Table of Contents
development
efforts, our stage of development and business strategy and the likelihood of achieving a liquidity event such as an initial public offering or sale of our company.
For
each of the above valuations, we used the Hybrid approach, which combines the concepts of the option pricing method, or OM, and the Probability Weighted Expected Return Method, or
PWERM, in a single framework.
The
OM treats common stock as call options on the enterprise's value, to be distributed among the common and convertible preferred security classes, with exercise prices based on the
liquidation preference of the convertible preferred stock. Therefore, by extension, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the
liquidation preference at the time of a liquidity event such as a merger, sale or initial public offering, assuming the enterprise has funds available to make a liquidation preference meaningful and
collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible
preferred stock is liquidated. The OM uses the BlackScholes option pricing model to price the call option. The OM is appropriate to use when the range of possible future outcomes is so difficult to
predict that forecasting discrete exit events would be highly speculative.
The
PWERM is a scenariobased analysis that estimates the value per share based on the probabilityweighted present value of expected future investment returns, considering each of the
possible outcomes available to us, as well as the rights of each share class. PWERM estimates the common stock value to our stockholders under possible future scenarios. The value per share under each
scenario is then probability weighted and the resulting weighted values per share are summed to determine the fair value per share of our common stock. In the IPO scenarios, it is assumed that all
outstanding shares of our preferred stock will convert into common stock. Over time, as we achieve certain companyrelated milestones, the probability of each scenario is evaluated and adjusted
accordingly.
The
Hybrid Method employs the concepts of the PWERM for a range of exit scenarios and OM for scenarios where the company remains private.
In
determining the estimated fair value of our common stock, our board of directors also considered the fact that our common stock is not freely tradable in the public market. The
estimated fair value of our common stock at each grant date reflects a nonmarketability discount partially based on the anticipated likelihood and timing of a future liquidity event.
Results of Operations
Comparison of Six Months Ended June 30, 2014 and 2013













Six Months
Ended June 30, 





Increase/
(decrease) 



2014 

2013 



(in thousands)




Collaborative revenues 

$ 
2,329 

$ 
1,962 

$ 
367 

Operating expenses: 










Research and development 


9,425 


7,584 


1,841 

General and administrative 


2,629 


2,680 


(51 
) 



















Total operating expenses 


12,054 


10,264 


1,790 




















Operating income 


(9,725 
) 

(8,302 
) 

(1,423 
) 
Other income 


218 


304 


(86 
) 
Interest income 


29 


43 


(14 
) 
Interest expense 


(541 
) 

(768 
) 

227 




















Net income 

$ 
(10,019 
) 
$ 
(8,723 
) 
$ 
(1,296 
) 






































66