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, 2014
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 |
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¨ |
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Accelerated filer |
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x |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
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, 2014, there were 59,366,054 shares of common stock, par value $0.001 per share, of Threshold Pharmaceuticals, Inc. outstanding.
Threshold Pharmaceuticals, Inc.
TABLE OF CONTENTS
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Page |
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PART I. |
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Item 1. |
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3 |
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3 |
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss |
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4 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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6 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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15 |
Item 3. |
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21 |
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Item 4. |
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21 |
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PART II. |
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Item 1 |
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22 |
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Item 1A. |
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22 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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43 |
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44 |
The terms “Threshold,” “we,” “us,” “the Company” and “our” as used in this report refer to Threshold Pharmaceuticals, Inc. Threshold Pharmaceuticals, Inc., our logo and Metabolic Targeting are our trademarks. Other trademarks, trade names and service marks used in this quarterly report on Form 10-Q are the property of their respective owners.
Threshold Pharmaceuticals, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
|
June 30, 2014 |
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December 31, 2013 (Note 1) |
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ASSETS |
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Current assets: |
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|
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Cash and cash equivalents |
$ |
6,463 |
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|
$ |
7,279 |
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Marketable securities, current |
|
56,571 |
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|
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58,390 |
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Collaboration receivable |
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4,263 |
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18,094 |
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Prepaid expenses and other current assets |
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2,845 |
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|
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2,246 |
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|
|
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|
|
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Total current assets |
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70,142 |
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86,009 |
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Marketable securities, non-current |
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12,181 |
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16,364 |
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Property and equipment, net |
|
690 |
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|
686 |
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Other assets |
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1,159 |
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1,059 |
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Total assets |
$ |
84,172 |
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$ |
104,118 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
$ |
2,891 |
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$ |
1,689 |
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Accrued clinical and development expenses |
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7,173 |
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7,444 |
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Accrued liabilities |
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2,511 |
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3,161 |
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Deferred revenue, current |
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14,722 |
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14,722 |
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Total current liabilities |
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27,297 |
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27,016 |
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Warrant liability |
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15,299 |
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23,421 |
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Deferred revenue, non-current |
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69,555 |
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76,916 |
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Deferred rent |
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274 |
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240 |
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Total liabilities |
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112,425 |
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127,593 |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity (deficit): |
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Preferred stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding |
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— |
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— |
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Common stock, $0.001 par value, shares authorized: 150,000,000 shares; issued and outstanding: 59,365,233 shares at June 30, 2014 and 59,232,611 shares at December 31, 2013 |
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59 |
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|
|
59 |
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Additional paid-in capital |
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331,224 |
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|
328,116 |
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Accumulated other comprehensive gain (loss) |
|
17 |
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|
28 |
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Accumulated deficit |
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(359,553 |
) |
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(351,678 |
) |
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|
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Total stockholders’ equity (deficit) |
|
(28,253 |
) |
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|
(23,475 |
) |
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Total liabilities and stockholders’ equity (deficit) |
$ |
84,172 |
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$ |
104,118 |
|
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, |
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Six Months Ended June 30, |
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||||||||||
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2014 |
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2013 |
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2014 |
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2013 |
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||||
Revenue |
$ |
3,680 |
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$ |
3,180 |
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|
$ |
7,361 |
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$ |
6,102 |
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Operating expenses: |
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Research and development |
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8,664 |
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7,983 |
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18,317 |
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14,451 |
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General and administrative |
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2,477 |
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2,166 |
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5,111 |
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|
|
4,681 |
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Total operating expenses |
