Threshold Pharmaceuticals
THRESHOLD PHARMACEUTICALS INC (Form: 10-Q, Received: 08/01/2016 08:33:45)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to             

Commission File Number: 001-32979

 

Threshold Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-3409596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

170 Harbor Way, Suite 300, South San Francisco, CA 94080

(Address of principal executive offices, including zip code)

(650) 474-8200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨   (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

On July 25, 2016, there were 71,511,425 shares of common stock, par value $0.001 per share, of Threshold Pharmaceuticals, Inc. outstanding.

 

 

 


 

Threshold Pharmaceuticals, Inc.

TABLE OF CONTENTS

 

 

  

 

Page

PART I.

  

FINANCIAL INFORMATION

 

 

Item 1.

  

Unaudited Condensed Consolidated Financial Statements

 

3

 

  

Unaudited Condensed Consolidated Balance Sheets

 

3

 

  

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

 

4

 

  

Unaudited Condensed Consolidated Statements of Cash Flows

 

5

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

  

Controls and Procedures

 

23

PART II.

  

OTHER INFORMATION

 

 

Item 1

  

Legal Proceedings

 

23

Item 1A.

  

Risk Factors

 

24

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

Item 3.

  

Defaults Upon Senior Securities

 

48

Item 4.

  

Mine Safety Disclosures

 

48

Item 5.

  

Other Information

 

48

Item 6.

  

Exhibits

 

48

SIGNATURES

 

49

 

EXHIBIT INDEX

 

50

 

 

 

 

2


 

P ART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

June 30,

2016

 

 

December 31,

2015 (Note 1)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

12,402

 

 

$

9,589

 

Marketable securities, current

 

21,189

 

 

 

39,091

 

Collaboration receivable

 

921

 

 

 

1,891

 

Prepaid expenses and other current assets

 

1,294

 

 

 

2,599

 

Total current assets

 

35,806

 

 

 

53,170

 

Property and equipment, net

 

208

 

 

 

333

 

Other assets

 

166

 

 

 

166

 

Total assets

$

36,180

 

 

$

53,669

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,076

 

 

$

725

 

Accrued clinical and development expenses

 

2,097

 

 

 

6,834

 

Accrued liabilities

 

616

 

 

 

3,269

 

Total current liabilities

 

5,789

 

 

 

10,828

 

Warrant liability

 

2,490

 

 

 

1,864

 

Deferred rent

 

87

 

 

 

131

 

Total liabilities

 

8,366

 

 

 

12,823

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

Common stock, $0.001 par value, shares authorized: 150,000,000 shares; issued and outstanding:

   71,511,425 shares at June 30, 2016 and 71,462,059 shares at December 31, 2015

 

72

 

 

 

71

 

Additional paid-in capital

 

371,893

 

 

 

370,236

 

Accumulated other comprehensive loss

 

5

 

 

 

(21

)

Accumulated deficit

 

(344,156

)

 

 

(329,440

)

Total stockholders’ equity

 

27,814

 

 

 

40,846

 

Total liabilities and stockholders’ equity

$

36,180

 

 

$

53,669

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

3


 

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

$

 

 

$

3,680

 

 

$

 

 

$

7,361

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

4,016

 

 

 

10,141

 

 

 

10,021

 

 

 

20,821

 

General and administrative

 

1,892

 

 

 

2,480

 

 

 

4,141

 

 

 

5,096

 

Total operating expenses

 

5,908

 

 

 

12,621

 

 

 

14,162

 

 

 

25,917

 

Loss from operations

 

(5,908

)

 

 

(8,941

)

 

 

(14,162

)

 

 

(18,556

)

Interest income (expense), net

 

40

 

 

 

39

 

 

 

72

 

 

 

72

 

Other income (expense), net

 

(996

)

 

 

596

 

 

 

(626

)

 

 

(976

)

Net loss

 

(6,864

)

 

 

(8,306

)

 

 

(14,716

)

 

 

(19,460

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

4

 

 

 

(3

)

 

 

26

 

 

 

(5

)

Comprehensive loss

$

(6,860

)

