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, 2018
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 001-32157
Savara Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
84-1318182 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
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6836 Bee Cave Road, Building III, Suite 200 Austin, TX |
|
78746 |
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(Address of principal executive offices) |
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(Zip Code) |
(512) 961-1891
(Registrant’s telephone number, including area code)
N/A
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.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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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 ☒
As of November 7, 2018, the registrant had 35,128,771 shares of common stock, $0.001 par value per share, outstanding.
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
|
|
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1 |
|
|
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
2 |
|
|
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) |
3 |
|
|
4 |
|
|
|
5 |
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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Item 3. |
27 |
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Item 4. |
27 |
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PART II. |
28 |
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Item 1. |
28 |
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Item 1A. |
28 |
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Item 2. |
49 |
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Item 3. |
49 |
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Item 4. |
49 |
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Item 5. |
49 |
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Item 6. |
49 |
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50 |
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51 |
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i
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
September 30, 2018 |
|
|
December 31, 2017 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,946 |
|
|
$ |
22,121 |
|
|
Short-term investments |
|
|
87,102 |
|
|
|
72,192 |
|
|
Prepaid expenses and other current assets |
|
|
2,697 |
|
|
|
3,551 |
|
|
Total current assets |
|
|
114,745 |
|
|
|
97,864 |
|
|
Property and equipment, net |
|
|
605 |
|
|
|
925 |
|
|
In-process R&D |
|
|
11,520 |
|
|
|
33,626 |
|
|
Goodwill |
|
|
26,962 |
|
|
|
27,082 |
|
|
Other non-current assets |
|
|
1,292 |
|
|
|
131 |
|
|
Total assets |
|
$ |
155,124 |
|
|
$ |
159,628 |
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,240 |
|
|
$ |
2,784 |
|
|
Accrued expenses |
|
|
3,912 |
|
|
|
2,966 |
|
|
Debt facility |
|
|
3,750 |
|
|
|
— |
|
|
Current portion of capital lease obligation |
|
|
318 |
|
|
|
265 |
|
|
Total current liabilities |
|
|
11,220 |
|
|
|
6,015 |
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
Debt facility, net of current portion |
|
|
11,357 |
|
|
|
14,775 |
|
|
Contingent consideration |
|
|
12,079 |
|
|
|
11,948 |
|
|
Deferred tax liability |
|
|
2,534 |
|
|
|
7,181 |
|
|
Capital lease obligation, net of current portion |
|
|
— |
|
|
|
297 |
|
|
Other long-term liabilities |
|
|
80 |
|
|
|
103 |
|
|
Total liabilities |
|
|
37,270 |
|
|
|
40,319 |
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000 and 500,000,000 shares authorized as of September 30, 2018 and December 31, 2017, respectively; 35,120,540 and 30,509,522 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively |
|
|
36 |
|
|
|
32 |
|
|
Additional paid-in capital |
|
|
236,659 |
|
|
|
186,522 |
|
|
Accumulated other comprehensive income |
|
|
364 |
|
|
|
958 |
|
|
Accumulated deficit |
|
|
(119,205 |
) |
|
|
(68,203 |
) |
|
Total stockholders’ equity |
|
|
117,854 |
|
|
|
119,309 |
|
|
Total liabilities and stockholders' equity |
|
$ |
155,124 |
|
|
$ |
159,628 |
|
The accompanying notes are an integral part of these financial statements.