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11,141 |
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10,149 |
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|
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23,428 |
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19,132 |
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Loss from operations |
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(7,461 |
) |
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(6,969 |
) |
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(16,067 |
) |
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|
(13,030 |
) |
Interest income (expense), net |
|
30 |
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|
|
34 |
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|
70 |
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|
|
70 |
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Other income (expense), net |
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6,665 |
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(5,822 |
) |
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8,122 |
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(8,938 |
) |
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Loss before provision for income taxes |
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(766 |
) |
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(12,757 |
) |
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(7,875 |
) |
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(21,898 |
) |
Provision for income taxes |
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— |
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31 |
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— |
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104 |
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Net loss |
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(766 |
) |
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(12,788 |
) |
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(7,875 |
) |
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(22,002 |
) |
Other comprehensive income (loss): |
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Unrealized gain (loss) on available-for-sale securities |
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4 |
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(33 |
) |
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(11 |
) |
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(38 |
) |
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Comprehensive loss |
$ |
(762 |
) |
|
$ |
(12,821 |
) |
|
$ |
(7,886 |
) |
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$ |
(22,040 |
) |
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Net loss per common share: |
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Basic |
$ |
(0.01 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.39 |
) |
Diluted |
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.39 |
) |
Weighted average number of shares used in per common share calculations: |
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|
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|
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Basic |
|
59,347 |
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|
|
57,037 |
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|
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59,325 |
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|
|
56,763 |
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Diluted |
|
62,998 |
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|
|
57,037 |
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|
|
63,433 |
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|
|
56,763 |
|
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, |
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2014 |
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2013 |
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Cash flows from operating activities: |
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Net loss |
$ |
(7,875 |
) |
|
$ |
(22,002 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
|
726 |
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|
|
664 |
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Stock-based compensation expense |
|
2,734 |
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|
|
2,325 |
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Change in common stock warrant value |
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(8,122 |
) |
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|
8,938 |
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Changes in operating assets and liabilities: |
|
|
|
|
|
|
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Collaboration receivable |
|
13,831 |
|
|
|
13,087 |
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Prepaid expenses and other assets |
|
(699 |
) |
|
|
(746 |
) |
Accounts payable |
|
1,202 |
|
|
|
(24 |
) |
Accrued clinical and development expenses |
|
(271 |
) |
|
|
1,269 |
|
Accrued liabilities |
|
(650 |
) |
|
|
(216 |
) |
Deferred rent |
|
34 |
|
|
|
(11 |
) |
Deferred revenue |
|
(7,361 |
) |
|
|
23,898 |
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|
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|
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Net cash (used in) provided by operating activities |
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(6,451 |
) |
|
|
27,182 |
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Cash flows from investing activities: |
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|
|
|
|
|
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Acquisition of property and equipment |
|
(171 |
) |
|
|
(97 |
) |
Acquisition of marketable securities |
|
(33,137 |
) |
|
|
(74,904 |
) |
Proceeds from sale of marketable securities |
|
8,214 |
|
|
|
1,000 |
|
Proceeds from maturities of marketable securities |
|
30,355 |
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|
|
39,358 |
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|
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|
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Net cash provided by (used in) investing activities |
|
5,261 |
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(34,643 |
) |
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Cash flows from financing activities: |
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|
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Proceeds from issuance of common stock and warrants, net of offering expenses |
|
374 |
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|
|
845 |
|
|
|
|
|
|
|
|
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Net cash provided by financing activities |
|
374 |
|
|
|
845 |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
(816 |
) |
|
|
(6,616 |
) |
Cash and cash equivalents, beginning of period |
|
7,279 |
|
|
|
11,029 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
$ |
6,463 |
|
|
$ |
4,413 |
|
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, 2013 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, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2014.
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 are related to its collaboration arrangement with Merck KGaA, which was entered in February 2012. The collaboration with Merck KGaA provides for various types of payments to the Company, including non-refundable 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 receives reimbursement for Merck KGaA’s 70% share for eligible worldwide development expenses for TH-302. Such reimbursement is reflected as a reduction of operating expenses.
For multiple-element arrangements, each deliverable 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 arrangement 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 have been determined to be a single unit of accounting and as such the revenue relating to this unit of accounting will be recorded as deferred revenue and recognized ratably over the term of its estimated performance period under the agreement, which is the product development period. The Company determines the estimated performance period and it will be periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period, and the related ratably recognized revenue, would occur on a prospective basis in the period that the change was made.
6
Deferred revenue associated with a non-refundable payment received under a collaborative agreement for which the 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.
The Company recognizes revenue from milestone payments when: (i) the milestone event is substantive and its achievability has substantive uncertainty at the inception of the agreement, and (ii) the Company does not have ongoing performance obligations related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either the Company’s performance subsequent to the inception of the arrangement to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the Company’s performance subsequent to the inception of the arrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangements. See Note 3, “Collaboration Arrangements,” for analysis of milestone events deemed to be substantive or non-substantive.