 

$

(8,309

)

 

$

(14,690

)

 

$

(19,465

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.10

)

 

$

(0.12

)

 

$

(0.21

)

 

$

(0.28

)

Diluted

$

(0.10

)

 

$

(0.12

)

 

$

(0.21

)

 

$

(0.28

)

Weighted average number of shares used in net loss per share

   calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

71,511

 

 

 

71,334

 

 

 

71,500

 

 

 

69,046

 

Diluted

 

71,511

 

 

 

72,815

 

 

 

71,500

 

 

 

69,046

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


 

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(14,716

)

 

$

(19,460

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

305

 

 

 

503

 

(Gain) loss on sale of investments, property and equipment

 

(51

)

 

 

14

 

Stock-based compensation expense

 

1,645

 

 

 

3,316

 

Change in common stock warrant fair value

 

626

 

 

 

974

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Collaboration receivable

 

970

 

 

 

3,601

 

Prepaid expenses and other assets

 

1,305

 

 

 

(773

)

Accounts payable

 

2,351

 

 

 

(1,439

)

Accrued clinical and development expenses

 

(4,737

)

 

 

1,722

 

Accrued liabilities

 

(2,653

)

 

 

(729

)

Deferred rent

 

(44

)

 

 

(74

)

Deferred revenue

 

 

 

 

(7,361

)

Net cash used in operating activities

 

(14,999

)

 

 

(19,706

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

 

 

(55

)

Purchases of marketable securities

 

(13,454

)

 

 

(39,479

)

Proceeds from sale of property and equipment

 

61

 

 

 

 

Proceeds from sale of marketable securities

 

 

 

 

1,997

 

Proceeds from maturities of marketable securities

 

31,192

 

 

 

30,907

 

Net cash (used in) provided by investing activities

 

17,799

 

 

 

(6,630

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants, net of offering expenses

 

13

 

 

 

28,514

 

Net cash provided by financing activities

 

13

 

 

 

28,514

 

Net increase (decrease) in cash and cash equivalents

 

2,813

 

 

 

2,178

 

Cash and cash equivalents, beginning of period

 

9,589

 

 

 

8,391

 

Cash and cash equivalents, end of period

$

12,402

 

 

$

10,569

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


 

Threshold Pharmaceuticals, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Threshold Pharmaceuticals, Inc. (the “Company”) is a biotechnology company using its expertise in the tumor microenvironment to discover and develop therapeutic agents that selectively target tumor cells for the treatment of patients living with cancer.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, and reflect the elimination of intercompany accounts and transactions.

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605 “Revenue Recognition”, subtopic ASC 605-25 “Revenue with Multiple Element Arrangements” and subtopic ASC 605-28 “Revenue Recognition-Milestone Method”, which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research and development transactions is appropriate, respectively.

 

The Company’s revenues in prior periods were related to its former collaboration arrangement with Merck KGaA, which was entered in February 2012. The collaboration with Merck KGaA provided for various types of payments to the Company, including nonrefundable upfront license, milestone and royalty payments. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The Company also received reimbursement for Merck KGaA’s 70% share for eligible worldwide development expenses for evofosfamide (formerly TH-302). Such reimbursement was reflected as a reduction of operating expenses. In March 2016, the Company and Merck KGaA agreed to terminate the collaboration and all rights evofosfamide were returned to the Company. As a result of the termination of the collaboration the Company is no longer eligible to receive any further milestone payments from Merck KGaA.  In addition, the Company is no longer eligible to receive 70% reimbursement of expenses from Merck KGaA related to the further development of evofosfamide other than for costs to wind down the discontinued trials and return the evofosfamide rights back to the Company.

 

6


 

For multiple-element arrangements, each d eliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrang ement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control. The deliverables under the Merck KGaA agreement were dete rmined to be a single unit of accounting and as such the revenue relating to this unit of accounting was recorded as deferred revenue and recognized ratably over the term of its estimated performance period under the agreement, which was the product develo pment period. The Company determined the estimated performance period and it was periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and therefore revenue recog nized ratably would occur on a prospective basis in the period that the change was made.

