Molecular Templates, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Marketable Securities and Fair Value Measurements

Marketable Securities and Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Marketable Securities and Fair Value Measurements

NOTE 4—MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents and available-for-sale marketable securities) at fair value on a recurring basis as of December 31, 2019 and 2018:

	Fair Value as of
	December 31,		Basis of Fair Value Measurements
(in thousands)	2019		Level 1		Level 2		Level 3
Money market funds	$	79,970	$	79,970	$	—	$	—
Commercial paper		20,436		—		20,436		—
United States Treasury Bills		16,738		—		16,738		—
United States government-related debt securities		7,010		—		7,010		—
Corporate bonds		1,351		—		1,351		—
Total	$	125,505	$	79,970	$	45,535	$	—
Amounts included in:
Cash and cash equivalents	$	84,362
Marketable securities, current		39,633
Marketable securities, non-current		1,510
Total	$	125,505

	Fair Value as of
	December 31,		Basis of Fair Value Measurements
(in thousands)	2018		Level 1		Level 2		Level 3
Money market funds	$	82,843	$	82,843	$	—	$	—
Commercial paper		12,825		—		12,825		—
Total	$	95,668	$	82,843	$	12,825	$	—
Amounts included in:
Cash and cash equivalents		85,434
Marketable securities, current		10,234
Total	$	95,668

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at December 31, 2019 and 2018:

As of December 31, 2019 (in thousands):	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds, commercial paper and corporate bonds	$	84,361	$	1	$	—	$	84,362
Marketable securities, current - commercial paper, Treasury bills and corporate bonds		39,616		17		—		39,633
Marketable securities, non-current - Treasury bills		1,510		—		—		1,510

As of December 31, 2018 (in thousands):

Cost Basis

Unrealized

Gain

Unrealized

Loss

Fair

Value

Cash equivalents - money market funds

85,434

—

85,434

Marketable securities, current - commercial paper

10,234

—

10,234

The following summarized the contractual maturities of the Company’s available-for-sale investment at December 31, 2019:

	Cost Basis		Fair Value
Due in one year or less	$	123,977	$	123,995
Due after one year through five years		1,510		1,510
Total	$	125,487	$	125,505

The Company received $1.3 million of proceeds with immaterial realized gains in the year ending December 31, 2019, and no realized gains or losses in years ending December 31, 2018.

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, with an exercise price of $39.82 per share. Due to change in control provisions outside of the Company’s control in these warrant agreements, 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.

The following table sets forth the Company’s financial liabilities measured at fair value on a recurring basis as of the date indicated below:

	Fair Value as of
	December 31,		Basis of Fair Value Measurements
(in thousands)	2019		Level 1		Level 2		Level 3
2017 Common stock warrants	$	—	$	—	$	—	$	—

	Fair Value as of
	December 31,		Basis of Fair Value Measurements
(in thousands)	2018		Level 1		Level 2		Level 3
2017 Common stock warrants	$	3	$	—	$	—	$	3

The fair value of these warrants on December 31, 2019 and 2018 was determined using a Black-Scholes model with the following key level 3 inputs:

	December 31, 2019			December 31, 2018
Risk-free interest rate		1.6	%		2.6	%
Expected life (in years)		0.1			1.1
Dividend yield		—			—
Volatility		86	%		77	%
Stock price at valuation date	$	13.99		$	4.04

During the year ended December 31, 2019 and 2018 the change in fair value of $3,000 and $1.0 million of noncash income, respectively, related to the warrants was recorded as change in fair value of warrant liabilities in the Company’s consolidated statement of operations and comprehensive loss

- 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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