NOTE 2 — NET LOSS PER COMMON 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 common 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, |
|
||||||||||
|
2014 |
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|
2013 |
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|
2014 |
|
|
2013 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - basic |
$ |
(766 |
) |
|
$ |
(12,788 |
) |
|
$ |
(7,875 |
) |
|
$ |
(22,002 |
) |
Less: noncash income from change in fair value of common stock warrants |
|
(6,665 |
) |
|
|
— |
|
|
|
(8,122 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - diluted |
|
(7,431 |
) |
|
|
(12,788 |
) |
|
|
(15,997 |
) |
|
|
(22,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
59,347 |
|
|
|
57,037 |
|
|
|
59,325 |
|
|
|
56,763 |
|
Dilutive effect of warrants |
|
3,651 |
|
|
|
— |
|
|
|
4,108 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding and dilutive potential common shares — diluted |
|
62,998 |
|
|
|
57,037 |
|
|
|
63,433 |
|
|
|
56,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.01 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.39 |
) |
Diluted |
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.39 |
) |
7
The following outstanding warrants, options and purchase rights under the Company’s 2004 Employee Stock 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, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Shares issuable upon exercise of warrants |
|
— |
|
|
|
9,634 |
|
|
|
— |
|
|
|
9,634 |
|
Shares issuable upon exercise of stock options |
|
8,161 |
|
|
|
6,570 |
|
|
|
8,161 |
|
|
|
6,570 |
|
Shares issuable related to the ESPP |
|
71 |
|
|
|
85 |
|
|
|
71 |
|
|
|
85 |
|
NOTE 3 — COLLABORATION ARRANGEMENTS
On February 3, 2012, the Company entered into a global license and co-development agreement with Merck KGaA, Darmstadt, Germany, to co-develop and commercialize TH-302, the Company’s small molecule hypoxia-targeted drug. Under the terms of the agreement, Merck KGaA received co-development rights, exclusive global commercialization rights and provided the Company with an option to co-commercialize TH-302 in the United States. To date, the Company has received $110 million in upfront and milestone payments, including $12.5 million received during the quarter ended March 31, 2014. 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 is eligible to earn additional potential milestone payments of up to $100 million in regulatory and development milestones, and $340 million in commercialization milestones.
In the United States, the Company has primary responsibility for development of TH-302 in the soft tissue sarcoma indication. The Company and Merck KGaA will jointly develop TH-302 in all other cancer indications being pursued. Merck KGaA will pay 70% of worldwide development expenses for TH-302. Subject to FDA approval in the United States, Merck KGaA will initially be responsible for commercialization of TH-302 with the Company receiving a tiered, double-digit royalty on sales. Under the royalty bearing portion of the agreement, Threshold retains the option to co-promote TH-302 in the United States. Additionally, the Company retains the option to co-commercialize TH-302 in the United States, upon the achievement of certain sales and regulatory milestones, allowing the Company to participate in up to 50% of the profits in the United States depending on total sales. Outside of the United States, Merck KGaA will be solely responsible for the commercialization of TH-302 with the Company receiving a tiered, double digit royalty on sales in these territories. The agreement will continue on a country-by-country and product-by-product basis until the later of the last to expire patent covering such product containing TH-302 in such country or ten years following the commercial launch of a product containing TH-302 in such country, unless terminated earlier. Merck KGaA has the right to terminate the agreement on limited notice to the Company, and each party has the right to terminate the agreement following an uncured material breach by the other party.