1
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2018 |
|
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2017 |
|
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2018 |
|
|
2017 |
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||||
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Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
9,509 |
|
|
$ |
4,966 |
|
|
|
27,316 |
|
|
|
12,076 |
|
|
General and administrative |
|
|
3,148 |
|
|
|
1,486 |
|
|
|
7,402 |
|
|
|
8,410 |
|
|
Impairment of acquired IPR&D |
|
|
— |
|
|
|
— |
|
|
|
21,692 |
|
|
|
— |
|
|
Depreciation |
|
|
127 |
|
|
|
91 |
|
|
|
387 |
|
|
|
272 |
|
|
Total operating expenses |
|
|
12,784 |
|
|
|
6,543 |
|
|
|
56,797 |
|
|
|
20,758 |
|
|
Loss from operations |
|
|
(12,784 |
) |
|
|
(6,543 |
) |
|
|
(56,797 |
) |
|
|
(20,758 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
111 |
|
|
|
(277 |
) |
|
|
(106 |
) |
|
|
(1,038 |
) |
|
Foreign currency exchange gain (loss) |
|
|
(7 |
) |
|
|
(71 |
) |
|
|
87 |
|
|
|
(225 |
) |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,816 |
) |
|
Change in fair value of financial instruments |
|
|
10 |
|
|
|
(43 |
) |
|
|
(52 |
) |
|
|
(280 |
) |
|
Total other income (expense) |
|
|
114 |
|
|
|
(391 |
) |
|
|
(71 |
) |
|
|
(3,359 |
) |
|
Loss before income taxes |
|
|
(12,670 |
) |
|
|
(6,934 |
) |
|
|
(56,868 |
) |
|
|
(24,117 |
) |
|
Income tax benefit |
|
|
110 |
|
|
|
117 |
|
|
|
5,866 |
|
|
|
824 |
|
|
Net loss |
|
$ |
(12,560 |
) |
|
$ |
(6,817 |
) |
|
$ |
(51,002 |
) |
|
$ |
(23,293 |
) |
|
Accretion of redeemable convertible preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(578 |
) |
|
Deemed dividend on beneficial conversion feature |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(404 |
) |
|
Net loss attributable to common stockholders |
|
$ |
(12,560 |
) |
|
$ |
(6,817 |
) |
|
$ |
(51,002 |
) |
|
$ |
(24,275 |
) |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on foreign currency translation |
|
|
(105 |
) |
|
|
348 |
|
|
|
(620 |
) |
|
|
1,343 |
|
|
Unrealized gain (loss) on short-term investments |
|
|
13 |
|
|
|
(5 |
) |
|
|
26 |
|
|
|
(5 |
) |
|
Total Comprehensive Loss |
|
$ |
(12,652 |
) |
|
$ |
(6,474 |
) |
|
$ |
(51,596 |
) |
|
$ |
(21,955 |
) |
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.28 |
) |
|
$ |
(1.61 |
) |
|
$ |
(1.76 |
) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
33,708,563 |
|
|
|
24,209,517 |
|
|
|
31,648,510 |
|
|
|
13,770,032 |
|
The accompanying notes are an integral part of these financial statements.
2
Consolidated Statements of Changes in Stockholders’ Equity
Period Ended September 30, 2018
(In thousands, except share amounts)
(Unaudited)
|
|
|
Stockholders’ Equity |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Other Comprehensive Income |
|
|
Total |
|
||||||
|
Balance on December 31, 2017 |
|
|
30,509,522 |
|
|
$ |
32 |
|
|
|
186,522 |
|
|
$ |
(68,203 |
) |
|
$ |
958 |
|
|
$ |
119,309 |
|
|
Issuance of common stock upon public offering, net |
|
|
4,250,000 |
|
|
|
4 |
|
|
|
45,788 |
|
|
|
— |
|
|
|
— |
|
|
|
45,792 |
|
|
Issuance of common stock upon At The Market sales, net |
|
|
46,900 |
|
|
|
— |
|
|
|
493 |
|
|
|
— |
|
|
|
— |
|
|
|
493 |
|
|
Issuance of common stock for settlement of RSUs |
|
|
37,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net issuance of common stock upon cashless exercise of stock options |
|
|
115,754 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of common stock upon exercise of stock options |
|
|
51,162 |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
Issuance of common stock upon exercise of warrants |
|
|
2,123 |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
Common stock issued for purchase of assets |
|
|
107,579 |
|
|
|
— |
|
|
|
995 |
|
|
|
— |
|
|
|
— |
|
|
|
995 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,792 |
|
|
|
— |
|
|
|
— |
|
|
|
2,792 |
|
|
Foreign exchange translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(620 |
) |
|
|
(620 |
) |
|
Unrealized gain on short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
|
|
26 |
|
|
Net loss incurred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(51,002 |
) |
|
|
— |
|
|
|
(51,002 |
) |
|
Balance on September 30, 2018 |
|
|
35,120,540 |
|
|
$ |
36 |
|
|
$ |
236,659 |
|
|
$ |
(119,205 |
) |
|
$ |
364 |
|
|
$ |
117,854 |
|
The accompanying notes are an integral part of these financial statements.
