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, 2015

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 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.

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, 2015 and December 31, 2014:

	Fair Value as of March 31, 2015		Basis of Fair Value Measurements
(in thousands)			Level 1		Level 2		Level 3
Money market funds	$	10,366	$	10,366	$	—	$	—
Certificates of deposit		1,475		—		1,475		—
Corporate debt securities		31,935		—		31,935		—
Government securities		24,021		—		24,021		—
Commercial paper		14,240		—		14,240		—

Total cash equivalents and marketable securities	$	82,037	$	10,366	$	71,671	$	—

	Fair Value as of December 31, 2014		Basis of Fair Value Measurements
(in thousands)			Level 1		Level 2		Level 3
Money market funds	$	3,369	$	3,369	$	—	$	—
Certificates of deposit		2,505		—		2,505		—
Corporate debt securities		28,081		—		28,081		—
Government securities		19,123		—		19,123		—
Commercial paper		5,499		—		5,499		—

Total cash equivalents and marketable securities	$	58,577	$	3,369	$	55,208	$	—

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, 2015 and December 31, 2014:

As of March 31, 2015 (in thousands):	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Money market funds	$	10,366	$	—	$	—		$	10,366
Certificates of deposit		1,475		—		—			1,475
Corporate debt securities		31,950		4		(19	)		31,935
U.S. Government securities		24,021		2		(2	)		24,021
Commercial paper		14,240		—		—			14,240
		82,052		6		(21	)		82,037
Less cash equivalents		20,014		—		—			20,014
Total marketable securities	$	62,038	$	6	$	(21	)	$	62,023

As of December 31, 2014 (in thousands):	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Money market funds	$	3,369	$	—	$	—		$	3,369
Certificates of deposit		2,505		—		—			2,505
Corporate debt securities		28,094		1		(14	)		28,081
U.S. Government securities		19,123		3		(3	)		19,123
Commercial paper		5,499		—		—			5,499
		58,590		4		(17	)		58,577
Less cash equivalents		8,368		—		—			8,368
Total marketable securities	$	50,222	$	4	$	(17	)	$	50,209

There were no realized gains or losses in the three months ended March 31, 2015 and 2014.

As of March 31, 2015, the weighted average maturity for the Company’s available for sale securities was 4.9 months, with the longest maturity being May 2016.

The following table provides the breakdown of the marketable securities with unrealized losses at March 31, 2015 (in thousands):

	In loss position for less than twelve months
As of March 31, 2015 (in thousands):	Fair Value		Unrealized Loss
U.S. Government securities	$	12,170	$	(2	)
Corporate debt securities		22,011		(19	)
Total marketable securities	$	34,181	$	(21	)

The Company determined the fair value of the liability associated with its February 2015 and March 2011 warrants to purchase in aggregate 12.1 million shares of outstanding common stock using a Monte Carlo Simulation Model and a Black-Scholes Model, respectively. See detailed discussion in Note 4 — Stockholders’ Equity (Deficit).

- 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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