The Company’s deliverables under the Merck KGaA agreement, which include delivery of the rights and license for TH-302 and performance of research and development activities, have been determined to be a single unit of accounting. The delivered license does 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 global license and co-development agreement, which is required for Merck KGaA to fully realize the value from the delivered license. Therefore, the revenue relating to this unit of accounting will be recorded as deferred revenue and recognized over the estimated performance period under the agreement, which is the product development period. The Company has recorded $110 million of the upfront payment and milestones payments as deferred revenue and is amortizing them ratably over its estimated period of performance, which the Company currently estimates to end on March 31, 2020. As a result, the Company recognized $3.7 million and $7.4 million of revenue during the three and six months ended June 30, 2014, respectively, compared to $3.2 and $6.1 million for the three and six months ended June 30, 2013, respectively. The Company will periodically review and, if necessary, revise the estimated periods of performance of its collaboration. The Company also earned $3.5 million and $9.4 million reimbursement for eligible worldwide development expenses for TH-302 from Merck KGaA during the three and six months ended June 30, 2014, respectively compared to $2.5 million and $6.1 million for the three and six months ended June 30, 2013, respectively. Such earned reimbursement has been reflected as a reduction of operating expenses.
Of the remaining potential future milestones, $100 million are related to regulatory and development milestones and $340 million are related to commercialization milestones that may be received under the Merck KGaA Agreement. Regulatory milestones include the filing and acceptance of regulatory applications for marketing approval in major markets. Development milestones include primarily the initiation of various phases of clinical trials. Commercialization milestones include the achievement of first commercial sales in a particular market or annual product sales in excess of a pre-specified threshold. At the inception of the collaboration agreement the Company assessed regulatory and development milestones to be substantive where there was substantive scientific and regulatory uncertainty of achievement, the amounts of payments assigned were considered to be commensurate with the enhancement
8
that occurred subsequent to inception of the Merck KGaA agreement, of the value of the delivered rights and license of TH-302 and the Company’s performance is necessary to the achievement of the milestone. Accordingly, the Company will recognize payments related to the achievement of such milestones, if any, when such milestone is achieved. Regulatory and development milestones that do not meet these conditions were considered non-substantive and payments related to the achievement of such milestones, if any, will be recorded as deferred revenue and amortized ratably over the estimated period of performance. Final determination of whether a development or regulatory milestone is substantive will depend upon the Company’s role in achieving the milestone. The specific role and responsibilities related to the regulatory and development activities for certain of these milestones have yet to be determined and may change during the development period. Under the Merck KGaA agreement, Merck KGaA will initially be responsible for commercialization activities and the Company initially may not be involved in the achievement of these commercialization milestones. These commercialization milestones would typically be achieved after the completion of the Company’s regulatory and development activities. If there are no future development obligations, the Company expects to account for the commercialization milestones in the same manner as royalties, with revenue recognized upon achievement of the milestone.
NOTE 4 — STOCKHOLDERS’ EQUITY
Common Stock Warrants
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 required 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.
At both June 30, 2014 and December 31, 2013, the Company had warrants outstanding to purchase 4,287,940 shares of common stock, having an exercise price of $2.05 per share, which warrants were initially issued by the Company in a private placement in October 2009. The fair value of these warrants on June 30, 2014 and December 31, 2013 was determined using a Black Scholes valuation model with the following level 3 inputs:
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||
Risk-free interest rate |
|
0.11 |
% |
|
|
0.13 |
% |
Expected life (in years) |
|
0.27 |
|
|
|
0.76 |
|
Dividend yield |
|
— |
|
|
|
— |
|
Volatility |
|
44 |
% |
|
|
49 |
% |
Stock price |
$ |
3.96 |
|
|
$ |
4.67 |
|
During the three and six months ended June 30, 2014, the change in fair value of $3.4 million and $3.1 million, respectively, related to the October 2009 warrants was recorded as other income in the Company’s consolidated statement of operations.
At both June 30, 2014 and December 31, 2013, the Company had also warrants outstanding to purchase 3,993,783 shares of common stock, having an exercise price of $2.46 per share, which warrants were initially issued by the Company in an underwritten public offering in March 2011. The fair value of these warrants on June 30, 2014 and December 31, 2013 was determined using a Black Scholes valuation model with the following level 3 inputs:
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||
Risk-free interest rate |
|
0.47 |
% |
|
|
0.78 |
% |
Expected life (in years) |
|
1.71 |
|
|
|
2.21 |
|
Dividend yield |
|
— |
|
|
|
— |
|
Volatility |
|
50 |
% |
|
|
88 |
% |
Stock price |
$ |
3.96 |
|
|
$ |
4.67 |
|
During the three and six months ended June 30, 2014, the change in fair value of $3.2 million and $5.0 million, respectively, related to the March 2011 warrants was recorded as other income in the Company’s consolidated statement of operations.