 

Deferred revenue associated with a non-refundable payment received under a collaborative agreement for which the developmental performance obligations are terminated will result in an immediate recognition of any remaining deferred revenue in the period that termination occurred provided that all performance obligations have been satisfied. As a result of Merck KGaA’s and the Company’s decision to cease further joint development of evofosfamide in December 2015, the Company immediately recognized all of the remaining deferred revenue into revenue during the quarter ended December 31, 2015.

 

NOTE 2 — NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options and warrants.

Potential dilutive common shares also include the dilutive effect of the common stock underlying in-the-money stock options and warrants that were calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option or warrant is assumed to be used to repurchase shares in the current period. In addition, the average amount of compensation cost for in-the-money options, if any, for future service that the Company has not yet recognized when the option is exercised, is also assumed to repurchase shares in the current period. A reconciliation of the numerator and denominator used in the calculation is as follows (in thousands, except per share amounts):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(6,864

)

 

$

(8,306

)

 

$

(14,716

)

 

$

(19,460

)

Less: noncash income from change in fair

   value of common stock warrants

 

 

 

 

(308

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss - diluted

 

(6,864

)

 

 

(8,614

)

 

 

(14,716

)

 

 

(19,460

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

71,511

 

 

 

71,334

 

 

 

71,500

 

 

 

69,046

 

Dilutive effect of warrants

 

 

 

 

1,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

   and dilutive potential common shares —

   diluted

 

71,511

 

 

 

72,815

 

 

 

71,500

 

 

 

69,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.10

)

 

$

(0.12

)

 

$

(0.21

)

 

$

(0.28

)

Diluted

$

(0.10

)

 

$

(0.12

)

 

$

(0.21

)

 

$

(0.28

)

7


 

 

The following outstanding warrants, options and purchase rights under the Company’s 2004 Employee Stock Purchase Plan (“2004 Purchase Plan”)   were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an antidilutive effect (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Shares issuable upon exercise of warrants

 

8,300

 

 

 

8,300

 

 

 

8,300

 

 

 

12,146

 

Shares issuable upon exercise of stock options

 

11,635

 

 

 

10,151

 

 

 

11,635

 

 

 

10,151

 

Shares issuable related to the 2004 Purchase Plan

 

42

 

 

 

73

 

 

 

42

 

 

 

73

 

 

NOTE 3 — COLLABORATION ARRANGEMENTS

On February 3, 2012, the Company entered into a global license and co-development agreement, or License Agreement, with Merck KGaA, of Darmstadt, Germany, to co-develop and commercialize evofosfamide, the Company’s small molecule hypoxia-targeted drug. Under the terms of the License Agreement, Merck KGaA received co-development rights, exclusive global commercialization rights and provided the Company with an option to co-commercialize evofosfamide in the United States. To date the Company has received $110 million in upfront and milestone payments. The milestones earned to date were not deemed to be substantive milestones because the work related to the achievement of these items was predominately completed prior to the inception of the arrangement or was not commensurate with Company’s performance subsequent to the inception of the arrangement to achieve the milestone.

The Company’s deliverables under the License Agreement with Merck KGaA, which included delivery of the rights and license for evofosfamide and performance of research and development activities, were determined to be a single unit of accounting. The delivered license did not have standalone value at the inception of the arrangement due to the Company’s proprietary expertise with respect to the licensed compound and related ongoing developmental participation under the License Agreement, which was required for Merck KGaA to fully realize the value from the delivered license. Therefore, the revenue relating to this unit of accounting was recorded as deferred revenue and recognized over the estimated performance period under the License Agreement, which is the product development period. The Company recorded $110 million of the upfront payment and milestones payments as deferred revenue and was amortizing them ratably over the estimated period of performance, which the Company originally estimated to end on March 31, 2020 for the nine months ended September 30, 2015. Merck KGaA’s decision to cease further joint development of evofosfamide in December 2015 resulted in the immediate recognition of all the remaining deferred revenue into revenue during the quarter ended December 31, 2015. As a result, the Company recognized $0 revenue during the three and six months ended June 30, 2016, and $3.7 million and $7.4 million of revenue during the three and six months ended June 30, 2015, respectively. Further, in March 2016, the Company and Merck KGaA agreed to terminate the License Agreement pursuant to a termination agreement, or the Termination Agreement. Under the terms of the Termination Agreement, all rights under the License Agreement were returned to the Company, as well as all rights to Merck KGaA technology developed under the License Agreement. Under the Termination Agreement Merck KGaA is entitled to tiered royalties on net sales if any, and milestone payments contingent upon the future successful partnering, development and commercialization of evofosfamide. Also as a result of the termination of the License Agreement the Company is no longer eligible to receive any further milestone payments from Merck KGaA

