The consolidated financial statements of the Company include the Company’s accounts and have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) and include the Company’s accounts and those of its wholly-owned subsidiaries MyoKardia Australia Pty Ltd and MyoKardia Netherlands B.V. The consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiaries. All intercompany accounts, transactions and balances have been eliminated during consolidation. The functional and reporting currency of the Company and its subsidiaries is the United States Dollar.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the consolidated financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to clinical trials accrued liabilities, income tax valuation allowance and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

The Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializing therapeutics. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating and evaluating financial performance. All revenues have been earned in the United States of America and all long-lived assets are maintained in the United States of America.

Cash and cash equivalents consist of cash and other highly liquid investments with original maturities of three months or less from the date of purchase. At December 31, 2019 and 2018, the Company’s cash and cash equivalents were comprised of funds held in checking accounts, interest-bearing money market accounts, money market funds and commercial paper.

Reconciliation of Cash, Cash Equivalents, and Restricted Cash as Reported in Consolidated Statements of Cash Flows

Cash as reported in the consolidated statements of cash flows includes the aggregate amounts of cash, cash equivalents and restricted cash as presented on the consolidated balance sheets. Restricted cash at December 31, 2019 and 2018 represents cash balances held as security in connection with the Company’s facility lease agreements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the total shown in the consolidated statements of cash flows (in thousands):

	As of December 31,
	2019		2018
Cash and cash equivalents	$	101,436	$	246,122
Restricted cash included in prepaid expenses and other current assets		337		—
Restricted cash included in restricted cash and other		1,857		2,143
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	103,630	$	248,265

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and investments. All of the Company’s cash and cash equivalents are held at financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company invests in a variety of financial instruments, such as, but not limited to, corporate debt and United States Treasury and Government agency securities, and by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. The Company has not experienced any credit losses on its investments.

The Company did not recognize revenues during the year ended December 31, 2019. As discussed in Note 3, in the years ended December 31, 2018 and 2017 the Company generated revenue from its collaboration and license agreement with its former collaboration partner, Sanofi. The collaboration and license agreement included non-refundable upfront license fees, reimbursement of research and development costs and contingent consideration payments based on the achievement of defined collaboration objectives. To date, the Company has not recognized revenue from sales of its product candidates.

Effective January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) using the full retrospective transition method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, certain collaboration arrangements and financial instruments. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Research and development costs are expensed as incurred and consist of salaries and benefits, lab supplies and facility costs, and fees paid to others that conduct certain research and development activities on the Company’s behalf. Under the terms of the Company’s collaboration agreement with Sanofi, which terminated effective December 31, 2018, and as discussed in Note 3, the Company and Sanofi shared qualified research and development expenses that were jointly incurred to develop certain of the Company’s product candidates. Qualified costs consisted of internal and external research and development expenses including employee costs and direct out-of-pocket costs that were specifically identifiable or reasonably and directly related to the development of these candidates. Examples of qualified costs included those incurred for clinical trials, preparation for regulatory approval, manufacture or purchase of product for use in trials.

The Company’s clinical trials accrued liabilities are a component of research and development expenses and based on patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with clinical research organizations (CROs) that conduct and manage clinical trials on the Company’s behalf. Management estimates clinical trials accrued liabilities for services the Company has not yet been invoiced or otherwise notified of the actual cost based on the services performed, pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on its behalf. Management estimates these expenses based on discussions with the Company’s internal clinical management personnel and CROs as to the progress or stage of completion of trials or services and the contracted fees to be paid for such services. Assumptions used by management in developing the estimate include the progress or stage of completion and patient enrollment of the clinical trials.

Effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases (ASC 842), which requires lessees to recognize a right-of-use asset (ROU) and a lease liability on the balance sheet for all leases except for short-term leases with a lease term of twelve months or less. For lessees, leases continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the prior model but updated to align with certain changes to the lessee model. Lessors continue to classify leases as operating, direct financing or sales-type leases. The Company elected to adopt ASC 842 under the transition method that allows for the application of the new guidance at the beginning of the adoption period without recasting comparative periods. The Company also elected transition practical expedients to the implementation of the lease standard, as follows: (1) the Company did not reassess whether any expired or existing contracts, which had commenced before January 1, 2019, the date of adoption, are or contain leases (2) the Company did not reassess the lease classification for any expired or existing leases and (3) the Company did not reassess the initial direct costs for any existing leases.

All of the Company’s leases are operating leases for property, which historically have been accounted for as operating leases, and under ASC 842 were also determined to be operating leases. The Company also reviewed its open contracts as of the date of adoption and determined that none had terms and conditions that would represent ROU assets or liabilities that would be considered embedded leases.

Upon adoption, the Company recognized ROU assets and related lease liabilities totaling $2.1 million, representing the present value of future lease payments of each lease utilizing the Company’s incremental borrowing rate (IBR), which is the estimated borrowing rate of a collateralized loan over the remaining term of the lease. A deferred rent amount of $0.2 million as of December 31, 2018 was also reclassified to the ROU assets, reducing the carrying value to $1.9 million.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this amendment in December 2019 and the adoption did not have a material impact to the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07 (Topic 718), Compensation – Stock Compensation (ASU 2018-07). The update represents an expansion of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2018-17 in the first quarter of 2019 and the adoption of this standard did not have a material impact to the Company’s financial statements.

In February 2018, the FASB issued ASU No. 2018-05 (Topic 740) Income Taxes, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The update provides guidance that gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income (OCI) that the FASB refers to as having been stranded in accumulated OCI as a result of tax reform. Entities can early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either (1) in the period of adoption or (2) retrospectively to each period in which the income tax effects of the Tax Cuts and Jobs Act related to items in accumulated OCI are recognized. The Company adopted ASU 2018-05 in the first quarter of 2019 utilizing the modified retrospective transition method. The adoption of this standard did not have a material impact to the Company’s financial statements.

In November 2018, the FASB issued ASU 2018-18 (Topic 808), Clarifying the Interaction Between Topic 808 and Topic 606, which provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard. For public companies, the amendments in ASU 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company has evaluated this amendment and it is not expected to have a material impact to the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13 (Topic 820), Fair Value Measurement, which modifies the disclosure requirements in Topic 820 by removing requirements for disclosing (i) amounts of and reasons for transfers between the Level 1 and Level 2 hierarchies, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The ASU 2018-13 amendment also adds requirements for disclosure of changes in unrealized gains and losses for the period relating to Level 3 fair value measurements and other factors considered in the valuation of Level 3 investments. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated this amendment and it is not expected to have a material impact to the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments –Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The modified retrospective approach should be applied upon adoption of this new guidance. The Company has evaluated this amendment and it is not expected to have a material impact to the Company’s financial statements.