9
The following table sets forth the Company’s financial liabilities, related to warrants issued in the October 2009 and March 2011 offerings, subject to fair value measurements as of June 30, 2014 and December 31, 2013:
|
Fair Value as of June 30, 2014 |
|
|
Basis of Fair Value Measurements |
|
||||||||||
(in thousands) |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
October 2009 warrants |
$ |
8,190 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,190 |
|
March 2011 warrants |
|
7,109 |
|
|
|
— |
|
|
|
— |
|
|
|
7,109 |
|
Total common stock warrants |
$ |
15,299 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,299 |
|
|
Fair Value as of December 31, 2013 |
|
|
Basis of Fair Value Measurements |
|
||||||||||
(in thousands) |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
October 2009 warrants |
$ |
11,320 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,320 |
|
March 2011 warrants |
|
12,101 |
|
|
|
— |
|
|
|
— |
|
|
|
12,101 |
|
Total common stock warrants |
$ |
23,421 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23,421 |
|
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, 2013 |
$ |
23,421 |
|
Change in fair value of common stock warrants during six months ended June 30, 2014 |
|
(8,122 |
) |
Exercise of warrants during six months ended June 30, 2014 |
|
— |
|
|
|
|
|
Balance at June 30, 2014 |
$ |
15,299 |
|
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 Company’s ESPP, and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative in the unaudited consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 as follows (in thousands):
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Amortization of stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
$ |
846 |
|
|
$ |
663 |
|
|
$ |
1,517 |
|
|
$ |
1,197 |
|
General and administrative |
|
622 |
|
|
|
609 |
|
|
|
1,217 |
|
|
|
1,128 |
|
|
$ |
1,468 |
|
|
$ |
1,272 |
|
|
$ |
2,734 |
|
|
$ |
2,325 |
|
10
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 Company’s ESPP was estimated using the following weighted-average assumptions for the three and six months ended June 30, 2014 and 2013:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Employee Stock Options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
1.81 |
% |
|
|
0.96 |
% |
|
|
1.82 |
% |
|
|
1.13 |
% |
Expected term (in years) |
|
5.97 |
|
|
|
5.47 |
|
|
|
5.97 |
|
|
|
5.97 |
|
Dividend yield |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Volatility |
|
94 |
% |
|
|
102 |
% |
|
|
94 |
% |
|
|
101 |
% |
Weighted-average fair value of stock options granted |
$ |
2.79 |
|
|
$ |
4.28 |
|
|
$ |
2.89 |
|
|
$ |
4.03 |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Employee Stock Purchase Plan (ESPP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
0.18 |
% |
|
|
0.20 |
% |
|
|
0.18 |
% |
|
|
0.20 |
% |
Expected term (in years) |
|
1.23 |
|
|
|
1.25 |
|
|
|
1.23 |
|
|
|
1.25 |
|
Dividend yield |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Volatility |
|
53 |
% |
|
|
92 |
% |
|
|
53 |
% |
|
|
92 |
% |
Weighted-average fair value of ESPP purchase rights |
$ |
1.79 |
|
|
$ |
2.44 |
|
|
$ |
1.79 |
|
|
$ |
2.44 |
|
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 volatilities of the Company. 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 $1.5 million and $2.7 million of stock-based compensation expense related to stock options and purchase rights, under the Company’s equity incentive plans and ESPP, for the three and six months ended June 30, 2014, respectively, and $1.2 million and $2.2 million of stock-based compensation for the three and six months ended June 30, 2013, respectively. As of June 30, 2014, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plans was approximately $12.7 million before forfeitures. This cost will be recorded as compensation expense on a straight-line basis over the remaining weighted average requisite service period of approximately 2.7 years.
Non-employee Stock-based Compensation Expense
The Company accounts for equity instruments issued to non-employees in accordance with ASC 505, “Equity.” The equity instruments consisting of stock options are valued using the Black-Scholes option pricing model. The values attributable to these options are amortized over the service period and the unvested portion of these options is remeasured at each vesting date. In connection with the grant of stock options to non-employees, the Company recorded stock-based compensation of approximately $19,000 and $55,000 for the three and six months ended June 30, 2014, respectively, and $34,000 and $0.1 million for the three and six months ended June 30, 2013, respectively.
