Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders' Equity

NOTE 10 — STOCKHOLDERS’ EQUITY

Concurrent Financing

On August 1, 2017, the Company entered into the a securities purchase agreement with Longitude Venture Partners III, L.P. and certain other accredited investors (the Longitude Securities Purchase Agreement”), pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) accredited investors having an aggregate purchase price of $40.0 million, each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and (ii) a warrant (the “Private Placement Warrants”) to purchase 0.5 shares of our common stock (the “Private Placement”). The Private Placement was pursuant to equity commitment letter agreements entered into by and between the Company and investors in March and June 2017. The purchase price per Unit was $6.9048. The Warrants will be exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants.  At March 31, 2018, there were warrants outstanding under the Longitude Securities Purchase Agreement to purchase 2,896,532 shares of common stock.  The warrants met the requirements for equity classification under ASC 815, “Derivatives and Hedging” (ASC 815), and the value of these warrants is included in additional paid-in capital on the balance sheet. The Private Placement Warrants are exercisable upon issuance and expire August 1, 2024. The Company will continue to evaluate equity classification on a quarterly basis.

In December 2015, the Company entered into an agreement (the “Wedbush Agreement”) with Wedbush Securities Inc., which was subsequently amended in December of 2017, related to their services associated with the equity financing under the Longitude Securities Purchase Agreement. As part of the Wedbush Agreement, the Company issued to Wedbush Securities, Inc, warrants to purchase 57,930 shares of our common stock (the “Wedbush Warrants”). The Wedbush Warrants will be exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Wedbush Warrants.  At March 31, 2018, there were warrants outstanding under the Wedbush Agreement to purchase 57,930 shares of common stock. The warrants met the requirements for equity classification under ASC 815, and the value of these warrants is included in additional paid-in capital on the balance sheet. The Wedbush Warrants are exercisable upon issuance and expire December 1, 2024. The Company will continue to evaluate equity classification on a quarterly basis.

The total warrants outstanding under this amended agreement are 2,954,462 and are listed in the summary table below under “2017 Private Placement Warrants”.

Subsequent Financing

In connection with the execution of the Takeda Multi-Target Agreement, Threshold and Private Molecular entered into the Takeda Stock Purchase Agreement. Pursuant to the Takeda Stock Purchase Agreement, following the consummation of the Merger and Private Placement, Takeda purchased 2,922,993 shares of the Company’s common stock, at a price per share of $6.84, for an aggregate purchase price of $20 million.

Common Stock Warrants

As of March 31, 2018, the Company had warrants outstanding to purchase 3.5 million shares of the Company’s stock.  The Company accounts for certain of its common stock warrants under guidance in ASC 480 that clarifies the determination of whether an instrument is classified as a liability or equity.  The following table summarizes the Company’s outstanding warrants as of March 31, 2018 and December 31, 2017 and the warrant activity during the three months ended March 31, 2018:

 

 

 

Warrants Outstanding

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding

 

 

Weighted Average

 

 

 

December 31, 2017

 

 

Issued

 

 

Exercised

 

 

March 31, 2018

 

 

Exercise Price

 

2017 Warrants

 

 

377,273

 

 

 

 

 

 

 

 

 

377,273

 

 

$

39.82

 

2017 Private Placement Warrants

 

 

2,954,462

 

 

 

 

 

 

 

 

 

2,954,462

 

 

$

6.84

 

2018 Warrants

 

 

 

 

 

190,000

 

 

 

 

 

 

190,000

 

 

$

9.58

 

 

 

 

3,331,735

 

 

 

190,000

 

 

 

 

 

 

3,521,735

 

 

 

 

 

 

      

On August 1, 2017, as part of the Merger, the Company assumed the warrant liability of the predecessor Threshold, related to issued warrants to purchase 377,273 shares of our common stock (“2017 Warrants”), with an exercise price of $39.82 per share. Refer to Note 3, “Merger with Private Molecular”, for further detail about the Merger.

Due to change in control provisions outside of the Company’s control in the 2017 Warrants, 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 change in fair value of warrant liabilities in the Company’s consolidated statements of operations and comprehensive loss.

The following table is a reconciliation of the 2017 Warrant liability measured at fair value using level 3 inputs (in thousands):

 

 

 

Warrant

Liability

 

Balance at December 31, 2017

 

$

954

 

Change in fair value during the three months ended March 31, 2018

 

 

(614

)

Balance at March 31, 2018

 

$

340

 

 

The fair value of the 2017 Warrants on March 31, 2018 and December 31, 2017 was determined using a Black-Scholes model with the following key level 3 inputs:

 

 

March 31, 2018

 

 

December 31, 2017

 

Risk-free interest rate

 

2.27

%

 

 

1.89

%

Expected life (in years)

 

1.89

 

 

 

2.13

 

Dividend yield

 

 

 

 

 

Volatility

 

89

%

 

 

103

%

Stock price

$

8.00

 

 

$

10.02

 

 

During the three months ended March 31, 2018 the change in fair value of $614,000 of noncash income related to the 2017 Warrants was recorded as change in fair value of warrant liabilities in the Company’s consolidated statement of operations and comprehensive loss. Significant changes in the level 3 inputs of volatility, stock price and expected life, used in the fair value measurement of the 2017 Warrants in isolation could result in a material change in the fair value measurement.

 

On August 1, 2017, in conjunction with the Private Placement, the Company issued warrants to purchase 2,896,532 shares of the Company’s common stock with an exercise price of $6.84, the Private Placement Warrants as described above.  The Private Placement warrants are classified as equity and were valued at $16.3 million using the Black-Scholes model, and recorded in additional paid-in capital.  The Black-Scholes inputs used were:  expected dividend rate of 0%, expected volatility of 147%, risk free interest rate of 2.07%, and expected term of 7.0 years.

 

In December 2017 the Company issued warrants to purchase 57,930 shares of the Company’s common stock with an exercise price of $6.84, the Wedbush Warrants as described above.  The Wedbush Warrants are classified as equity and recorded in additional paid-in capital; and were valued at $0.4 million using the Black-Scholes model.  The Black-Scholes inputs used were:  expected dividend rate of 0%, expected volatility of 108%, risk free interest rate of 2.33%, and expected term of 7.0 years.  The Wedbush Warrants together with the Private Placement Warrants are combined as “2017 Private Placement Warrants” in the table above.

 

On February 28, 2018, in connection with the Perceptive Credit Facility, the Company issued warrants to purchase 190,000 shares of the Company’s common stock with an exercise price of $9.58, the 2018 Warrants in the table above. The 2018 Warrants are exercisable for a period of seven years from the date of issuance, subject to certain adjustments as specified in the Warrants. The 2018 Warrants were classified as equity and recorded in additional paid-in capital; and were valued at $1.5 million using the Black-Scholes model.  The Black-Scholes inputs used were:  expected dividend rate of 0%, expected volatility of 105%, risk free interest rate of 2.83%, and expected term of 7.0 years.  See Note 8, “Borrowing Arrangements”, for further detail about the Perceptive Credit Facility.