Provention Bio, Inc. - 10-Q filing on 2018-08-13

Significant Accounting Policies (Policies)	6 Months Ended
Significant Accounting Policies (Policies)	Jun. 30, 2018
Accounting Policies [Abstract]
Use of Estimates	*Use of estimates* The process of preparing 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 assets and liabilities at the date of financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
Cash, Cash Equivalents and Concentration of Credit Risk	*Cash, cash equivalents and concentration of credit risk* The Company considers only those investments which are highly liquid, readily convertible to cash, or that mature within three months from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months. The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company holds cash and cash equivalents in banks in excess of FDIC insurance limits. However, the Company believes risk of loss is minimal as the cash and cash equivalents are held by large high rated financial institutions.
Financial Instruments	*Financial instruments* The carrying amounts reported in the balance sheet for accrued expenses approximate fair value based on the short-term nature of these instruments.
Segment Information	*Segment information* 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 regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one operating segment, which is developing and commercializing novel therapeutics and solutions to intercept and prevent immune-mediated diseases. As of June 30, 2018, all of the Company’s assets were located in the United States.
Net Loss Per Common Share	*Net loss per common share* Net loss per share information is determined using the two-class method, which includes the weighted-average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security). The Company considers the Series A Preferred Stock to be participating securities because they include rights to participate in dividends with the common stock. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for the accretion on the Preferred Stock. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses. In periods with net income attributable to common stockholders, the Company would allocate net income first to preferred stockholders based on dividend rights under the Company’s certificate of incorporation and then to preferred and common stockholders based on ownership interests. Diluted net loss per share attributable to common stockholders is computed using the more dilutive of (1) the two-class method or (2) the if-converted method. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders for all periods presented since the effect of potentially dilutive securities are anti-dilutive given the net loss of the Company.
Research and Development Expenses	*Research and development expenses* Research and development expenses are expensed as incurred, including costs to license intellectual property that is an in-process research and development asset with no alternative future use.
Accrued Expenses	*Accrued expenses* The Company is required to estimate accrued expenses as part of the process of preparing financial statements. This process involves estimating the level of service performed on behalf of the Company and the associated cost incurred in instances where the Company has not been invoiced or otherwise notified of actual costs. Examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations. The Company accrues for costs incurred as the services are being provided by external service providers. As actual costs become known, the Company adjusts its accruals. To date, the amount of services performed where the Company has not yet been invoiced has not been material and the estimates did not differ significantly from actual costs incurred.
Stock-based Compensation Expense	*Stock-based compensation expense* The Company recognizes stock-based compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. The Company also grants performance-based stock options to employees. The grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. The Company accounts for actual forfeitures in the period the forfeiture occurs. The Company accounts for awards of equity instruments issued to non-employees in accordance with ASC Topic 505-50 “Equity-Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete, which is normally the end of the vesting period. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using updated assumption inputs in the Black-Scholes option-pricing model. Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the Statements of Operations.
Warrant Liability	*Warrant liability* The Company has issued warrants to purchase shares of Series A Convertible Redeemable Preferred Stock in connection with the issuance of the Series A Preferred Stock. The Company accounts for these warrants as a liability in the financial statements because the underlying instrument into which the warrants are exercisable contains redemption provisions that are outside the Company’s control. The fair value of the warrants was determined using the Black-Scholes option-pricing model. The warrants are re-measured to fair value at each financial reporting period with any changes in fair value being recognized in the statements of operations. Upon the completion of the IPO in July 2018, the warrants issued in connection with the Series A Convertible Redeemable Preferred Stock automatically became warrants for the purchase of 558,740 shares of the Company’s common stock and the liability associated with these warrants will be reclassified to additional paid-in capital during the third quarter of 2018.
Income Taxes	*Income taxes* The Company accounts for income taxes under FASB ASC 740 (“ASC 740”). For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly, the Company provided a valuation allowance equal to 100% of the tax benefit in order to eliminate the deferred tax assets amounts. Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial statements as of June 30, 2018 and December 31, 2017. The Company’s policy for interest and penalties related to income tax exposures is to recognize interest and penalties as a component of the income tax provision (benefit) in the Statements of Comprehensive Loss. In December 2017, the US government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act significantly revises US tax law by, among other provisions, lowering the US federal statutory income tax rate from 35% to 21%, imposing a mandatory one-time transition tax on previously deferred foreign earnings, indefinite NOL carryforwards subject to an 80% limitation, and eliminating or reducing certain income tax deductions. ASC 740, Income Taxes requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the Tax Act’s provisions, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows companies to record the tax effects of the Tax Act on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment. The Tax Act did not have a material impact on the Company’s financial statements since its deferred temporary differences are fully offset by a valuation allowance and the Company does not have any off-shore earnings from which to record the mandatory transition tax. However, given the significant complexity of the Tax Act, anticipated guidance from the US Treasury about implementing the Tax Act, and the potential for additional guidance from the SEC or the FASB related to the Tax Act, these estimates may be adjusted during the measurement period. The provisional amounts disclosed in our footnotes were based on the Company’s present interpretations of the Tax Act and current available information, including assumptions and expectations about future events, such as its projected financial performance, and are subject to further refinement as additional information becomes available (including the Company’s actual full Fiscal 2018 results of operations, as well as potential new or interpretative guidance issued by the FASB or the Internal Revenue Service and other tax agencies) and further analyses are completed. The Company continues to analyze the changes in certain income tax deductions, assess calculations of earnings and profits in certain foreign subsidiaries, including if those earnings which are held in cash or other assets and gather additional data to compute the full impacts on the Company’s deferred and current tax assets and liabilities.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. ASU 2016-02 requires modified retrospective adoption for all leases existing at, or entered after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact the standard may have on the Company’s financial statements and related disclosures if and when the Company enters into a lease agreement. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company’s adoption date of ASC 606. The Company is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.