Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

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

The Company relies on a contract research organization (“CRO”) to manage the preparation and submission of the planned NDA.  If this CRO is unable to continue the management of the NDA preparation, the delays could adversely affect the timing of the filing of the Company’s NDA with FDA.

In addition, the Company relies on third-party manufacturers for the production of its drug candidate. If the third-party manufacturers are unable to continue manufacturing the Company’s drug candidate, or if the Company loses one of its sole source suppliers used in its manufacturing processes, the Company may not be able to meet any development needs or commercial supply demand for Gimoti, if approved by FDA, and the development and/or commercialization of Gimoti could be materially and adversely affected.

Warrant Accounting

Warrant Accounting

In March 2018, the Company entered into warrant amendments (the “Warrant Amendments”) with each of the holders of the Company’s outstanding warrants to purchase common stock issued on July 25, 2016 and August 3, 2016 (the “Warrants”).  As a result of the Warrant Amendments, the Warrants will no longer be classified as a liability on the Company’s balance sheet, were adjusted to fair value as of the date of the Warrant Amendments and reclassified to additional paid-in capital, a component of stockholders’ equity.

Prior to the Warrant Amendments, the Warrants were classified as warrant liability and recorded at fair value. These Warrants contained a feature that could have required the transfer of cash in the event a change of control occurs without the authorization of our board of directors, and therefore, were classified as a liability in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480.  

The fair value of each warrant was estimated on the date of issuance, and each subsequent balance sheet date, using the Black-Scholes valuation model using the appropriate risk-free interest rate, expected term and volatility assumptions.  The expected life of the warrant was calculated using the remaining life of the warrant.  Due to the Company’s limited historical data as a public company, the estimated volatility was calculated based upon the Company’s historical volatility, supplemented, as necessary, with historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time.  The risk-free rate was based upon U.S. Treasury securities with remaining terms similar to the expected term of the stock award being valued.  

This warrant liability was subject to remeasurement at each reporting date and the Company recognized any change in the fair value of the warrant liability in the statement of operations. The Company continued to adjust the carrying value of the warrants for changes in the estimated fair value until the date of the Warrant Amendments.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation expense for stock option grants and employee stock purchases under the Company’s Employee Stock Purchase Plan (the “ESPP”) is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the employee’s requisite service period.  The estimation of stock option and ESPP fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock.  The judgments directly affect the amount of compensation expense that will be recognized.  

The Company grants stock options to purchase common stock to employees and members of the board of directors with exercise prices equal to the Company’s closing market price on the date the stock options are granted.  The risk-free interest rate assumption was based on the yield of an applicable rate for U.S. Treasury instruments with maturities similar to those of the expected term of the award being valued.  The weighted average expected term of options and employee stock purchases was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation.  This decision was based on the lack of relevant historical data due to the Company’s limited historical experience.  In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company’s historical volatility and, if necessary, supplemented with historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time.  The assumed dividend yield was based on the Company never paying cash dividends and having no expectation of paying cash dividends in the foreseeable future.

Research and Development Expenses

Research and Development Expenses

Research and development costs are expensed as incurred and primarily include compensation and related benefits, stock-based compensation expense and costs paid to third-party contractors to perform research, conduct clinical trials and develop drug materials and delivery devices.  The Company expenses costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until FDA approval is received.  

The Company does not own or operate manufacturing facilities for the production of Gimoti, nor does it plan to develop its own manufacturing operations in the foreseeable future.  The Company currently depends on third-party contract manufacturers for all of its required raw materials, drug substance and finished product for its pre-commercial product development.  The Company has agreements with Cosma S.p.A. to supply metoclopramide for the manufacture of Gimoti, and with Thermo Fisher Scientific Inc., who acquired Patheon UK Limited, for product development and manufacturing of Gimoti.  The Company currently utilizes third-party consultants, which it engages on an as-needed, hourly basis, to manage product development and manufacturing contractors.

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common stock outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted-average number of common stock outstanding that are subject to repurchase.  The Company has excluded 45,000 shares of common stock subject to repurchase from the weighted-average number of common stock outstanding for the three months ended March 31, 2018 and 2017.  Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method.  Dilutive common stock equivalents are comprised of shares subject to repurchase, warrants for the purchase of common stock, options outstanding under the Company’s equity incentive plans and potential shares to be purchased under the ESPP.  For the periods presented, the following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

	Three Months Ended March 31,
	2018		2017
Common stock subject to repurchase		45,000		45,000
Warrants to purchase common stock		2,797,561		2,797,561
Common stock options		2,811,624		1,925,624
Employee stock purchase plan		6,902		5,185
Total excluded securities		5,661,087		4,773,370

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases.  The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Company’s only significant lease is its facility lease, which expires on December 31, 2018. Until the current lease is extended, or a new lease is entered into, the Company is uncertain as to the impact of its pending adoption of the new standard on the Company’s financial statements.