhead structure. The Company may issue securities, including common stock, preferred stock, depositary shares, stock purchase contracts, warrants and units, through private placement transactions or registered public offerings in the future. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, JPR Royalty Sub LLC (“Royalty Sub”) and MDCP, LLC (“MDCP”) and Nautilus Holdco, Inc. All subsidiaries were formed to facilitate financing and/or strategic transactions for the Company. In the case of Nautilus Holdco, Inc., the subsidiary was formed entirely to facilitate a merger with Idera. Royalty Sub was formed in connection with a $30,000 financing transaction the Company completed on March 9, 2011. See Note 4, Royalty Monetization, for a further description of this transaction. MDCP was formed in connection with a $23,000 Senior Credit Facility that the Company closed on September 23, 2016. See Note 5, Senior Credit Facility, for a further description of this transaction. All intercompany transactions and balances have been eliminated. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10 -Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows. There were no adjustments other than normal recurring adjustments. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2017 and the notes thereto included in the Company’s 2017 Annual Report on Form 10 -K. Interim operating results are not necessarily indicative of operating results for the full year. The balance sheet as of December 31, 2017 has been derived from the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10 -K. Cash and Cash Equivalents The Company generally considers cash equivalents to be all cash held in commercial checking accounts, certificates of deposit, money market accounts or investments in debt instruments with maturities of three months or less at the time of purchase. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these items. Restricted Cash Restricted cash as of March 31, 2018 reflects $3,188 in royalty revenue paid by Shionogi & Co., Ltd. (“Shionogi”) designated for interest on the PhaRMA Notes (defined in Note 4 ) and $1,411 the Company is required to maintain as collateral for a letter of credit associated with the lease execution and build-out of its new Birmingham research facilities. Investments The Company invests in high credit quality investments in accordance with its investment policy, which is designed to minimize the possibility of loss. The objective of the Company’s investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow requirements. The Company places its excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of its credit exposure. In accordance with its policy, the Company is able to invest in marketable debt securities that may consist of U.S. Government and government agency securities, money market and mutual fund investments, municipal and corporate notes and bonds, commercial paper and asset or mortgage-backed securities, among others. The Company’s investment policy requires it to purchase high-quality marketable securities with a maximum individual maturity of three years and requires an average portfolio maturity of no more than 18 months. Some of the securities the Company invests in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, the Company schedules its investments with maturities that coincide with expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, the Company does not believe it has a material exposure to interest rate risk arising from its investments. Generally, the Company’s investments are not collateralized. The Company has not realized any significant losses from its investments. The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are reflected in interest and other income in the Consolidated Statements of Comprehensive Loss and are determined using the specific identification method with transactions recorded on a settlement date basis. Investments with original maturities at date of purchase beyond three months and which mature at or less than 12 months from the balance sheet date are classified as current. Investments with a maturity beyond 12 months from the balance sheet date are classified as long-term. At March 31, 2018, the Company believes that the cost of its investments is recoverable in all material respects. The following tables summarize the fair value of the Company’s investments by type. The estimated fair values of the Company’s fixed income investments are classified as Level 2 in the fair value hierarchy as defined in U.S. GAAP. These valuations are based on observable direct and indirect inputs, primarily quoted prices of similar, but not identical, instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. These fair values are obtained from independent pricing services which utilize Level 2 inputs.