3
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(51,002 |
) |
|
$ |
(23,293 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
387 |
|
|
|
272 |
|
|
Impairment of acquired IPR&D |
|
|
21,692 |
|
|
|
— |
|
|
Changes in fair value of financial instruments |
|
|
52 |
|
|
|
280 |
|
|
Change in fair value of contingent consideration |
|
|
131 |
|
|
|
2,108 |
|
|
Noncash interest |
|
|
83 |
|
|
|
395 |
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
1,816 |
|
|
Acquired IPR&D |
|
|
995 |
|
|
|
— |
|
|
Foreign currency gain/(loss) |
|
|
(87 |
) |
|
|
225 |
|
|
Amortization of debt issuance costs |
|
|
332 |
|
|
|
301 |
|
|
Accretion on discount to short-term investments and convertible promissory notes |
|
|
(546 |
) |
|
|
(34 |
) |
|
Stock-based compensation |
|
|
2,792 |
|
|
|
350 |
|
|
Issuance of call option derivative |
|
|
— |
|
|
|
344 |
|
|
Provision (benefit) for deferred taxes |
|
|
(4,555 |
) |
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Grant and award receivable |
|
|
— |
|
|
|
400 |
|
|
Tax refund receivable |
|
|
(1,393 |
) |
|
|
(785 |
) |
|
Prepaid expenses and other current assets |
|
|
969 |
|
|
|
(1,272 |
) |
|
Deferred rent |
|
|
(23 |
) |
|
|
(14 |
) |
|
Accounts payable and accrued expenses |
|
|
1,391 |
|
|
|
143 |
|
|
Net cash used in operating activities |
|
$ |
(28,782 |
) |
|
$ |
(18,764 |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Cash acquired through Merger |
|
$ |
— |
|
|
$ |
3,442 |
|
|
Purchase of property and equipment |
|
|
(81 |
) |
|
|
(61 |
) |
|
Purchase of available-for-sale securities |
|
|
(88,104 |
) |
|
|
(33,443 |
) |
|
Maturities of available-for-sale securities |
|
|
64,346 |
|
|
|
— |
|
|
Sale of available-for-sale securities, net |
|
|
9,351 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
$ |
(14,488 |
) |
|
$ |
(30,062 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from debt facility |
|
$ |
— |
|
|
$ |
14,894 |
|
|
Proceeds from convertible promissory notes |
|
|
— |
|
|
|
3,569 |
|
|
Issuance of common stock upon exercise of warrants |
|
|
19 |
|
|
|
384 |
|
|
Issuance of common stock upon public offering, net |
|
|
45,792 |
|
|
|
39,522 |
|
|
Issuance of common stock upon at the market offerings, net |
|
|
493 |
|
|
|
991 |
|
|
Repayment of long-term debt |
|
|
— |
|
|
|
(3,567 |
) |
|
Proceeds from exercise of stock options |
|
|
50 |
|
|
|
— |
|
|
Capital lease obligation principal payments |
|
|
(257 |
) |
|
|
(460 |
) |
|
Net cash provided by financing activities |
|
$ |
46,097 |
|
|
$ |
55,333 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(2 |
) |
|
|
(67 |
) |
|
Increase in cash and cash equivalents |
|
$ |
2,825 |
|
|
$ |
6,440 |
|
|
Cash and cash equivalents beginning of period |
|
|
22,121 |
|
|
|
13,373 |
|
|
Cash and cash equivalents end of period |
|
$ |
24,946 |
|
|
$ |
19,813 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
Extinguishment and derecognition of put options |
|
$ |
— |
|
|
$ |
2,202 |
|
|
Conversion of convertible notes into common stock |
|
$ |
— |
|
|
$ |
8,249 |
|
|
Shares issued in connection of business combination and assumed equity awards |
|
$ |
— |
|
|
$ |
35,846 |
|
|
Accretion of redeemable convertible preferred stock |
|
$ |
— |
|
|
$ |
578 |
|
|
Beneficial conversion feature |
|
$ |
— |
|
|
$ |
404 |
|
|
Common stock issued for IPR&D, net |
|
$ |
995 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,038 |
|
|
$ |
359 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
Savara Inc. (“Savara,” the “Company,” or as used in the context of “we” or “us”) is an orphan lung disease company. The Company’s pipeline comprises Molgradex, an inhaled granulocyte-macrophage colony-stimulating factor, or GM-CSF, in Phase 3 development for autoimmune pulmonary alveolar proteinosis (“aPAP”), in Phase 2a development for nontuberculous mycobacterial (“NTM”) lung infection, and in preparation for Phase 2a development in cystic fibrosis (“CF”) affected individuals with chronic NTM lung infection, and AeroVanc, a Phase 3 stage inhaled vancomycin for treatment of persistent methicillin-resistant Staphylococcus aureus (“MRSA”) lung infection in individuals living with CF. The Company and its wholly owned subsidiaries operate in one segment with its principal offices in Austin, Texas.
Since inception, Savara has devoted substantially all of its efforts and resources to identifying and developing its product candidates, recruiting personnel, and raising capital. Savara has incurred operating losses and negative cash flow from operations and has no product revenue from inception to date. The Company has not yet commenced commercial operations.
Basis of Presentation
The interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) as defined by the Financial Accounting Standards Board (“FASB”). These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2017.
