NOTE 11 – IN-PROCESS RESEARCH AND DEVELOPMENT

In-process research and development represent the fair value of the Company’s legacy program, Evofosfamide, which was acquired as a part of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 16, 2017, by and among the Company (formerly known as Threshold Pharmaceuticals, Inc.), Merger Sub, Inc., our wholly owned subsidiary, and Molecular Templates OpCo, Inc. or what was then known as “Molecular Templates, Inc.”  For more information refer to Note 3 included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 29, 2019.

Fair value of In-process research and development is estimated based upon internal evaluation of each asset that includes quantitative analyses of net revenue and cash flows, review of recent sales of similar assets and market responses based upon discussions in connection with offers received from potential buyers. Certain factors used for these types of nonrecurring fair value measurements are considered Level 3 inputs. During the three and nine months ended September 30, 2019, the Company’s board and management classified this asset as held for sale. The Company obtained a fair value estimate, from a third party specialist as of August 1, 2019, and determined the asset was impaired and the value was not recoverable. During the three and nine months ended September 30, 2019, the Company recorded a related impairment of $22.1 million. Future write-downs of the asset are possible based upon the amount of proceeds from an eventual sale of the asset.

Additionally, the Company has reclassified the remaining $4.5 million to In-process research and development - held for sale as the Company plans to sell the asset within the next year.

See Part II, Item 5 (Other Information) for more information.