Merck KGaA also paid 70% of worldwide development expenses for evofosfamide under the terms of the License Agreement. With the decision to cease further joint development of evofosfamide and the termination of the License Agreement, the Company is no longer eligible to receive payments from Merck KGaA for expenses related to further development of evofosfamide other than for costs to wind down the discontinued trials and return the evofosfamide rights back to the Company. The Company earned $0.9 million and $1.7 million reimbursement for eligible worldwide expenses for evofosfamide from Merck KGaA during the six and six months ended June 30, 2016, which expenses were solely for trial wind-down efforts, compared to $3.6 million and $5.6 million for eligible worldwide development expenses incurred during the six and six months ended June 30, 2015. Such earned reimbursement has been reflected as a reduction of research and development expenses.

 

NOTE 4 — STOCKHOLDERS’ EQUITY

Common Stock Warrant Valuation

The Company accounts for its common stock warrants under guidance in ASC 815 that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify for classification as liabilities. The guidance requires the Company’s outstanding warrants to be classified as liabilities and to be fair valued at each reporting period, with the changes in fair value recognized as other income (expense) in the Company’s consolidated statements of operations.

8


 

At both June 30, 2016 and December 31, 2015 the Company had warrants outstanding to purchase 8.3 million shares of common stock, having an initial exercise price of $10.86 per share, which warran ts were issued by the Company in the Company’s February 2015 public offering of common stock and warrants. The exercise price was adjusted to $3.62 on January 21, 2016 pursuant to the terms of warrant. The fair value of these warrants on June 30, 2016 and December 31, 2015 was determined using a Black-Scholes model with the following key level 3 inputs:

 

 

June 30,

2016

 

 

December 31, 2015

 

Risk-free interest rate

 

1.01

%

 

 

1.76

%

Expected life (in years)

 

3.64

 

 

 

4.14

 

Dividend yield

 

 

 

 

 

Volatility

 

116

%

 

 

112

%

Stock price

$

0.64

 

 

$

0.48

 

 

 

During the three and six months ended June 30, 2016 the change in fair value of $1.0 million and $0.7 million, respectively, of noncash expense related to the February 2015 warrants was recorded as other income (expense) in the Company’s consolidated statement of operations.

On March 16, 2016, warrants outstanding, which were initially issued by the Company in an underwritten public offering in March 2011, to purchase 3.8 million shares of common stock expired and noncash income of $38,000 related to the expired warrants was recognized as other income (expense) in the Company’s consolidated statement of operations. At December 31, 2015, the Company had March 2011 warrants outstanding to purchase 3.8 million shares of common stock, having an exercise price of $2.46 per share. The fair value of these warrants on December 31, 2015 was determined using a Black Scholes valuation model with the following key level 3 inputs:

 

 

 

December 31,

2015

 

Risk-free interest rate

 

0.16

%

Expected life (in years)

 

0.21

 

Dividend yield

 

 

Volatility

 

179

%

Stock price

$

0.48

 

 

The following table sets forth the Company’s financial liabilities, related to warrants issued in the February 2015 and March 2011 offerings, subject to fair value measurements as of June 30, 2016 and December 31, 2015:

 

 

Fair Value as of June 30, 2016

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

February 2015 warrants

$

2,490

 

 

$

 

 

$

 

 

$

2,490

 

 

 

 

Fair Value as of December 31, 2015

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 2011 warrants

 