Unaudited Interim Financial Information
The interim condensed consolidated financial statements included in this document are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for a fair statement of the Company’s financial position as of September 30, 2018, and its results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017. The results of operations for interim periods shown in this report are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any other future annual or interim period. The December 31, 2017 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2017.
2. Summary of Significant Accounting Policies
Liquidity
As of September 30, 2018, the Company had an accumulated deficit of approximately $119.2 million. The Company also had negative cash flow from operations of approximately $28.8 million during the nine months ended September 30, 2018. The cost to further develop and obtain regulatory approval for any drug is substantial and, as noted below, the Company may have to take certain steps to maintain a positive cash position. Accordingly, the Company will need additional capital to further fund the development of, and seek regulatory approvals for, its product candidates and begin to commercialize any approved products.
Currently, the Company is primarily focused on the development of respiratory drugs and believes such activities will result in the Company’s continued incurrence of significant research and development and other expenses related to those programs. If the clinical trials for any of the Company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of the Company’s product candidates, if approved, fail to achieve market acceptance, the Company may never become profitable. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. The Company intends to cover its future operating expenses through cash and cash equivalents on hand and through a combination of equity offerings, debt financings, government or other third-party funding, and other collaborations and strategic alliances. The Company cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its stockholders.
5
While the Company had cash and cash equivalents of $24.9 million and short-term investments of $87.1 million as of September 30, 2018, the Company intends to continue to raise additional capital as needed through the issuance of additional equity and potentially through borrowings, and strategic alliances with partner companies. However, if such financings are not available timely and at adequate levels, the Company will need to reevaluate its operating plans. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Principles of Consolidation
The interim condensed consolidated financial statements of the Company are stated in U.S. dollars and are prepared using U.S. GAAP. These financial statements include the accounts of the Company and its wholly owned subsidiaries. The financial statements of the Company’s wholly owned subsidiaries are recorded in their functional currency and translated into the reporting currency. The cumulative effect of changes in exchange rates between the foreign entity’s functional currency and the reporting currency is reported in Accumulated Other Comprehensive Income. All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management’s estimates include those related to the accrual of research and development costs, certain financial instruments recorded at fair value, stock-based compensation, and the valuation allowance for deferred tax assets. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Accordingly, actual results could be materially different from those estimates.
Risks and Uncertainties
The product candidates being developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s product candidates will receive the necessary approvals. If the Company is denied regulatory approval of its product candidates, or if approval is delayed, it may have a material adverse impact on the Company’s business, results of operations and its financial position.
The Company is subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful discovery and development of drug candidates, raising additional capital, development of competing drugs and therapies, protection of proprietary technology and market acceptance of the Company’s products. As a result of these and other factors and the related uncertainties, there can be no assurance of the Company’s future success.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, institutional bank money market accounts, and commercial paper with original maturities of three months or less when acquired and are stated at cost, which approximates fair value.
Short-term Investments
The Company has classified its investments in debt securities with readily determinable fair value as available-for-sale securities. These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments reflected as a part of “Accumulated other comprehensive income” within stockholders' equity.
The fair value of the investments is based on the specific quoted market price of the securities or comparable securities at the balance sheet dates. Investments in debt securities are considered to be impaired when a decline in fair value is judged to be other than temporary because the Company either intends to sell or it is more-likely-than not that it will have to sell the impaired security before recovery. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and foreign exchange derivatives not designated as hedging. The Company places its cash and cash equivalents with a limited number of high-quality financial institutions and at times may exceed the amount of insurance provided on such deposits.
6
Accrued Research and Development Costs
The Company records the costs associated with research, nonclinical studies, clinical trials, and manufacturing development as incurred. These costs are a significant component of the Company’s research and development expenses, with a substantial portion of the Company’s on-going research and development activities conducted by third-party service providers, including contract research and manufacturing organizations.
The Company accrues for expenses resulting from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other outside service providers for which payment flows do not match the periods over which materials or services are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs, and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services. The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. In the event advance payments are made to a CRO, CMO, or outside service provider, the payments will be recorded as a prepaid asset which will be amortized or expensed as the contracted services are performed. As actual costs become known, the Company adjusts its prepaids and accruals. Inputs, such as the services performed, the number of patients enrolled, or the study duration, may vary from the Company’s estimates resulting in adjustments to research and development expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations. To date, the Company has not experienced any material deviations between accrued and actual research and development expenses.
Business Combinations
Assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and, in some cases, assumptions with respect to the timing and amount of future revenue and expenses associated with an asset.
Goodwill, Acquired In-Process Research and Development (IPR&D) and Deferred Tax Liability
Goodwill and acquired IPR&D are not amortized but are tested annually for impairment or more frequently if impairment indicators exist. The Company adopted accounting guidance related to annual and interim goodwill and acquired in-process research and development (“IPR&D”) impairment tests which allows the Company to first assess qualitative factors before performing a quantitative assessment of the fair value of a reporting unit. If it is determined on the basis of qualitative factors that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative impairment test is required. During the nine months ended September 30, 2018, the Company experienced a $0.1 million and $0.4 million decrease in the carrying value of goodwill and IPR&D, respectively, related to its acquisition of Serendex A/S on July 15, 2016 (as defined and further described in Note 8), which was due to foreign currency translation. In addition, during the nine months ended September 30, 2018, the Company recorded $21.7 million of impairment charges and a corresponding decrease to the carrying value of IPR&D related to the Aironite drug candidate assumed in the Merger (as defined and further described in Note 6) due to the unfavorable results from a Phase 2 study that demonstrated a failure of Aironite to meet the endpoints of the study and limited effectiveness of the compound in patients. As a result of the IPR&D impairment charges recorded in the first quarter of 2018, the Company reduced the associated deferred tax liability related to the acquired IPR&D from the Merger by $4.6 million and recorded a tax benefit.
Tax Refund Receivable
The Company has recorded a Danish tax credit earned by its subsidiary, Savara ApS, for the nine months ended September 30, 2018. Under Danish tax law, Denmark remits a research and development tax credit equal to 22% of qualified research and development expenditures, not to exceed established thresholds. As of September 30, 2018, credits totaling $1.7 million had been generated but not yet received. Of this Danish tax credit of approximately $1.7 million, $0.8 million is related to research and development activities incurred during the year ended December 31, 2017 and recorded as a receivable in prepaid expenses and other current assets, as receipt is expected to occur in the fourth quarter of 2018. The remaining portion of the Danish tax credit of $0.9 million, which was generated during the nine months ended September 30, 2018, is recorded in other non-current assets and is expected to be received in the fourth quarter of 2019.
7
The Company also recognized a tax benefit for the nine months ended September 30, 2018 as provided by the Australian Taxation Office for qualified research and development expenditures on the NTM program incurred through our subsidiary, Savara Australia Pty. Limited. Under Australian tax law, Australia remits a research and development tax credit equal to 43.5% of qualified research and development expenditures, not to exceed established thresholds. As of September 30, 2018, credits totaling $0.4 million had been generated but not yet received. This Australian tax credit of approximately $0.4 million includes approximately $0.1 million in tax credits generated during the year ended December 31, 2017 and is recorded as a receivable in prepaid expenses and other current assets as receipt is expected to occur in the fourth quarter of 2018. The remaining portion of the Australian tax credit of $0.3 million, which was generated during the nine months ended September 30, 2018, is recorded in other non-current assets and is expected to be received in the fourth quarter of 2019.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. Our chief operating decision maker is the chief executive officer. We have one operating segment, specialty pharmaceuticals within the respiratory system.
Fair Value of Financial Instruments
The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
|
|
• |
Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
|
|
• |
Level 2 – Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
|
|
• |
Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
Financial instruments carried at fair value include cash and cash equivalents and contingent consideration related to the acquisition of Serendex A/S (see Note 8) for which any change is reflected in general and administrative expense, foreign exchange derivatives, certain warrants previously classified as liabilities, and embedded put options separated from the convertible promissory notes which were converted to equity or derecognized in connection with the Merger.
Financial instruments not carried at fair value include accounts payable and accrued liabilities. The carrying amounts of these financial instruments approximate fair value due to the highly liquid nature of these short-term instruments.
Net Loss per Share
Basic net loss attributable to common stockholders per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock, restricted stock and restricted stock units outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods presented as the inclusion of all potential dilutive securities would have been antidilutive.
8
The Company recognizes the cost of stock-based awards granted to employees based on the estimated grant-date fair value of the awards. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The Company recognizes the compensation costs for awards that vest over several years on a straight-line basis over the vesting period (see Note 12). Forfeitures are recognized when they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise. The Company recognizes the cost of stock-based awards granted to nonemployees at their then-current fair values as services are performed, and such awards are remeasured through the counterparty performance date.
Manufacturing and Other Commitments and Contingencies
The Company is subject to various manufacturing royalties and payments related to its product candidate, Molgradex. Under an agreement, as amended, with the Active Pharmaceutical Ingredients (“API”) manufacturer, no signing fee or milestones are included in the royalty payments, and there is no minimum royalty. Upon the successful development, registration and attainment of approval by the proper health authorities, such as the FDA, in any territory except Latin America, Central America and Mexico, the Company must pay a royalty of three percent (3%) on annual net sales to the manufacturer of its API. Additionally, Savara must make certain payments to the API manufacturer upon the achievement of the milestones outlined in the following table.
