Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies (Policies)

v3.19.3.a.u2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation
[A] Basis of Presentation
The Company’s fiscal year ends on March 31. The accompanying interim condensed combined and consolidated balance sheet as of December 31, 2019 and the interim condensed combined and consolidated statements of operations, comprehensive loss, cash flows and stockholders’ equity for the three and nine months ended December 31, 2019 and 2018 are unaudited. The unaudited interim condensed combined and consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. The unaudited interim condensed combined and consolidated financial statements have been prepared on the same basis as the audited combined and consolidated financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the unaudited interim condensed combined and consolidated financial statements include all the adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position and the combined and consolidated results of
its
operations and cash flows for
the
interim periods presented. The results for the three and nine months ended December 31, 2019 are not necessarily indicative of the results to be expected for the year ending March 31, 2020 or for any future period. The condensed combined and consolidated balance sheet as of March 31, 2019 included herein was derived from the audited financial statements as of that date. These interim condensed combined and consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s definitive proxy statement filed with the SEC on November 29, 2019.
Prior to July 6, 2018 (date of formation), the Company’s financial statements were derived by carving out the historical results of operations and historical cost basis of the assets and liabilities associated with product candidate IMVT-1401, that have been contributed to the Company by RSL, from RSL’s financial statements. Because the transfer of assets and liabilities in the formation of the Company were between entities under the common control of RSL and/or its wholly owned subsidiaries
,
 the financial statements of the Company have been presented as if the Company had been a separate business since the acquisition of IMVT-1401 by RSG on December 19, 2017. Prior to July 6, 2018 (date of formation), the Company’s financial statements include reasonable allocations for assets and liabilities and expenses attributable to the Company’s operations. Beginning on July 6, 2018 (date of formation), the condensed combined and consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company believes that the assumptions underlying the allocations of expenses as well as assets and liabilities in the
carve-out
financial information are reasonable, however, the financial position, results of operations and cash flows may have been materially different if the Company had operated as a stand-alone entity prior to July 6, 2018 (date of formation).
The Company has calculated its income tax amounts using a separate return methodology and it has presented these amounts as if it were a separate taxpayer from RSL.
In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has irrevocably elected not to avail itself of this extended transition period, and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
All share and
per-share
data reported in the condensed combined and consolidated financial statements herein have been retrospectively restated to reflect the effect of the Business Combination (as discussed in Note 3).
Use of Estimates
[B] Use of Estimates
The preparation of condensed combined and consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed combined and consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, research and development costs and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Risks and Uncertainties
[C] Risks and Uncertainties
The Company is subject to risks common to early stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, dependence on key products, third-party service providers such as contract research organizations, protection of intellectual property rights and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements.
Concentrations of Credit Risk
[D] Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk include cash. At December 31, 2019, 
the cash balance is deposited in one banking institution that the Company believes is of high credit quality and is in excess of federally insured levels. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company has not experienced any losses on its cash deposits.
Cash and Cash Equivalents
[E] Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. At December 31, 2019, cash consisted of cash in bank deposits held at 
a financial institution. There were no cash equivalents as of December 31, 2019 or March 31, 2019.
Research and Development Expense
[F] Research and Development Expense
Research and development costs with no alternative future use are expensed as incurred. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development. Milestone payments made in connection with regulatory approvals are capitalized and amortized to cost of product sales over the remaining useful life of the asset. Research and development expenses primarily consist of employee-related costs and expenses from third parties who conduct research and development activities on behalf of the Company. The estimated costs of research and development activities conducted by third-party service providers, which primarily include the conduct of clinical trials and contract manufacturing activities, are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. The estimate of the work completed is developed through discussions with internal personnel and external services providers as to the progress toward completion of the services and the agreed-upon fee to be paid for such services. As actual costs become known, the accrued estimates are adjusted. Such estimates are not expected to be materially different from amounts actually incurred, however the Company’s understanding of the status and timing of services performed, the number of subjects enrolled, and the rate of subject enrollment may vary from estimates and could result in reporting amounts that are higher or lower than incurred in any particular period. The estimate of accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers.
Financial Instruments
[G] Financial Instruments
The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 
   
Level 1 — Quoted prices in active markets for identical assets or liabilities.
 
   
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates and yield curves.
 
   
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s financial instruments consist of cash, accounts payable, accrued expenses and amounts due to Roivant Sciences Ltd. These financial instruments are stated at their respective historical carrying amounts, which approximates fair value due to their short-term nature.
Foreign Currency
[H] Foreign Currency
The Company has operations in the United States, the United Kingdom, Bermuda, and Switzerland. The results of its
non-U.S.
dollar based functional currency operations are translated to U.S. dollars at the average exchange rates during the period. The Company’s assets and liabilities are translated using the current exchange rate as of the condensed combined and consolidated balance sheet date and equity is translated using historical rates. Adjustments resulting from the translation of the condensed combined and consolidated financial statements of the Company’s foreign functional currency subsidiaries into U.S. dollars are excluded from the determination of net loss and are accumulated in a separate component of equity. Foreign exchange transaction gains and losses are included in other
(income)/
expense, net in the condensed combined and consolidated statements of operations.
Net Loss Per Common Share
[I] Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders by the diluted weighted-average number of common shares outstanding during the period. In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equivalent. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share data.
The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
 
 
  
Three Months Ended

December 31,
 
  
Nine Months Ended

December 31,
 
 
  
2019
 
  
2018
 
  
2019
 
  
2018
 
Preferred stock as converted
  
 
10,000
 
  
 
—  
 
  
 
10,000
 
  
 
—  
 
Restricted stock (unvested) (See Note 3)
  
 
1,800,000
 
  
 
—  
 
  
 
1,800,000
 
  
 
—  
 
Options
  
 
4,209,573
 
  
 
118,843
 
  
 
4,209,573
 
  
 
118,843
 
Warrants
  
 
5,750,000
 
  
 
—  
 
  
 
5,750,000
 
  
 
—  
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total
  
 
11,769,573
 
  
 
118,843
 
  
 
11,769,573
 
  
 
118,843
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
The Company was formed on July 
6
,
2018
and basic and diluted net loss per common share was calculated assuming the shares issued at formation were outstanding for the period prior to incorporation adjusted for subsequent share issuances during the period.
The shares and net loss per common share, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (
0.48906624
Immunovant, Inc. shares for 1.0 ISL Share).
Deferred Offering Costs
[J] Deferred Offering Costs
Offering costs comprised of legal, and accounting
 
fees and other costs incurred through June 30, 2019 were directly related to ISL’s proposed initial public offering
 (“IPO”)
. In August 2019, ISL’s
b
oard of
d
irectors
d
etermined
to
suspend
ISL’s
 IPO
 registration process. Accordingly, the Company has written off deferred offering costs previously capitalized
to
 
general and administrative expense within the accompanying condensed combined and consolidated statement of operations for the nine months ended December 31, 2019.
Common Stock Purchase Warrants
[K] Common Stock Warrants
The Company accounts for the issuance of common stock warrants based on the terms of the contract and whether there are any requirements for the Company to net cash settle the contract under any terms or conditions. Warrants for the purchase of 5,750,000 shares of common stock were issued by HSAC as part of the units sold in its IPO in May 2019. Each unit was comprised of one share of common stock and a warrant to purchase one half of one share of common stock upon the consummation of a business combination by HSAC. None of the terms of the warrants were modified as a result of the Business Combination.
The warrants are freestanding financial instruments that are legally detachable from the shares of common stock that were issued at the same time. The warrants are redeemable at the Company’s option in certain conditions. The warrants require settlement to be in physical shares of common stock only. The terms of all of the outstanding warrant contracts expressly state there are no requirements for the Company to net cash settle the warrants under any circumstances.
Accordingly
,
t
he Company has accounted for the warrants as equity instruments.
Recently Adopted Accounting Pronouncements
[L] Recently
 
Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842)
(“ASU
No. 2016-02”),
a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of ASU
No. 2016-02
requires lessees to present the assets and liabilities that arise from leases on their consolidated balance sheets. ASU
No. 2016-02
is effective for annual periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has adopted this ASU as of April 1, 2019, with no impact on the Company’s condensed combined and consolidated financial statements and related disclosures. The Company elected the optional transition method to apply the standard as of the effective date and therefore will not apply the standard to the comparative periods presented in the condensed combined and consolidated financial statements. The Company elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of
right-of-use
assets. Further, the Company elected a short-term lease exception policy to not apply the recognition requirements of this standard to short-term leases with terms of 12 months or less and an accounting policy to account for lease and
non-lease
components as a single component for certain classes of assets.