|  | March 31, 2018
|  | Amortized Cost |  | Accrued Interest |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Obligations of the U.S. Government and its agencies |  | $ | 44,116 |  |  | $ | 148 |  |  | $ | — |  |  | $ | (205 | ) |  | $ | 44,059 |
Corporate debt securities |  |  | 35,299 |  |  |  | 201 |  |  |  | — |  |  |  | (250 | ) |  |  | 35,250 |
Certificates of deposit |  |  | 9,821 |  |  |  | 30 |  |  |  | — |  |  |  | (21 | ) |  |  | 9,830 |
Total investments |  | $ | 89,236 |  |  | $ | 379 |  |  | $ | — |  |  | $ | (476 | ) |  | $ | 89,139 |
|  | December 31, 2017
|  | Amortized Cost |  | Accrued Interest |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Obligations of the U.S. Government and its agencies |  | $ | 60,121 |  |  | $ | 177 |  |  | $ | — |  |  | $ | (122 | ) |  | $ | 60,176 |
Corporate debt securities |  |  | 34,021 |  |  |  | 203 |  |  |  | — |  |  |  | (108 | ) |  |  | 34,116 |
Certificates of deposit |  |  | 11,099 |  |  |  | 32 |  |  |  | 1 |  |  |  | (14 | ) |  |  | 11,118 |
Total investments |  | $ | 105,241 |  |  | $ | 412 |  |  | $ | 1 |  |  | $ | (244 | ) |  | $ | 105,410 |
The following table summarizes the scheduled maturity for the Company’s investments at March 31, 2018 and December 31, 2017.
|  | 2018 |  | 2017
Maturing in one year or less |  | $ | 47,540 |  |  | $ | 64,115 |
Maturing after one year through two years |  |  | 38,505 |  |  |  | 34,257 |
Maturing after two years |  |  | 3,094 |  |  |  | 7,038 |
Total investments |  | $ | 89,139 |  |  | $ | 105,410 |
Receivables from Collaborations Receivables from collaborations are recorded for amounts due to the Company related to reimbursable research and development costs from the U.S. Department of Health and Human Services, royalty receivables from Shionogi, Green Cross Corporation (“Green Cross”), Mundipharma International Holdings Limited (“Mundipharma”) and Seqirus UK Limited (“SUL”), and product sales to SUL. These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date. At March 31, 2018 and December 31, 2017, the Company had the following receivables.
|  | March 31, 2018
|  | Billed |  | Unbilled |  | Total
U.S. Department of Health and Human Services |  | $ | 23 |  |  | $ | 996 |  |  | $ | 1,019 |
Shionogi & Co. Ltd. |  |  | 2,422 |  |  |  | — |  |  |  | 2,422 |
Green Cross Corporation |  |  | 899 |  |  |  | 27 |  |  |  | 926 |
Mundipharma International Holdings Limited |  |  | 22 |  |  |  |  |  |  |  | 22 |
Seqirus UK Limited |  |  | 1,133 |  |  |  | 172 |  |  |  | 1,305 |
Total receivables |  | $ | 4,499 |  |  | $ | 1,195 |  |  | $ | 5,694 |
|  | December 31, 2017
|  | Billed |  | Unbilled |  | Total
U.S. Department of Health and Human Services |  | $ | 42 |  |  | $ | 2,020 |  |  | $ | 2,062 |
Shionogi & Co. Ltd. |  |  | 1,600 |  |  |  | — |  |  |  | 1,600 |
Green Cross Corporation |  |  | 1,388 |  |  |  | 28 |  |  |  | 1,416 |
Mundipharma International Holdings Limited |  |  | 47 |  |  |  | — |  |  |  | 47 |
Seqirus UK Limited |  |  | 825 |  |  |  | 167 |  |  |  | 992 |
Total receivables |  | $ | 3,902 |  |  | $ | 2,215 |  |  | $ | 6,117 |
Monthly invoices are submitted to the U.S. Department of Health and Human Services related to reimbursable research and development costs. The Company is also entitled to monthly reimbursement of indirect costs based on rates stipulated in the underlying contract. The Company’s calculations of its indirect cost rates are subject to audit by the U.S. Government. Receivables from Product Sales Receivables from product sales are recorded for amounts due to the Company related to sales of RAPIVAB ® . These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date. Inventory At March 31, 2018, the Company’s inventory consisted primarily of peramivir work in process and is being manufactured for the Company’s partners. Inventory is stated at the lower of cost and net realizable value, determined under the first -in, first -out (“FIFO”) method, or market. The Company expenses costs related to the production of inventories as research and development expenses in the period incurred until such time it is believed that future economic benefit is expected to be recognized, which generally is reliant upon receipt of regulatory approval. Upon regulatory approval, the Company will capitalize subsequent costs related to the production of inventories. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over a life of three years. Laboratory equipment, office equipment, and software are depreciated over a life of five years. Furniture and fixtures are depreciated over a life of seven years. Leasehold improvements are amortized over their estimated useful lives or the expected lease term, whichever is less. Property consists of a leased building which did not meet the sale-leaseback criteria and is recorded at its fair value, less depreciation. The building is being depreciated over a period equal to the expected term of the related lease. In accordance with U.S. GAAP, the Company periodically reviews its property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Property and equipment to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Patents