Equity Incentive Plans
Equity Incentive Plans On January 1, 2014, an additional 1,250,000 shares was authorized for issuance under the 2004 Equity Incentive Plan (“2004 Incentive Plan”), pursuant to the annual automatic increase to the authorized shares under the 2004 Incentive Plan.
11
The 2004 Incentive Plan expired pursuant to its terms on April 7, 2014. No additional awards have been or will be made after April 7, 2014 under the 2004 Incentive Plan. In May 2014, the Company adopted the 2014 Equity Incentive Plan (“2014 Plan”). The terms of the 2014 Plan provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. The total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan is equal to the sum of (i) 6,000,000 newly reserved shares plus (ii) up to 6,626,157 additional shares (the “Prior Plan Shares”) that may be added to the 2014 Plan in connection with the forfeiture or expiration of awards outstanding under the 2004 Incentive Plan as of May 15, 2014 (the “Returning Shares”). The Prior Plan Shares will be added to the share reserve under the 2014 Plan only as and when such shares become Returning Shares. At June 30, 2014, 4,446,294 shares were authorized and available for issuance under the 2014 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, 2013 |
|
|
6,526,506 |
|
|
$ |
3.66 |
|
|
|
— |
|
|
|
— |
|
Granted |
|
|
1,765,250 |
|
|
$ |
3.79 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(58,560 |
) |
|
$ |
1.45 |
|
|
|
— |
|
|
|
— |
|
Forfeitures |
|
|
(72,333 |
) |
|
$ |
4.62 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014 |
|
|
8,160,863 |
|
|
$ |
3.69 |
|
|
|
7.67 |
|
|
|
8,434,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest June 30, 2014 |
|
|
8,071,025 |
|
|
$ |
3.69 |
|
|
|
7.65 |
|
|
|
8,412,349 |
|
Exercisable at June 30, 2014 |
|
|
4,450,857 |
|
|
$ |
3.04 |
|
|
|
6.60 |
|
|
|
7,212,989 |
|
The total intrinsic value of stock options exercised during the six months ended June 30, 2014 and 2013 were $0.2 million and $0.4 million, respectively, as determined at the date of the option exercise. Cash received from stock option exercises was $0.1 million and $0.2 million for each of the six months ended June 30, 2014 and 2013, respectively. 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, 2014, an additional 100,000 shares was authorized for issuance under the 2004 Employee Stock Purchase Plan (“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, 2014, plan participants had purchased 74,062 shares at an average purchase price of $3.91 for total cash proceeds of $0.3 million. At June 30, 2014, 261,834 shares were authorized and available for issuance under the ESPP.
NOTE 6 — FAIR VALUE MEASUREMENTS AND MARKETABLE SECURITIES
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 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.
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.
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
12
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, 2014 and December 31, 2013:
|
Fair Value as of June 30, 2014 |
|
|
Basis of Fair Value Measurements |
|
||||||||||
(in thousands) |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Money market funds |
$ |
6,463 |
|
|
$ |
6,463 |
|
|
$ |
— |
|
|
$ |
— |
|
Certificates of deposit |
|
2,844 |
|
|
|
— |
|
|
|
2,844 |
|
|
|
— |
|
Corporate debt securities |
|
40,937 |
|
|
|
— |
|
|
|
40,937 |
|
|
|
— |
|
U.S. Government securities |
|
20,023 |
|
|
|
— |
|
|
|
20,023 |
|
|
|
— |
|
Municipal securities |
|
1,450 |
|
|
|
— |
|
|
|
1,450 |
|
|
|
— |
|
Commercial paper |
|
3,498 |
|
|
|
— |
|
|
|
3,498 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities |
$ |
75,215 |
|
|
$ |
6,463 |
|
|
$ |
68,752 |
|
|
$ |
— |
|
|
Fair Value as of December 31, 2013 |
|
|
Basis of Fair Value Measurements |
|
||||||||||
(in thousands) |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Money market funds |
$ |
4,285 |
|
|
$ |
4,285 |
|
|
$ |
— |
|
|
$ |
— |
|
Certificates of deposit |
|
1,584 |
|
|
|
— |
|
|
|
1,584 |
|
|
|
— |
|
Corporate debt securities |
|
49,019 |
|
|
|
— |
|
|
|
49,019 |
|
|
|
— |
|
U.S. Government securities |
|
21,731 |
|
|
|
— |
|
|
|
21,731 |
|
|
|
— |
|
Municipal securities |
|
2,815 |
|
|
|
— |
|
|
|
2,815 |
|
|
|
— |
|
Commercial paper |
|
2,599 |
|
|
|
— |
|
|
|
2,599 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities |
$ |
82,033 |
|
|
$ |
4,285 |
|
|
$ |
77,748 |
|
|
$ |
— |
|
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, 2014 and December 31, 2013:
As of June 30, 2014 (in thousands): |
Cost Basis |
|
|
Unrealized Gain |
|
|
Unrealized Loss |
|
|
Fair Value |
|
||||
Money market funds |
$ |
6,463 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,463 |
|
Certificates of deposit |
|
2,844 |
|
|
|
— |
|
|
|
— |
|
|
|
2,844 |
|
Corporate debt securities |
|
40,930 |
|
|
|
12 |
|
|
|
(5 |
) |
|
|
40,937 |
|
U.S. Government securities |
|
20,013 |
|
|
|
11 |
|
|
|
(1 |
) |
|
|
20,023 |
|
Municipal securities |
|
1,450 |
|
|
|
— |
|
|
|
— |
|
|
|
1,450 |
|
Commercial paper |
|
3,498 |
|
|
|
— |
|
|
|
— |
|
|
|
3,498 |
|
|
|
75,198 |
|
|
|
23 |
|
|
|
(6 |
) |
|
|
75,215 |
|
Less cash equivalents |
|
6,463 |
|
|
|
— |
|
|
|
— |
|
|
|
6,463 |
|
Total marketable securities |
$ |
68,735 |
|
|
$ |
23 |
|
|
$ |
(6 |
) |
|
$ |
68,752 |
|
As of December 31, 2013 (in thousands): |
Cost Basis |
|
|
Unrealized Gain |
|
|
Unrealized Loss |
|
|
Fair Value |
|
||||
Money market funds |
$ |
4,285 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,285 |
|
Certificates of deposit |
|
1,584 |
|
|
|
— |
|
|
|
— |
|
|
|
1,584 |
|
Corporate debt securities |
|
49,001 |
|
|
|
25 |
|
|
|
(7 |
) |
|
|
49,019 |
|
U.S. Government securities |
|
21,722 |
|
|
|
12 |
|
|
|
(3 |
) |
|
|
21,731 |
|
Municipal securities |
|
2,814 |
|
|
|
1 |
|
|
|
— |
|
|
|
2,815 |
|
Commercial paper |
|
2,599 |
|
|
|
— |
|
|
|
— |
|
|
|
2,599 |
|
|
|
82,005 |
|
|
|
38 |
|
|
|
(10 |
) |
|
|
82,033 |
|
Less cash equivalents |
|
7,279 |
|
|
|
— |
|
|
|
— |
|
|
|
7,279 |
|
Total marketable securities |
$ |
74,726 |
|
|
$ |
38 |
|
|
$ |
(10 |
) |
|
$ |
74,754 |
|
13
There were no realized gains or losses in the three and six months ended June 30, 2014 and 2013, respectively.
As of June 30, 2014, the weighted average maturity for the Company’s available for sale securities was 6.6 months, with the longest maturity being November 2015.
The following table provides the breakdown of the marketable securities with unrealized losses at June 30, 2014 (in thousands):
|
In loss position for less than twelve months |
|
|||||
As of June 30, 2014 (in thousands): |
Fair Value |
|
|
Unrealized Loss |
|
||
U.S. Government securities |
$ |
8,010 |
|
|
$ |
(1 |
) |
Corporate debt securities |
|
12,259 |
|
|
|
(5 |
) |
Total marketable securities |
$ |
20,269 |