38

 

 

 

 

 

 

 

 

 

38

 

February 2015 warrants

 

1,826

 

 

 

 

 

 

 

 

 

1,826

 

Total common stock warrants

$

1,864

 

 

$

 

 

$

 

 

$

1,864

 

9


 

 

The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs (in thousands):

 

 

Warrant

Liability

 

Balance at December 31, 2015

$

1,864

 

Change in fair value related to expired March 2016 common stock warrants

 

(38

)

Change in fair value of common stock warrants during six months ended June 30, 2016

 

664

 

Exercise of warrants during six months ended June 30, 2016

 

 

Balance at June 30, 2016

$

2,490

 

 

NOTE 5 — STOCK BASED COMPENSATION

The Company recognizes stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation.” Stock-based compensation expense, which consists of the compensation cost for employee stock options and the 2004 Purchase Plan, and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative expenses in the unaudited consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 as follows (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Amortization of stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

306

 

 

$

1,174

 

 

$

624

 

 

$

1,991

 

General and administrative

 

496

 

 

 

721

 

 

 

1,021

 

 

 

1,325

 

 

$

802

 

 

$

1,895

 

 

$

1,645

 

 

$

3,316

 

 

 

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The fair value of employee stock options and employee purchase rights under the 2004 Purchase Plan was estimated using the following weighted-average assumptions for the three and six months ended June 30, 2016 and 2015:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Employee Stock Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.08

%

 

 

1.69

%

 

 

1.60

%

 

 

1.70

%

Expected term (in years)

 

5.27

 

 

 

5.58

 

 

 

5.97

 

 

 

5.98

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

109

%

 

 

79

%

 

 

108

%

 

 

83

%

Weighted-average fair value of stock options granted

$

0.30

 

 

$

2.65

 

 

$

0.44

 

 

$

3.08

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Employee Stock Purchase Plan (ESPP):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

0.56

%

 

 

0.38

%

 

 

0.56

%

 

 

0.38

%

Expected term (in years)

 

1.24

 

 

 

1.24

 

 

 

1.24

 

 

 

1.24

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

161

%

 

 

51

%

 

 

161

%

 

 

51

%

Weighted-average fair value of ESPP purchase rights

$

0.22

 

 

$

1.59

 

 

$

0.22

 

 

$

1.59

 

10


 

 

To determine the expected term of the Company’s employee stock options granted, the Company utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). To determine the risk-free interest rate, the Company utilized an average interest rate based on U.S. Treasury instruments with a term consistent with the expected term of the Company’s stock based awards. To determine the expected stock price volatility for the Company’s stock based awards, the Company utilized the historical volatility of the Company’s common stock. The fair value of all the Company’s stock based awards assumes no dividends as the Company does not anticipate paying cash dividends on its common stock.

Employee Stock-based Compensation Expense

As required by ASC 718, the Company recognized $0.8 million and $1.6 million of stock-based compensation expense related to stock options and purchase rights under the Company’s equity incentive plans and 2004 Purchase Plan for the three and six months ended June 30, 2016 and $1.9 million and $3.3 million of stock-based compensation for the three and six months ended June 30, 2015.  As of June 30, 2016, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plans was approximately $2.4 million before forfeitures. This cost will be recorded as compensation expense on a ratable basis over the remaining weighted average requisite service period of approximately 2.7 years.

Equity Incentive Plans

Equity Incentive Plans    At June 30, 2016, 857,479 shares were authorized and available for issuance under the 2014 Equity Incentive Plan.

