Molecular Templates, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements and Marketable Securities

Fair Value Measurements and Marketable Securities

3 Months Ended

Mar. 31, 2014

Fair Value Measurements and Marketable Securities

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 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 March 31, 2014 and December 31, 2013:


	Fair Value as of March 31, 2014		Basis of Fair Value Measurements
(in thousands)	Fair Value as of March 31, 2014		Level 1		Level 2		Level 3
Money market funds	$	5,001	$	5,001	$	—	$	—
Certificates of deposit		1,464		—		1,464		—
Corporate debt securities		55,317		—		55,317		—
U.S. Government securities		18,990		—		18,990		—
Municipal securities		1,618		—		1,618		—
Commercial paper		3,996		—		3,996		—

Total cash equivalents and marketable securities	$	86,386	$	5,001	$	81,385	$	—


	Fair Value as of December 31, 2013		Basis of Fair Value Measurements
(in thousands)	Fair Value as of December 31, 2013		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		—
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 March 31, 2014 and December 31, 2013:


As of March 31, 2014 (in thousands):	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Money market funds	$	5,001	$	—	$	—		$	5,001
Certificates of deposit		1,464		—		—			1,464
Corporate debt securities		55,318		15		(16	)		55,317
U.S. Government securities		18,977		15		(2	)		18,990
Municipal securities		1,617		1		—			1,618
Commercial paper		3,996		—		—			3,996

		86,373		31		(18	)		86,386
Less cash equivalents		6,743		—		—			6,743

Total marketable securities	$	79,630	$	31	$	(18	)	$	79,643


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
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

There were no realized gains or losses in the three months ended March 31, 2014 and 2013.

As of March 31, 2014, the weighted average maturity for the Company’s available for sale securities was 6.8 months, with the longest maturity being August 2015.

The following table provides the breakdown of the marketable securities with unrealized losses at March 31, 2014 (in thousands):


	In loss position for less than twelve months
As of March 31, 2014 (in thousands):	Fair Value		Unrealized Loss
Government securities	$	6,653	$	(1	)
Corporate debt securities		20,116		(12	)

Total marketable securities	$	26,769	$	(13	)

The Company determined the fair value of the liability associated with its warrants to purchase 8.3 million shares of outstanding common stock using a Black-Scholes Model. See detailed discussion in Note 4 — Stockholders’ Equity.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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