and Licenses The Company seeks patent protection on all internally developed processes and products. All patent related costs are expensed to selling, general and administrative expenses when incurred as recoverability of such expenditures is uncertain. Accrued Expenses The Company generally enters into contractual agreements with third -party vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period of time. The Company records liabilities under these contractual commitments when it determines an obligation has been incurred, regardless of the timing of the invoice. This process involves reviewing open contracts and purchase orders, communicating with applicable Company personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost. The majority of service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of accrued expenses as of each balance sheet date in its financial statements based on the facts and circumstances. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued expenses include:
| • |  | fees paid to Clinical Research Organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials; |
| • |  | fees paid to investigative sites in connection with clinical trials; |
| • |  | fees paid to contract manufacturers in connection with the production of the Company’s raw materials, drug substance and drug products; and |
| • |  | professional fees.
The Company bases its expenses related to clinical trials on its estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. As of March 31, 2018 and December 31, 2017, the carrying value of accrued expenses approximates their fair value due to their short-term settlement. Income Taxes The liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Although no changes were made to provisional amounts during the three months ended March 31, 2018, we will continue to evaluate our estimates related to the new legislation as clarifying guidance and interpretations are issued and our 2017 tax returns are completed. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118” ), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (“TCJA”). SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740, Income Taxes. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss is comprised of unrealized gains and losses on available-for-sale investments and is disclosed as a separate component of stockholders’ equity. Amounts reclassified from accumulated other comprehensive loss are recorded as interest and other income on the Consolidated Statements of Comprehensive Loss. No reclassifications out of accumulated other comprehensive loss were recorded during the three months ended March 31, 2018 or March 31, 2017. Revenue Recognition Transition Considerations In May 2014, the Financial Accounting Standards Board issued Standards Update No. 2014 - 09: Revenue from Contracts with Customers (Topic 606 ) (“ASC 606” ), which provides a single, comprehensive revenue recognition model for all contracts with customers. The core principle of ASC 606 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted the provisions of ASC 606 as of January 1, 2018 using the modified retrospective method as applied to contracts that were not completed as of that date. The modified retrospective method requires the recognition of the cumulative effect of initially applying the standard (if any) as an adjustment to opening retained earnings for the fiscal year beginning January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606. Adoption of ASC 606 resulted in a change in the Company’s method of accounting for fees received under licensing agreements. Prior to adopting ASC 606, fees received under licensing agreements that were related to future performance were deferred and recognized over an estimated period based on the terms of the agreement and the products licensed. Under ASC 606, licenses of drug products and formulations are forms of functional intellectual property. Licenses of functional intellectual property grant a right to use the intellectual property and the related revenue will generally be recognized at a point in time rather than over time. As a result, certain license fees that were previously deferred and recognized over time were eliminated through a cumulative effect adjustment as of January 1, 2018. The following table summarizes the cumulative effect of the changes to the Company’s unaudited Consolidated Balance Sheet as of January 1, 2018 from the adoption of ASC 606:
|  | Balance at December 31, 2017 |  | Adjustments due to ASC 606 |  | Balance at January 1, 2018
Assets |  |  |  |  |  |  |  |  |  |  |  |
Deferred collaboration expense |  | $ | 210 |  |  | $ | (58 | ) |  | $ | 152 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 8,484 |  |  | $ | (1,184 | ) |  | $ | 7,300 |
Equity |  |  |  |  |  |  |  |  |  |  |  |
Accumulated deficit |  | $ | (631,843 | ) |  | $ | 1,126 |  |  | $ | (630,717 | )
The following tables summarize the current period impacts of adopting ASC 606 on the Company’s unaudited Consolidated Balance Sheet and Consolidated Statement of Comprehensive Loss:
|  | March 31, 2018
|  | As Reported |  | Adjustments due to ASC 606 |  | Balances without adoption of ASC 606
Assets |  |  |  |  |  |
Deferred collaboration expense |  | $ | 152 |  |  | $ | 44 |  |  | $ | 196 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 7,300 |  |  | $ | 888 |  |  | $ | 8,188 |
Equity |  |  |  |  |  |  |  |  |  |  |  |
Accumulated deficit |  | $ | (656,494 | ) |  | $ | 282 |  |  | $ | (656,212 | )
|  | For the Three Months Ended March 31, 2018
|  | As Reported |  | Adjustments due to ASC 606 |  | Balances without adoption of ASC 606
Collaborative and other research and development revenue |  | $ | 315 |  |  | $ | 296 |  |  | $ | 611 |
Research and development expenses |  |  | 18,441 |  |  |  | 14 |  |  |  | 18,455 |
Net loss |  |  | (25,777 | ) |  |  | 282 |  |  |  | (25,495 | )
Basic and diluted net loss per share |  | $ | (0.26 | ) |  | $ | 0.00 |  |  | $ | (0.26 | )
Adoption of the standard had no impact on total net cash within the Consolidated Statements of Cash Flows. Collaborative and Other Research and Development Arrangements and Royalties The Company recognizes revenue when it satisfies a performance obligation by transferring promised goods or services to a customer. Revenue is measured at the transaction price that is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. The Company has collaboration and license agreements with a number of third parties as well as research and development agreements with certain government entities. The Company’s primary sources of revenue are license, service, royalty and product sale revenues from these collaborative and other research and development arrangements. Revenue from license fees, royalty payments, milestone payments, and research and development fees are recognized as revenue when the earnings process is complete and the Company has no further continuing performance obligations or the Company has completed the performance obligations under the terms of the agreement. Arrangements that involve the delivery of more than one performance obligation are initially evaluated as to whether the intellectual property licenses granted by the Company represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property licenses would be recognized up-front while the research and development service fees would be recognized as the performance obligations are satisfied. Variable consideration is assessed at each reporting period as to whether it is not subject to significant future reversal and, therefore, should be included in the transaction price at the inception of the contract. If a contract includes a fixed or minimum amount of research and development support, this also would be included in the transaction price. Changes to collaborations, such as the extensions of the research term or increasing the number of targets or technology covered under an existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract. For contracts with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors. Analyzing the arrangement to identify performance obligations requires the use of judgment, and each may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. Milestone payments are recognized as licensing revenue upon the achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not probable at the inception of the agreement; and (ii) the Company has a right to payment. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue. Reimbursements received for direct out-of-pocket expenses related to research and development costs are recorded as revenue in the Consolidated Statements of Comprehensive Loss rather than as a reduction in expenses. Under the Company’s contracts with the Biomedical Advanced Research and Development Authority within the United States Department of Health and Human Services (”BARDA/HHS”) and the National Institute of Allergy and Infectious Diseases (“NIAID/HHS”), revenue is recognized as reimbursable direct and indirect costs are incurred. Under certain of the Company’s license agreements, the Company receives royalty payments based upon its licensees’ net sales of covered products. Royalties are recognized at the later of when (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. Product Sales The Company recognizes revenue for sales of RAPIVAB when the customer obtains control of the product, which generally occurs on the date of shipment to the Company’s specialty distributors, utilizing the Sell-In revenue recognition methodology. Product sales are recognized net of estimated allowances, discounts, sales returns, chargebacks and rebates. In the United States, and prior to the SUL Agreement, the Company sold RAPIVAB to specialty distributors, who in turn, sell to physician offices, hospitals and federal, state and commercial health care organizations. With the completion of the SUL worldwide license of RAPIVAB, SUL will be responsible for sales of RAPIVAB, other than U.S. Government stockpiling sales. With the completion of the SUL collaboration, all peramivir sales (i.e., RAPIVAB, ALPIVAB TM , RAPIACTA ® , and PERAMIFLU ® ) should be made by the Company’s partners, except for U.S. Government stockpiling sales, and the Company will be reliant on these partners to generate sales. Sales deductions consist of statutory rebates to state Medicaid, Medicare and other government agencies and sales discounts (including trade discounts and distribution service fees). These deductions are recorded as reductions from revenue from RAPIVAB in the same period as the related sales with estimates of future utilization derived from historical experience adjusted to reflect known changes in the factors that impact such reserves. The Company recorded the following revenues for the three months ended March 31, 2018 and 2017:
|  | 2018 |  | 2017
Royalty revenues |  | $ | 3,661 |  |  | $ | 6,321 |
Collaborative and other research and development revenues: |  |  |  |  |  |  |  |
U.S. Department of Health and Human Services |  |  | 315 |  |  |  | 654 |
Shionogi & Co., Ltd. |  |  | — |  |  |  | 296 |
Seqirus UK Limited |  |  | — |  |  |  | 2,166 |
Total collaborative and other research and development revenues |  |  | 315 |  |  |  | 3,116 |
Total revenues |  | $ | 3,976 |  |  | $ | 9,437 |
Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue and billings in excess of revenue recognized (contract liabilities) on the Consolidated Balance Sheets. Contract assets - The Company’s long-term contracts, typically the government research and development contracts, are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition resulting in contract assets. Contract assets are generally classified as current assets in the Consolidated Balance Sheet. Contract liabilities - The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as either current or long-term in the Consolidated Balance Sheet based on the timing of when the Company expects to recognize the revenue. Contract Costs The Company may incur direct and indirect costs associated with obtaining a contract. Incremental contract costs that the Company expects to recover are capitalized and amortized over the expected term of the contract. Non-incremental contract costs and costs that the Company does expect to recover are expensed as incurred. Advertising The Company engages in very limited distribution and direct-response advertising when promoting RAPIVAB. Advertising and promotional costs are expensed as the costs are incurred. Research and Development Expenses The Company’s research and development costs are charged to expense when incurred. Research and development expenses include all direct and indirect development costs related to the development of the Company’s portfolio of product candidates. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as expense when the related goods are delivered or the related services are performed. Research and development expenses include, among other items, personnel costs, including salaries and benefits, manufacturing costs, clinical, regulatory, and toxicology services performed by CROs, materials and supplies, and overhead allocations consisting of various administrative and facilities related costs. Most of the Company’s manufacturing and clinical and preclinical studies are performed by third -party CROs. Costs for studies performed by CROs are accrued by the Company over the service periods specified in the contracts and estimates are adjusted, if required, based upon the Company’s on-going review of the level of services actually performed. Additionally, the Company has license agreements with third parties, such as Albert Einstein College of Medicine of Yeshiva University (“AECOM”), Industrial Research, Ltd. (“IRL”), and the University of Alabama at Birmingham (“UAB”), which require fees related to sublicense agreements or maintenance fees. The Company expenses sublicense payments as incurred unless they are related to revenues that have been deferred, in which case the expenses are deferred and recognized over the related revenue recognition period. The Company expenses maintenance payments as incurred. Deferred collaboration expenses represent sub-license payments, paid to the Company’s academic partners upon receipt of consideration from various commercial partners, and other consideration paid to the Company’s academic partners for modification to existing license agreements. These deferred expenses would not have been incurred without receipt of such payments or modifications from the Company’s commercial partners and are being expensed in proportion to the related revenue being recognized. The Company believes that this accounting treatment appropriately matches expenses with the associated revenue. Stock-Based Compensation All share-based payments, including grants of stock option awards and restricted stock unit awards, are recognized in the Company’s Consolidated Statements of Comprehensive Loss based on their fair values. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The fair value of restricted stock unit awards is based on the grant date closing price of the common stock. Stock-based compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award. In addition, we have outstanding performance-based stock options for which no compensation expense is recognized until “performance” is deemed to have occurred. Interest Expense and Deferred Financing Costs Interest expense for the three months ended March 31, 2018 and 2017 includes $2,136 and $2,020, respectively, related to the issuance of the PhaRMA Notes (defined in Note 4 ) and the Senior Credit Facility (defined in Note 5 ). Costs directly associated with the issuance of the PhaRMA Notes and the Senior Credit Facility have been capitalized and are netted against the non-recourse notes payable and Senior Credit Facility on the Consolidated Balance Sheets. These costs are being amortized to interest expense over the terms of the PhaRMA Notes and the Senior Credit Facility using the effective interest rate method. Amortization of deferred financing costs and original issue discount included in interest expense was $232 and $220 for each of the three months ended March 31, 2018 and 2017, respectively. Lease Financing Obligation Based on the terms of the lease agreement for the new research facility in Birmingham, Alabama, the Company had construction period risks during the construction period and the Company was deemed the owner of the building (for accounting purposes only) during the construction period. Accordingly, the Company recorded an asset of $1,589 at December 31, 2015, representing the Company’s leased portion of the building and recorded a corresponding liability. Upon completion of leasehold improvement construction, which ended in 2016, the Company did not meet the sale-leaseback criteria for de-recognition of the building asset and liability. Therefore, the lease is accounted for as a financing obligation. The asset will be depreciated over the expected duration of the lease of 20.5 years, and rental payments will be treated as principal and interest payments on the lease financing obligation liability. The underlying accounting for this transaction has no impact on cash flows associated with the underlying lease or construction in process. Interest expense for the three months ended March 31, 2018 and 2017 includes $82 and $80, respectively, related to the lease financing obligation. At each of March 31, 2018 and December 31, 2017, the lease financing obligation balance was $2,703 and was recorded as a long term liability on the consolidated balance sheets. At March 31, 2018 the remaining future minimum payments under the lease financing obligation are $4,225. Currency Hedge Agreement In connection with the issuance by Royalty Sub of the PhaRMA Notes, the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative to the U.S. dollar. The Currency Hedge Agreement does not qualify for hedge accounting treatment; therefore mark to market adjustments are recognized in the Company’s Consolidated Statements of Comprehensive Loss. Cumulative mark to market adjustments for the three months ended March 31, 2018 and 2017 resulted in losses of $1,804 and $1,543, respectively. Mark to market adjustments are determined by a third party pricing model that uses quoted prices in markets that are not actively traded and for which significant inputs are observable directly or indirectly, representing Level 2 in the fair value hierarchy as defined by U.S. GAAP. The Company is also required to post collateral in connection with the mark to market adjustments based on thresholds defined in the Currency Hedge Agreement. As of March 31, 2018 and December 31, 2017, no hedge collateral was posted under the agreement. Net Loss Per Share Net loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share is equivalent to basic net loss per share for all periods presented herein because common equivalent shares from unexercised stock options and common shares expected to be issued under the Company’s employee stock purchase plan were anti-dilutive. The calculation of diluted earnings per share for the three months ended March 31, 2018 and 2017 does not include 1,775 and 2,762, respectively, of such potential common shares, as their impact would be anti-dilutive. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Significant Customers and Other Risks Significant Customers Prior to the SUL Agreement, the Company relied primarily on three specialty distributors to purchase and supply the majority of RAPIVAB. These three pharmaceutical specialty distributors accounted for greater than 90% of all RAPIVAB product sales and accounted for predominantly all of the Company’s outstanding receivables from product sales. The loss of one or more of these specialty distributors as a customer could have negatively impacted the commercialization of RAPIVAB. However, the Company will utilize these specialty distributors on a limited basis subsequent to the SUL collaboration, as SUL and other peramivir collaboration partners will be responsible for commercial sales on a worldwide basis. In addition, in connection with the SUL collaboration, all peramivir sales (i.e., RAPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s partners and the Company will be reliant on these partners to generate sales and remit cash to satisfy receivables. Other