Pursuant to a license agreement between the Company and a Japanese licensee regarding the development and commercialization of Molgradex for the treatment of aPAP in Japan, the Company shall fund the licensee fifty percent (50%), up to a maximum of approximately $0.8 million dollars, of the external costs associated with specific research, regulatory and filing activities to be conducted by the licensee.
The Company is also subject to certain contingent milestone payments, disclosed in the following table, payable to the Company’s manufacturer of its nebulizer used to administer Molgradex. In addition to these milestones, the Company will owe a royalty to the manufacturer of its nebulizer based on net sales. The royalty rate ranges from three and a half percent (3.5%) to five percent (5%) depending on the device technology used by the Company to administer the product.
Manufacturing and Other Contingent Milestone and Co-Development Payments (in thousands):
|
|
|
September 30, 2018 |
|
|
|
Molgradex API manufacturer: |
|
|
|
|
|
Delivery of working and master cell banks |
|
$ |
600 |
|
|
Achievement of certain milestones related to regulatory approval of Molgradex |
|
|
2,000 |
|
|
Molgradex nebulizer manufacturer: |
|
|
|
|
|
Achievement of various development activities and regulatory approval of nebulizer utilized to administer Molgradex |
|
|
8,062 |
|
|
Molgradex (aPAP) Japanese licensee: |
|
|
|
|
|
Co-development and regulatory costs |
|
|
750 |
|
|
Total manufacturing and other commitments |
|
$ |
11,412 |
|
As of September 30, 2018 and December 31, 2017, none of the above milestones or co-developement commitments had been met or incurred.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date. A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.
9
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” and has subsequently issued several supplemental and/or clarifying ASUs, which comprise the new comprehensive revenue recognition standard that will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The standard’s core principle is that a reporting entity will recognize revenue when it transfers control of 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. We have performed an assessment of our contracts with third parties and determined that there would not be a material impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases”. The update aims at making leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and a corresponding lease liability, including leases currently accounted for as operating leases. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements, but expects the impact to be limited to the operating lease agreements for the office spaces in Austin, Texas, Copenhagen, Denmark, and San Diego, California, currently being subleased.
In June 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The update aims at simplifying the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. The standard is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement.” The update eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with early adoption permitted. The Company’s adoption of ASU 2018-013 did not have a material impact on its consolidated financial statements.
3. Prepaid expenses and other current assets
Prepaid expenses consisted of (in thousands):
|
|
|
September 30, 2018 |
|
|
December 31, 2017 |
|
||
|
R&D tax credit receivable |
|
$ |
891 |
|
|
$ |
834 |
|
|
Prepaid clinical trial costs |
|
|
1,067 |
|
|
|
2,129 |
|
|
VAT receivable |
|
|
292 |
|
|
|
196 |
|
|
Prepaid insurance |
|
|
289 |
|
|
|
158 |
|
|
Forward currency exchange derivative |
|
|
4 |
|
|
|
40 |
|
|
Deposits and other |
|
|
154 |
|
|
|
194 |
|
|
Total prepaid expenses and other current assets |
|
$ |
2,697 |
|
|
$ |
3,551 |
|
4. Accrued expenses and other liabilities
Accrued expenses and other liabilities consisted of (in thousands):
|
|
|
September 30, 2018 |
|
|
December 31, 2017 |
|
||
|
Accrued contracted research and development costs |
|
$ |
2,946 |
|
|
$ |
1,308 |
|
|
Accrued general and administrative costs |
|
|
578 |
|
|
|
323 |
|
|
Accrued compensation |
|
|
388 |
|
|
|
1,328 |
|
|
Other |
|
|
— |
|
|
|
7 |
|
|
Total accrued expenses and other liabilities |
|
$ |
3,912 |
|
|
$ |
2,966 |
|
10
Short-term Investments in Available for Sale Securities
The Company’s investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business. The following table summarizes, by major security type, the Company’s investments (in thousands):
|
As of September 30, 2018: |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
|
$ |
11,992 |
|
|
$ |
— |
|
|
$ |
(7 |
) |
|
$ |
11,985 |
|
|
Asset backed securities |
|
|
9,484 |
|
|
|
— |
|
|
|
(4 |
) |
|
|
9,480 |
|
|
Corporate securities |
|
|
19,090 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
19,080 |
|
|
Commercial paper |
|
|
46,556 |
|
|
|
1 |
|
|
|
— |
|
|
|
46,557 |
|
|
Total short-term investments |
|
$ |
87,122 |
|
|
$ |
1 |
|
|
$ |
(21 |
) |
|
$ |
87,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017: |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
|
$ |
11,894 |
|
|
$ |
— |
|
|
$ |
(9 |
) |
|
$ |
11,885 |
|
|
Asset backed securities |
|
|
8,389 |
|
|
|
— |
|
|
|
(6 |
) |
|
|
8,383 |
|
|
Corporate securities |
|
|
22,113 |
|
|
|
— |
|
|
|
(31 |
) |
|
|
22,082 |
|
|
Commercial paper |
|
|
29,842 |
|
|
|
— |
|
|
|
— |
|
|
|
29,842 |
|
|
Total short-term investments |
|
$ |
72,238 |
|
|
$ |
— |
|
|
$ |
(46 |
) |
|
$ |
72,192 |
|
The Company has classified its investments as available-for-sale securities. These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments reflected as a part of “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Classification as short-term or long-term is based upon whether the maturity of the debt securities is less than or greater than twelve months.
There were no significant realized gains or losses related to investments for the nine months ended September 30, 2018 and September 30, 2017.
6. Acquisitions
Mast
On April 27, 2017, Savara completed its business combination with Mast Therapeutics, Inc. ("Mast"), a publicly held company, in accordance with the terms of the Agreement and Plan of Merger and dated January 6, 2017 (the "Merger"). The Merger was accounted for as a reverse merger under the acquisition method of accounting whereby Savara was considered to have acquired Mast for financial reporting purposes because, immediately upon completion of the Merger, Savara stockholders held a majority of the voting interest of the combined company.
11
Pursuant to business combination accounting, the Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The Company used the Multi-Period Excess Earnings Model (“MPEEM”), a form of the income approach to value the in-process research and development intangible asset. Under the valuation method, the present value of future cash flows expected to be generated from the IPR&D of the acquired product candidate, Aironite, was determined using a reasonable discount rate, and identified projected cash flows from Aironite were risk adjusted to take into consideration the probabilities of moving through the various clinical stages. The excess of the purchase price over the assets acquired and liabilities assumed represents goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition and is not expected to be deductible for tax purposes. All transaction costs associated with the Merger were incurred during the year ended December 31, 2017. The total purchase price for Mast was $35.8 million based on the fair value of the outstanding Mast equity on the date of the Merger which was allocated as follows:
|
|
(in thousands) |
|
||
|
Fair value of Mast shares outstanding |
|
$ |
33,117 |
|
|
Fair value of Mast equity |
|
|
2,729 |
|
|
Fair value of total consideration |
|
$ |
35,846 |
|
|
Assets acquired and liabilities assumed |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,442 |
|
|
Tangible assets |
|
|
283 |
|
|
In-process research and development intangible assets |
|
|
21,692 |
|
|
Liabilities |
|
|
(2,396 |
) |
|
Debt |
|
|
(3,407 |
) |
|
Deferred tax liability |
|
|
(7,375 |
) |
|
Total assets acquired and liabilities assumed |
|
|
12,239 |
|
|
Goodwill |
|
|
23,607 |
|
|
Total |
|
$ |
35,846 |
|
As discussed in Note 2, during the first quarter of 2018, the Company recorded a $21.7 million impairment charge and corresponding decrease to the carrying value of IPR&D recorded with respect to the Merger to write the IPR&D asset off in full due to the failure of Aironite to meet its primary and secondary endpoints in the Phase 2 study. Following the negative outcome of the study, Savara does not plan to support any new development of Aironite. The decrease in the carrying value of IPR&D has been recognized as an expense to “Impairment of acquired IPR&D” included in the condensed consolidated statement of operations for the nine months ended September 30, 2018. As a result of the impairment charge recorded in the first quarter of 2018, the Company reduced the related deferred tax liability by $4.6 million and recorded a tax benefit.
Cardeas
In June 2018, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Cardeas Pharma Corporation (“Cardeas”), a biopharmaceutical company specializing in the development of inhaled antibiotics to treat hospital-acquired and/or multi-drug resistant bacterial respiratory infections from highly antibiotic-resistant organisms. Pursuant to the Asset Purchase Agreement, Savara acquired substantially all of the assets, including intellectual property, of Cardeas for a purchase price comprised of (i) an upfront payment of 107,579 shares of the Company’s common stock equal to approximately $1.0 million as of the date of consummation and (ii) certain contingent payments due upon the achievement of distinct development milestones. The Company has accounted for the transaction as an asset purchase. As of the measurement date of the acquisition and at September 30, 2018, the Company has deemed that the contingent payments are not probable and as such has not recorded an associated liability but will continue to assess at each period accordingly.
7. Debt Facility
On April 28, 2017, the Company entered into a loan and security agreement with Silicon Valley Bank (the “Loan Agreement”). During the year ended December 31, 2017, upon satisfaction of the conditions of the Loan Agreement, the Company executed two tranches totaling $15.0 million, the maximum credit available pursuant to the debt facility. The capital was utilized for the repayment of $3.7 million of principal debt and fees of Mast assumed in the Merger. The residual capital is being utilized to fund ongoing development programs of the Company and for general corporate purposes.
The Loan Agreement contains customary affirmative and negative covenants, including among others, covenants limiting our ability and that of our subsidiaries to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments and enter into transactions with affiliates, in each case subject to certain exceptions.
12
The Loan Agreement bears interest at the prime rate reported in The Wall Street Journal, plus a spread of 4.25%. Interest only payments are due through September 2018 followed by monthly payments of principal plus interest over the following 30 months. Since the second tranche was fully extended, the interest only period was extended for an additional 6 months, through March 2019 followed by monthly payments of principal plus interest over the following 24 months through the maturity date of March 1, 2021 under the Loan Agreement provisions. We were obligated to pay customary closing fees and are obligated to pay a final payment of 6.0% of the aggregate principal amount of term loans advanced under the facility. The end of term charge of $0.9 million will be due on the scheduled maturity date and is being recognized as an increase to the principal with a corresponding charge to interest expense over the term of the facility using the effective interest method.
In connection with the Loan Agreement, we paid $0.1 million in legal costs directly attributable to issuing the debt instrument. Such charges were accounted for as debt issuance costs and are being amortized to interest expense using the effective interest method through the scheduled maturity date.
Upon funding the first tranche of the Loan Agreement, the Company was obligated to issue warrants to purchase shares of the Company’s common stock equal to 3.0% of the funded amount divided by the exercise price to be set based on the average price per share over the preceding 10 trading days prior to funding or the price per share prior to the day of funding. The number of shares callable under the warrant agreement for the first tranche and exercise price were 24,725 shares of the Company’s common stock at an exercise price of $9.10 per share, with a ten year life, expiring April 28, 2027 (“April 2017 Warrants”).
Upon funding the second tranche of the Loan Agreement, the Company was obligated to issue warrants to purchase shares of the Company’s common stock equal to 3.0% of the funded amount divided by an exercise price to be set based on the average price per share over the preceding 10 trading days prior to funding or the price per share prior to the day of funding. As such, the Company issued additional warrants for 41,736 shares at an exercise price of $5.39 with a ten year life, expiring June 15, 2027 (“June 2017 Warrants”).
The April 2017 Warrants and June 2017 Warrants were valued using the Black-Scholes option pricing model with the following assumptions: volatility of 71.42% and 71.57%, respectively, expected term of ten years, risk-free interest rate of 2.33% and 2.16%, respectively, and a zero dividend yield. The collective warrant fair value of $0.4 million has been recorded as a debt discount and is being amortized through interest expense using the effective interest method through the scheduled maturity date.
Summary of Carrying Value
The following table summarizes the components of the debt facility carrying value, which approximates the fair value (in thousands):
|
|
|
As of September 30, 2018 |
|
|||||
|
|
|
Short-term |
|
|
Long-term |
|
||
|
Principal payments to lender and end of term charge |
|
$ |
3,750 |
|
|
$ |
11,601 |
|
|
Debt Issuance costs |
|
|
— |
|
|
|
(54 |
) |
|
Debt discount related to warrants |
|
|
— |
|
|
|
(190 |
) |
|
Carrying Value |
|
$ |
3,750 |
|
|
$ |
11,357 |
|
8. Fair Value Measurements
The Company measures and reports certain financial instruments at fair value on a recurring basis and evaluates its financial instruments subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them in each reporting period.
The Company determined that certain investments in debt securities classified as available-for-sale securities were Level 1 financial instruments.
Additional investments in corporate debt securities and commercial paper are considered Level 2 financial instruments because the Company has access to quoted prices but does not have visibility to the volume and frequency of trading for all of these investments. For the Company’s investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace.
13
Foreign exchange derivatives not designated as hedging instruments are considered Level 2 financial instruments. The Company’s foreign exchange derivative instruments are typically short-term in nature.
The Company also determined that the contingent consideration, described further below, was a Level 3 financial instrument.
The fair value of these instruments as of September 30, 2018 and December 31, 2017 was as follows (in thousands):
|
|
|
Quoted Prices in Active | |