The following table summarizes stock option activity under the Company’s equity incentive plans:

 

Options

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2015

 

 

9,032,136

 

 

$

3.77

 

 

 

 

 

 

 

Granted

 

 

2,945,000

 

 

$

0.53

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeitures

 

 

(341,939

)

 

$

3.07

 

 

 

 

 

 

 

Outstanding at June 30, 2016

 

 

11,635,197

 

 

$

2.97

 

 

 

6.32

 

 

$

300,142

 

Vested and expected to vest June 30, 2016

 

 

11,527,107

 

 

$

2.99

 

 

 

6.29

 

 

$

292,477

 

Exercisable at June 30, 2016

 

 

7,444,072

 

 

$

3.61

 

 

 

4.70

 

 

$

16,920

 

 

No stock options were exercised during the six months ended June 30, 2016. The total intrinsic value of stock options exercised during six months ended June 30, 2015 was $0.2 million, as determined at the date of the option exercise. Cash received from stock option exercises was $0.1 million for the six months ended June 30, 2015. The Company issues new shares of common stock upon exercise of options. In connection with these exercises, there was no tax benefit realized by the Company due to the Company’s current loss position.

2004 Employee Stock Purchase Plan On January 1, 2016, an additional 100,000 shares was authorized for issuance under the 2004 Purchase Plan pursuant to the annual automatic increase to the authorized shares under the 2004 Purchase Plan. For the six months ended June 30, 2016, plan participants had purchased 49,366 shares at an average purchase price of $0.24 for total cash proceeds of $12,000.  At June 30, 2016, 177,471 shares were authorized and available for issuance under the 2004 Purchase Plan.

 

NOTE 6 —MARKETABLE SECURITIES AND FAIR VALUE

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 —Quoted prices in active markets for identical assets or liabilities.

11


 

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 observ able market data for substantially the full term of the assets or liabilities.

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.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

The following table sets forth the Company’s financial assets (cash equivalents and marketable securities) at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

 

 

Fair Value as of June 30, 2016

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

1,857

 

 

$

1,857

 

 

$

 

 

$

 

Certificates of deposit

 

100

 

 

 

 

 

 

100

 

 

 

 

Corporate debt securities

 

4,067

 

 

 

 

 

 

4,067

 

 

 

 

Government securities

 

13,580

 

 

 

 

 

 

13,580

 

 

 

 

Commercial paper

 

13,987

 

 

 

 

 

 

13,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

33,591

 

 

$

1,857

 

 

$

31,734

 

 

$

 

 

 

 

Fair Value as of December 31, 2015

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

5,421

 

 

$

5,421

 

 

$

 

 

$

 

Certificates of deposit

 

696

 

 

 

 

 

 

696

 

 

 

 

Corporate debt securities

 

12,571

 

 

 

 

 

 

12,571

 

 

 

 

Government securities

 

21,769

 

 

 

 

 

 

21,769

 

 

 

 

Municipal securities

 

1,908

 

 

 

 

 

 

1,908

 

 

 

 

Commercial paper

 

6,145

 

 

 

 

 

 

6,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

48,510

 

 

$

5,421

 

 

$

43,089

 

 

$

 

 

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at June 30, 2016 and December 31, 2015:

 

As of June 30, 2016 (in thousands):

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

$

1,857

 

 

$

 

 

$

 

 

$

1,857

 

Certificates of deposit

 

100

 

 

 

 

 

 

 

 

 

100

 

Corporate debt securities

 

4,068

 

 

 

 

 

 

(1

)

 

 

4,067

 

U.S. Government securities

 

13,574

 

 

 

7

 

 

 

(1

)

 

 

13,580

 

Commercial paper

 

13,987

 

 

 

 

 

 

 

 

 

13,987

 

 

 

33,586

 

 

 

7

 

 

 

(2

)

 

 

33,591

 

Less cash equivalents

 

12,402

 

 

 

 

 

 

 

 

 

12,402

 

Total marketable securities

$

21,184

 

 

$

7

 

 

$

(2

)

 

$

21,189

 

 

12


 

 

As of December 31, 2015 (in thousands):

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

$

5,421

 

 

$

 

 

$

 

 

$

5,421

 

Certificates of deposit

 

696

 

 

 

 

 

 

 

 

 

696

 

Corporate debt securities

 

12,578

 

 

 

1

 

 

 

(8

)

 

 

12,571

 

Municipal securities

 

1,908

 

 

 

 

 

 

 

 

 

1,908

 

U.S. Government securities

 

21,783

 

 

 

 

 

 

(14

)

 

 

21,769

 

Commercial paper

 

6,145