than peramivir royalty revenues for which Seqirus has a significant percentage of worldwide geography, the Company’s primary source of revenue that has an underlying cash flow stream is the reimbursement of galidesivir (formerly BCX4430 ) development expenses earned under cost-plus-fixed-fee contracts with BARDA/HHS and NIAID/HHS (each as defined below). The Company relies on BARDA/HHS and NIAID/HHS to reimburse predominantly all of the development costs for its galidesivir program. Accordingly, reimbursement of these expenses represents a significant portion of the Company’s collaborative and other research and development revenues. The completion or termination of the NIAID/HHS and BARDA/HHS galidesivir contracts could negatively impact the Company’s future Consolidated Statements of Comprehensive Loss and Cash Flows. The Company recognizes royalty revenue from the net sales of RAPIACTA by Shionogi; however, the underlying cash flow from these royalty payments, except for Japanese government stockpiling sales, is used directly to pay the interest, and then the principal, on the Company’s non-recourse notes payable. Payment of the interest and the ultimate repayment of principal of these notes will be entirely funded by future royalty payments derived from net sales of RAPIACTA. Further, the Company’s drug development activities are performed by a limited group of third party vendors. If any of these vendors were unable to perform their services, this could significantly impact the Company’s ability to complete its drug development activities. Risks from Third Party Manufacturing and Distribution Concentration The Company primarily relies on single source manufacturers for active pharmaceutical ingredient and finished drug product manufacturing of product candidates in development. Delays in the manufacture or distribution of any product could adversely impact the commercial revenue and future procurement stockpiling of the Company’s product candidates in development. Credit Risk Cash equivalents and investments are financial instruments which potentially subject the Company to concentration of risk to the extent recorded on the Consolidated Balance Sheets. The Company deposits excess cash with major financial institutions in the United States. Balances may exceed the amount of insurance provided on such deposits. The Company believes it has established guidelines for investment of its excess cash relative to diversification and maturities that maintain safety and liquidity. To minimize the exposure due to adverse shifts in interest rates, the Company maintains a portfolio of investments with an average maturity of approximately 18 months or less. Other than product sale and collaborative partner receivables discussed above, the majority of the Company’s receivables from collaborations are due from the U.S. Government, for which there is no assumed credit risk. Recent Accounting Pronouncements On December 22, 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740, Income Taxes. In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016 - 18: Statement of Cash Flows (Topic 230 ): Restricted Cash (“ASU 2016 - 18” ). The new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual reporting periods. The Company adopted ASU 2016 - 18 as of January 1, 2018 and applied it retrospectively to all periods presented. Adoption of ASU 2016 - 18 did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued Accounting Standards Update No. 2016 - 15: Statement of Cash Flows (Topic 230 ): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016 - 15” ). The amendments in this update clarify how entities should classify certain cash receipts and cash payments on the Consolidated Statements of Cash Flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual reporting periods. The Company adopted ASU 2016 - 15 as of January 1, 2018. Adoption of ASU 2016 - 15 did not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016 - 02: Leases (Topic 842 ) (“ASU 2016 - 02” ). The amendments in this update require lessees, among other things, to recognize lease assets and lease liabilities on the balance sheet for all leases with terms greater than 12 months. This update also introduces new disclosure requirements for leasing arrangements. ASU 2016 - 02 will be effective for the Company in fiscal year 2019, but early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements. In January 2016, the FASB issued Accounting Standards Update No. 2016 - 01: Financial Instruments - Overall (Subtopic 825 - 10 ): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016 - 01” ). The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the amendments in this update supersede, for public business entities, the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual reporting periods. The Company adopted ASU 2016 - 15 as of January 1, 2018. Adoption of ASU 2016 - 15 did not have a material impact on the Company’s consolidated financial statements.

X
- References No definition available. + Details
Name: | us-gaap_DisclosureTextBlockAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration