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EX-32.2 - EX-32.2 - Molecular Templates, Inc.thld-ex322_8.htm
EX-10.3 - EX-10.3 - Molecular Templates, Inc.thld-ex103_145.htm
EX-31.1 - EX-31.1 - Molecular Templates, Inc.thld-ex311_7.htm
EX-31.2 - EX-31.2 - Molecular Templates, Inc.thld-ex312_10.htm
EX-10.1 - EX-10.1 - Molecular Templates, Inc.thld-ex101_211.htm
EX-10.2 - EX-10.2 - Molecular Templates, Inc.thld-ex102_177.htm
EX-32.1 - EX-32.1 - Molecular Templates, Inc.thld-ex321_9.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to             

Commission File Number: 001-32979

 

Threshold Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-3409596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

170 Harbor Way, Suite 300, South San Francisco, CA 94080

(Address of principal executive offices, including zip code)

(650) 474-8200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On April 25, 2016, there were 71,511,425 shares of common stock, par value $0.001 per share, of Threshold Pharmaceuticals, Inc. outstanding.

 

 

 


 

Threshold Pharmaceuticals, Inc.

TABLE OF CONTENTS

 

 

  

 

Page

PART I.

  

FINANCIAL INFORMATION

 

 

Item 1.

  

Unaudited Condensed Consolidated Financial Statements

 

3

 

  

Unaudited Condensed Consolidated Balance Sheets

 

3

 

  

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

 

4

 

  

Unaudited Condensed Consolidated Statements of Cash Flows

 

5

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4.

  

Controls and Procedures

 

22

PART II.

  

OTHER INFORMATION

 

 

Item 1

  

Legal Proceedings

 

22

Item 1A.

  

Risk Factors

 

23

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

Item 3.

  

Defaults Upon Senior Securities

 

48

Item 4.

  

Mine Safety Disclosures

 

48

Item 5.

  

Other Information

 

48

Item 6.

  

Exhibits

 

48

SIGNATURES

 

49

 

EXHIBIT INDEX

 

50

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

March 31,

2016

 

 

December 31,

2015 (Note 1)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

11,211

 

 

$

9,589

 

Marketable securities, current

 

26,755

 

 

 

39,091

 

Collaboration receivable

 

777

 

 

 

1,891

 

Prepaid expenses and other current assets

 

1,880

 

 

 

2,599

 

Total current assets

 

40,623

 

 

 

53,170

 

Property and equipment, net

 

261

 

 

 

333

 

Other assets

 

166

 

 

 

166

 

Total assets

$

41,050

 

 

$

53,669

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,563

 

 

$

725

 

Accrued clinical and development expenses

 

3,325

 

 

 

6,834

 

Accrued liabilities

 

687

 

 

 

3,269

 

Total current liabilities

 

5,575

 

 

 

10,828

 

Warrant liability

 

1,494

 

 

 

1,864

 

Deferred rent

 

109

 

 

 

131

 

Total liabilities

 

7,178

 

 

 

12,823

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

Common stock, $0.001 par value, shares authorized: 150,000,000 shares; issued and outstanding:

   71,511,425 shares at March 31, 2016 and 71,462,059 shares at December 31, 2015

 

72

 

 

 

71

 

Additional paid-in capital

 

371,091

 

 

 

370,236

 

Accumulated other comprehensive loss

 

1

 

 

 

(21

)

Accumulated deficit

 

(337,292

)

 

 

(329,440

)

Total stockholders’ equity

 

33,872

 

 

 

40,846

 

Total liabilities and stockholders’ equity

$

41,050

 

 

$

53,669

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

3


 

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Revenue

$

 

 

$

3,681

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

6,005

 

 

 

10,680

 

General and administrative

 

2,249

 

 

 

2,616

 

Total operating expenses

 

8,254

 

 

 

13,296

 

Loss from operations

 

(8,254

)

 

 

(9,615

)

Interest income (expense), net

 

32

 

 

 

33

 

Other income (expense), net

 

370

 

 

 

(1,572

)

Net loss

 

(7,852

)

 

 

(11,154

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

22

 

 

 

(2

)

Comprehensive loss

$

(7,830

)

 

$

(11,156

)

Net loss per share:

 

 

 

 

 

 

 

Basic

$

(0.11

)

 

$

(0.17

)

Diluted

$

(0.11

)

 

$

(0.17

)

Weighted average number of shares used in net loss per share

   calculations:

 

 

 

 

 

 

 

Basic

 

71,488

 

 

 

66,732

 

Diluted

 

71,488

 

 

 

66,732

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


 

Threshold Pharmaceuticals, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(7,852

)

 

$

(11,154

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

185

 

 

 

239

 

Gain on sale of fixed assets

 

9

 

 

 

 

Stock-based compensation expense

 

843

 

 

 

1,421

 

Change in common stock warrant fair value

 

(370

)

 

 

1,532

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Collaboration receivable

 

1,114

 

 

 

5,255

 

Prepaid expenses and other assets

 

719

 

 

 

(436

)

Accounts payable

 

838

 

 

 

(265

)

Accrued clinical and development expenses

 

(3,509

)

 

 

2,250

 

Accrued liabilities

 

(2,582

)

 

 

1,016

 

Deferred rent

 

(22

)

 

 

(18

)

Deferred revenue

 

 

 

 

(3,681

)

Net cash used in operating activities

 

(10,627

)

 

 

(3,841

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

 

 

(38

)

Purchases of marketable securities

 

(7,495

)

 

 

(32,899

)

Proceeds from sale of marketable securities

 

 

 

 

1,997

 

Proceeds from maturities of marketable securities

 

19,731

 

 

 

18,939

 

Net cash (used in) provided by investing activities

 

12,236

 

 

 

(12,001

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants, net of offering expenses

 

13

 

 

 

28,514

 

Net cash provided by financing activities

 

13

 

 

 

28,514

 

Net increase (decrease) in cash and cash equivalents

 

1,622

 

 

 

12,672

 

Cash and cash equivalents, beginning of period

 

9,589

 

 

 

8,391

 

Cash and cash equivalents, end of period

$

11,211

 

 

$

21,063

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


 

Threshold Pharmaceuticals, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Threshold Pharmaceuticals, Inc. (the “Company”) is a biotechnology company using its expertise in the tumor microenvironment to discover and develop therapeutic agents that selectively target tumor cells for the treatment of patients living with cancer.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, and reflect the elimination of intercompany accounts and transactions.

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605 “Revenue Recognition”, subtopic ASC 605-25 “Revenue with Multiple Element Arrangements” and subtopic ASC 605-28 “Revenue Recognition-Milestone Method”, which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research and development transactions is appropriate, respectively.

 

The Company’s revenues in prior periods were related to its former collaboration arrangement with Merck KGaA, which was entered in February 2012. The collaboration with Merck KGaA provided for various types of payments to the Company, including nonrefundable upfront license, milestone and royalty payments. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The Company also received reimbursement for Merck KGaA’s 70% share for eligible worldwide development expenses for evofosfamide (formerly TH-302). Such reimbursement was reflected as a reduction of operating expenses. In March 2016, the Company and Merck KGaA agreed to terminate the collaboration and all rights evofosfamide were returned to the Company. As a result of the termination of the collaboration the Company is no longer eligible to receive any further milestone payments from Merck KGaA.  In addition, the Company is no longer eligible to receive 70% reimbursement of expenses from Merck KGaA related to the further development of evofosfamide other than for costs to wind down the discontinued trials and return the evofosfamide rights back to the Company.

 

6


 

For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control. The deliverables under the Merck KGaA agreement were determined to be a single unit of accounting and as such the revenue relating to this unit of accounting was recorded as deferred revenue and recognized ratably over the term of its estimated performance period under the agreement, which was the product development period. The Company determined the estimated performance period and it was periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

 

Deferred revenue associated with a non-refundable payment received under a collaborative agreement for which the developmental performance obligations are terminated will result in an immediate recognition of any remaining deferred revenue in the period that termination occurred provided that all performance obligations have been satisfied. As a result of Merck KGaA’s and our decision to cease further joint development of evofosfamide in December 2015, we immediately recognized all of the remaining deferred revenue into revenue during the quarter ended December 31, 2015.

 

NOTE 2 — NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options and warrants.

Potential dilutive common shares also include the dilutive effect of the common stock underlying in-the-money stock options and warrants that were calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option or warrant is assumed to be used to repurchase shares in the current period. In addition, the average amount of compensation cost for in-the-money options, if any, for future service that the Company has not yet recognized when the option is exercised, is also assumed to repurchase shares in the current period. A reconciliation of the numerator and denominator used in the calculation is as follows (in thousands, except per share amounts):

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Numerator:

 

 

 

 

 

 

 

Net loss

$

(7,852

)

 

$

(11,154

)

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

71,488

 

 

 

66,732

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

Basic

$

(0.11

)

 

$

(0.17

)

Diluted

$

(0.11

)

 

$

(0.17

)

 

 

The following outstanding warrants, options and purchase rights under the Company’s 2004 Employee Stock Purchase Plan (“2004 Purchase Plan”)   were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an antidilutive effect (in thousands):

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Shares issuable upon exercise of warrants

 

8,300

 

 

 

12,146

 

Shares issuable upon exercise of stock options

 

11,561

 

 

 

9,993

 

Shares issuable related to the 2004 Purchase Plan

 

39

 

 

 

29

 

7


 

 

NOTE 3 — COLLABORATION ARRANGEMENTS

On February 3, 2012, the Company entered into a global license and co-development agreement, or License Agreement, with Merck KGaA, of Darmstadt, Germany, to co-develop and commercialize evofosfamide, the Company’s small molecule hypoxia-targeted drug. Under the terms of the License Agreement, Merck KGaA received co-development rights, exclusive global commercialization rights and provided the Company with an option to co-commercialize evofosfamide in the United States. To date the Company has received $110 million in upfront and milestone payments. The milestones earned to date were not deemed to be substantive milestones because the work related to the achievement of these items was predominately completed prior to the inception of the arrangement or was not commensurate with Company’s performance subsequent to the inception of the arrangement to achieve the milestone.

The Company’s deliverables under the License Agreement with Merck KGaA, which included delivery of the rights and license for evofosfamide and performance of research and development activities, were determined to be a single unit of accounting. The delivered license did not have standalone value at the inception of the arrangement due to the Company’s proprietary expertise with respect to the licensed compound and related ongoing developmental participation under the License Agreement, which was required for Merck KGaA to fully realize the value from the delivered license. Therefore, the revenue relating to this unit of accounting was recorded as deferred revenue and recognized over the estimated performance period under the License Agreement, which is the product development period. The Company recorded $110 million of the upfront payment and milestones payments as deferred revenue and was amortizing them ratably over the estimated period of performance, which the Company originally estimated to end on March 31, 2020 for the nine months ended September 30, 2015. Merck KGaA’s decision to cease further joint development of evofosfamide in December 2015, resulted in the immediate recognition of all the remaining deferred revenue into revenue during the quarter ended December 31, 2015. As a result, the Company recognized $0 revenue during the three months ended March 31, 2016, and $3.7 million of revenue during the three months ended March 31, 2015. Further, in March 2016, the Company and Merck KGaA agreed to terminate the License Agreement pursuant to a termination agreement, or the Termination Agreement.  Under the terms of the Termination Agreement, all rights under the original agreement were returned to Threshold, as well as all rights to Merck KGaA technology developed under the License Agreement. Under the Termination Agreement Merck KGaA is entitled to tiered royalties on net sales if any, and milestone payments contingent upon the future successful partnering, development and commercialization of evofosfamide. Also as a result of the termination of the License Agreement the Company is no longer eligible to receive any further milestone payments from Merck KGaA

Merck KGaA also paid 70% of worldwide development expenses for evofosfamide under the terms of the License Agreement. With the decision to cease further joint development of evofosfamide and the termination of the License Agreement, the Company is no longer eligible to receive payments from Merck KGaA for expenses related to further development of evofosfamide other than for costs to wind down the discontinued trials and return the evofosfamide rights back to the Company. The Company earned $0.8 million reimbursement for eligible worldwide expenses for evofosfamide from Merck KGaA during the three months ended March 31, 2016 , which expenses were solely for trial wind-down efforts, compared to $2.0 million for eligible worldwide development expenses incurred during the three months ended March 31, 2015. Such earned reimbursement has been reflected as a reduction of research and development expenses.

 

NOTE 4 — STOCKHOLDERS’ EQUITY

Common Stock Warrant Valuation

The Company accounts for its common stock warrants under guidance in ASC 815 that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify for classification as liabilities. 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.

At both March 31, 2016 and December 31, 2015 the Company had warrants outstanding to purchase 8.3 million shares of common stock, having an initial exercise price of $10.86 per share, which warrants were issued by the Company in the February 2015 offering. The exercise price was adjusted to $3.62 on January 21, 2016 pursuant to the terms of warrant. The fair value of these warrants on March 31, 2016 and December 31, 2015 was determined using a Black-Scholes model with the following key level 3 inputs:

 

 

March 31,

2016

 

 

December 31, 2015

 

Risk-free interest rate

 

1.21

%

 

 

1.76

%

Expected life (in years)

 

3.89

 

 

 

4.14

 

Dividend yield

 

 

 

 

 

Volatility

 

110

%

 

 

112

%

Stock price

$

0.46

 

 

$

0.48

 

8


 

 

 

During three months ended March 31, 2016, the change in fair value of $0.3 million of noncash income related to the February 2015 warrants was recorded as other income (expense) in the Company’s consolidated statement of operations.

On March 16, 2016, warrants outstanding, which were initially issued by the Company in an underwritten public offering in March 2011, to purchase 3.8 million shares of common stock expired and the fair value of the warrants of $38,000 of noncash income was reversed as other income (expense) in the Company’s consolidated statement of operations. At December 31, 2015, the Company also had March 2011 warrants outstanding to purchase 3.8 million shares of common stock, respectively, having an exercise price of $2.46 per share. The fair value of these warrants on December 31, 2015 was determined using a Black Scholes valuation model with the following key level 3 inputs:

 

 

 

December 31,

2015

 

Risk-free interest rate

 

0.16

%

Expected life (in years)

 

0.21

 

Dividend yield

 

 

Volatility

 

179

%

Stock price

$

0.48

 

 

The following table sets forth the Company’s financial liabilities, related to warrants issued in the February 2015 and March 2011 offerings, subject to fair value measurements as of March 31, 2016 and December 31, 2015:

 

 

Fair Value as of March 31, 2016

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

February 2015 warrants

$

1,494

 

 

$

 

 

$

 

 

$

1,494

 

 

 

 

Fair Value as of December 31, 2015

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 2011 warrants

 

38

 

 

 

 

 

 

 

 

 

38

 

February 2015 warrants

 

1,826

 

 

 

 

 

 

 

 

 

1,826

 

Total common stock warrants

$

1,864

 

 

$

 

 

$

 

 

$

1,864

 

 

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

 

 

Warrant

Liability

 

Balance at December 31, 2015

$

1,864

 

Change in fair value of common stock warrants during three months ended March 31, 2016

 

(370

)

Balance at March 31, 2016

$

1,494

 

9


 

 

NOTE 5 — STOCK BASED COMPENSATION

The Company recognizes stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation.” Stock-based compensation expense, which consists of the compensation cost for employee stock options and the 2004 Purchase Plan, and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative expenses in the unaudited consolidated statements of operations for the three months ended March 31, 2016 and 2015 as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Amortization of stock-based compensation:

 

 

 

 

 

 

 

Research and development

$

318

 

 

$

817

 

General and administrative

 

525

 

 

 

604

 

 

$

843

 

 

$

1,421

 

 

 

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The fair value of employee stock options and employee purchase rights under the 2004 Purchase Plan was estimated using the following weighted-average assumptions for the three months ended March 31, 2016 and 2015:

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Employee Stock Options:

 

 

 

 

 

 

 

Risk-free interest rate

 

1.64

%

 

 

1.70

%

Expected term (in years)

 

6.02

 

 

 

6.02

 

Dividend yield

 

 

 

 

 

Volatility

 

108

%

 

 

83

%

Weighted-average fair value of stock options granted

$

0.45

 

 

$

3.13

 

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

Employee Stock Purchase Plan (ESPP):

 

 

 

 

 

 

 

Risk-free interest rate

 

0.56

%

 

 

0.38

%

Expected term (in years)

 

1.24

 

 

 

1.25

 

Dividend yield

 

 

 

 

 

Volatility

 

161

%

 

 

51

%

Weighted-average fair value of ESPP purchase rights

$

0.22

 

 

$

1.59

 

 

To determine the expected term of the Company’s employee stock options granted, the Company utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). To determine the risk-free interest rate, the Company utilized an average interest rate based on U.S. Treasury instruments with a term consistent with the expected term of the Company’s stock based awards. To determine the expected stock price volatility for the Company’s stock based awards, the Company utilized the historical volatility of the Company’s common stock. The fair value of all the Company’s stock based awards assumes no dividends as the Company does not anticipate paying cash dividends on its common stock.

Employee Stock-based Compensation Expense

As required by ASC 718, the Company recognized $0.8 million of stock-based compensation expense related to stock options and purchase rights, under the Company’s equity incentive plans and 2004 Purchase Plan, for the three months ended March 31, 2016 and $1.4 million of stock-based compensation for the three months ended March 31, 2015. As of March 31, 2016, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plans was approximately $6.3 million before forfeitures. This cost will be recorded as compensation expense on a straight-line basis over the remaining weighted average requisite service period of approximately 3.0 years.

10


 

Equity Incentive Plans

Equity Incentive Plans At March 31, 2016, 931,583 shares were authorized and available for issuance under the 2014 Equity Incentive Plan.

The following table summarizes stock option activity under the Company’s equity incentive plans:

 

Options

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2015

 

 

9,032,136

 

 

$

3.77

 

 

 

 

 

 

 

Granted

 

 

2,735,000

 

 

$

0.54

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

-

 

 

 

 

 

 

 

Forfeitures

 

 

(206,043

)

 

$

3.78

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

11,561,093

 

 

$

3.01

 

 

 

6.53

 

 

$

 

Vested and expected to vest March 31, 2016

 

 

11,434,385

 

 

$

3.03

 

 

 

6.50

 

 

$

 

Exercisable at March 31, 2016

 

 

7,085,144

 

 

$

3.65

 

 

 

4.74

 

 

$

 

 

No stock options were exercised during the three months ended March 31, 2016. The total intrinsic value of stock options exercised during three months ended March 31, 2015 was $0.2 million, as determined at the date of the option exercise. Cash received from stock option exercises was $0.1 million for the three months ended March 31, 2015. The Company issues new shares of common stock upon exercise of options. In connection with these exercises, there was no tax benefit realized by the Company due to the Company’s current loss position.

2004 Employee Stock Purchase Plan On January 1, 2016, an additional 100,000 shares was authorized for issuance under the 2004 Purchase Plan pursuant to the annual automatic increase to the authorized shares under the 2004 Purchase Plan. For the three months ended March 31, 2016, plan participants had purchased 49,366 shares at an average purchase price of $0.24 for total cash proceeds of $12,000.  At March 31, 2016, 177,471 shares were authorized and available for issuance under the 2004 Purchase Plan.

 

NOTE 6 —MARKETABLE SECURITIES AND FAIR VALUE

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.

11


 

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, 2016 and December 31, 2015:

 

 

Fair Value as of March 31, 2016

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

3,543

 

 

$

3,543

 

 

$

 

 

$

 

Certificates of deposit

 

100

 

 

 

 

 

 

100

 

 

 

 

Corporate debt securities

 

5,166

 

 

 

 

 

 

5,166

 

 

 

 

Government securities

 

17,846

 

 

 

 

 

 

17,846

 

 

 

 

Commercial paper

 

11,239

 

 

 

 

 

 

11,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

37,894

 

 

$

3,543

 

 

$

34,351

 

 

$

 

 

 

 

Fair Value as of December 31, 2015

 

 

Basis of Fair Value Measurements

 

(in thousands)

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

5,421

 

 

$

5,421

 

 

$

 

 

$

 

Certificates of deposit

 

696

 

 

 

 

 

 

696

 

 

 

 

Corporate debt securities

 

12,571

 

 

 

 

 

 

12,571

 

 

 

 

Government securities

 

21,769

 

 

 

 

 

 

21,769

 

 

 

 

Municipal securities

 

1,908

 

 

 

 

 

 

1,908

 

 

 

 

Commercial paper

 

6,145

 

 

 

 

 

 

6,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

48,510

 

 

$

5,421

 

 

$

43,089

 

 

$

 

 

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, 2016 and December 31, 2015:

 

As of March 31, 2016 (in thousands):

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

$

3,543

 

 

$

 

 

$

 

 

$

3,543

 

Certificates of deposit

 

100

 

 

 

 

 

 

 

 

 

100

 

Corporate debt securities

 

5,167

 

 

 

 

 

 

(1

)

 

 

5,166

 

U.S. Government securities

 

17,844

 

 

 

5

 

 

 

(3

)

 

 

17,846

 

Commercial paper

 

11,239

 

 

 

 

 

 

 

 

 

11,239

 

 

 

37,893

 

 

 

5

 

 

 

(4

)

 

 

37,894

 

Less cash equivalents

 

11,139

 

 

 

 

 

 

 

 

 

11,139

 

Total marketable securities

$

26,754

 

 

$

5

 

 

$

(4

)

 

$

26,755

 

 

 

As of December 31, 2015 (in thousands):

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

Money market funds

$

5,421

 

 

$

 

 

$

 

 

$

5,421

 

Certificates of deposit

 

696

 

 

 

 

 

 

 

 

 

696

 

Corporate debt securities

 

12,578

 

 

 

1

 

 

 

(8

)

 

 

12,571

 

Municipal securities

 

1,908

 

 

 

 

 

 

 

 

 

1,908

 

U.S. Government securities

 

21,783

 

 

 

 

 

 

(14

)

 

 

21,769

 

Commercial paper

 

6,145

 

 

 

 

 

 

 

 

 

6,145

 

 

 

48,531

 

 

 

1

 

 

 

(22

)

 

 

48,510

 

Less cash equivalents

 

9,419

 

 

 

 

 

 

 

 

 

9,419

 

Total marketable securities

$

39,112

 

 

$

1

 

 

$

(22

)

 

$

39,091

 

 

There were no realized gains or losses in three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, the weighted average maturity for the Company’s available for sale securities was 3 months, with the longest maturity being April 2017.

12


 

The Company does not intend to sell the investments that are in an unrealized loss position, and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. The following table provides the breakdown of the marketable securities with unrealized losses at March 31, 2016 (in thousands):

 

 

In loss position for less

than twelve months

 

As of March 31, 2016 (in thousands):

Fair

Value

 

 

Unrealized

Loss

 

Corporate debt securities

$

3,115

 

 

$

(1

)

U.S. government securities

 

8,525

 

 

 

(3

)

Total marketable securities

$

11,640

 

 

$

(4

)

 

 

The Company determined the fair value of the liability associated with its February 2015 warrants to purchase in aggregate 8.3 million shares of outstanding common stock using a Black-Scholes Model. See detailed discussion in Note 4 Stockholders’ Equity.

 

NOTE 7 — COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities under noncancelable leases, which qualify for operating lease accounting treatment under ASC 840, “Leases,” and, as such, these facilities are not included on its unaudited condensed consolidated balance sheets. The future rental payments required by the Company for all of its facilities under noncancelable operating leases are as follows (in thousands):

 

Years Ending December 31,

 

 

 

2016

 

578

 

2017

 

260

 

Thereafter

 

 

Total

$

838

 

 

Indemnification

The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, including business partners, contractors and parties performing its clinical trials. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party as a result of the Company’s activities. The duration of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. The Company maintains commercial general liability insurance and products liability insurance to offset certain of its potential liabilities under these indemnification provisions. Accordingly, the Company has not recognized any liabilities relating to these agreements as of March 31, 2016.

The Company’s bylaws provide that it is required to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature, to the fullest extent permissible by applicable law; and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

 

NOTE 8 — ACCRUED SEVERANCE BENEFITS

In December 2015, the Company adopted a plan to reduce its operating expenses, following its decision to discontinue joint development of evofosfamide under its former collaboration with Merck KGaA. The plan included a reduction of approximately 40 full-time employees in both research and development and to a lesser extent general and administrative areas of the Company. As a result of the staffing reduction, the Company incurred expenses related to severance benefits of approximately $2.5 million during the quarter ended December 31, 2015, which included approximately $0.2 million of non-cash stock compensation expense related to the extension of post-termination exercise period for the outstanding vested stock options for the affected employees. The payout of the accrued expenses related to severance benefits at December 31, 2015 was completed during the first quarter of 2016.

 

13


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the “Risk Factors” section of this Quarterly Report on Form 10-Q. Other than statements of historical fact, statements made in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Exchange Act, and Section 27A of the Act . When used in this report or elsewhere by management from time to time, the words “believe,” “will,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations. Forward-looking statements made in this report include, for example, statements about:

 

·

the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for evofosfamide (formerly TH-302);

 

·

our ability to advance the development of our product candidates;

 

·

our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;

 

·

our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of evofosfamide and tarloxotinib bromide or tarloxotinib (formerly referred to as TH-4000, PR610 or Hypoxin™);

 

·

our financial condition, including our ability to obtain the funding necessary to advance the development of our product candidates;

 

·

the anticipated progress of our product candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;

 

·

our ability to generate data and conduct analyses to support the regulatory approval of our product candidates;

 

·

our ability to establish and maintain intellectual property rights for our product candidates;

 

·

whether any product candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;

 

·

our ability to discover and develop additional product candidates suitable for clinical testing;

 

·

our ability to identify, in-license or otherwise acquire additional product candidates and development programs;

 

·

our anticipated research and development activities and projected expenditures;

 

·

our ability to complete preclinical and clinical testing successfully for new product candidates, such as tarloxotinib, that we may develop or license;

 

·

our ability to have manufactured active pharmaceutical ingredient, or API, and drug product that meet required release and stability specifications;

 

·

our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;

 

·

our ability to obtain licenses to any necessary third-party intellectual property;

 

·

our ability to retain and hire necessary employees and appropriately staff our development programs;

 

·

the sufficiency of our cash resources; and

 

·

our projected financial performance.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of the potential risks and uncertainties that may impact their accuracy, see the “Risk Factors” section in Part II, Item 1A of this quarterly report on Form 10-Q. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements reflect our view only as of the date of this report. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

14


 

Overview

We are a clinical-stage biopharmaceutical company using our expertise in the tumor microenvironment to discover and develop therapeutic and diagnostic agents that selectively target tumor cells for the treatment of patients living with cancer. We are developing two therapeutic product candidates based on hypoxia-activated prodrug technology: evofosfamide and tarloxotinib. To date, evofosfamide has been studied in more than 1600 patients with cancer and has demonstrated anti-tumor activity as a monotherapy and in combination with other chemotherapeutics or targeted therapies across multiple types of solid tumors and in some hematological malignancies. The safety profile of evofosfamide has been consistent with manageable side-effects. In December 2015, we announced topline results from two pivotal Phase 3 clinical trials of evofosfamide: TH-CR-406 conducted by Threshold in patients with soft tissue sarcoma and MAESTRO conducted by Merck KGaA, Darmstadt, Germany, or Merck KGaA, in patients with advanced pancreatic cancer.  Based on our analysis of the TH-CR-406 study and Merck KGaA’s analysis of the MAESTRO study, we reported that neither trial met its primary endpoint of demonstrating a statistically significant improvement in overall survival. As a result, and following Merck KGaA’s and our decision to discontinue joint development of evofosfamide under our former collaboration with Merck KGaA, in December 2015 we adopted a plan to reduce our operating expenses. The plan included a reduction of approximately 40 full-time employees in both research and development and general and administrative areas. In addition, we have discontinued enrollment in all company-sponsored clinical trials of evofosfamide as we conduct our own analyses of the data from the MAESTRO trial and evaluate potential next steps for the development of evofosfamide and tarloxotinib. As a result of the staffing reduction, we incurred expenses related to severance benefits of approximately $2.5 million during the quarter ended December 31, 2015, which included approximately $0.2 million of non-cash stock compensation expense related to the extension of post-termination exercise period for the outstanding vested stock options for the affected employees. The payout of the accrued expenses related to severance benefits was completed in the first quarter of 2016.

In January 2016, we announced that a sponsor-initiated interim futility analysis of the randomized, controlled Phase 2 trial (TH-CR-415) of evofosfamide, (or “the 415 trial”), was conducted by an independent Data Safety Monitoring Board (“, or IDSMB”).  IDSMB concluded that the trial was unlikely to reach its primary endpoint of improving overall survival with statistical significance.  While evofosfamide plus pemetrexed demonstrated statistically significant improvement in progression-free survival (PFS) associated with a reduction in the risk of progression or death by approximately 30%, enrollment in the 415 trial was stopped. Three investigator-sponsored trials of evofosfamide continue to enroll patients. In January 2016 at the American Society of Clinical Oncology 2016 Gastrointestinal Cancers Symposium (ASCO GI), Merck KGaA’s analyses of the results from the Phase 3 MAESTRO trial were presented. While the primary efficacy endpoint of overall survival did not meet statistical significance, efficacy endpoints of progression-free survival and confirmed overall response rates demonstrated significant improvements for patients treated with the combination of evofosfamide and gemcitabine (the “treatment arm”) compared to gemcitabine plus placebo (the “control arm”). Of particular note, a meaningful improvement in overall survival was reported for a subgroup of 123 Asian patients (enrolled at Japanese and South Korean sites) in which the risk of death was reduced by 42 percent for patients on the treatment arm compared to patients on the control arm. The hazard ratio, (or “HR”), for this subgroup was 0.58 (95% confidence interval (or “CI”: 0.36 – 0.93).  In particular and based upon Merck KGaA’s MAESTRO data, the 116 patients from Japan from the treatment arm had a median overall survival of 13.6 months versus 9.1 months for those patients on the control arm with significant improvements in progression free survival, objective response rates, and reductions in the pancreatic cancer biomarker, CA19-9. No new safety findings were identified in the MAESTRO study and the safety profile was consistent with that previously reported in other studies of evofosfamide plus gemcitabine. In March 2016, we and Merck KGaA agreed to terminate our former collaboration with Merck KGaA, and all rights to evofosfamide were returned to us.  We are currently conducting additional analyses of data from the MAESTRO trial in pancreatic cancer. Pending the results of our analyses, we intend to discuss potential registration pathways with health regulatory authorities, including the U.S. Food and Drug Administration, or FDA, and the Pharmaceuticals and Medical Devices Agency, or PMDA, in Japan.

Our second product candidate, tarloxotinib, is a prodrug designed to selectively release a covalent (irreversible) EGFR tyrosine kinase inhibitor under hypoxic conditions. Aberrant EGFR signaling is implicated in the growth and spread of certain tumor types. Accordingly, tarloxotinib has the potential to effectively shut down aberrant EGFR signaling in a tumor-selective manner, thus potentially avoiding or reducing the systemic side effects associated with currently available EGFR tyrosine kinase inhibitors. Tarloxotinib is currently being evaluated in two Phase 2 proof-of-concept trials: one for the treatment of patients with mutant EGFR-positive, T790M-negative advanced non-small cell lung cancer progressing on an EGFR tyrosine kinase inhibitor, and the other for patients with recurrent or metastatic squamous cell carcinomas of the head and neck or skin. Threshold licensed exclusive worldwide rights to tarloxotinib from Auckland Uniservices Ltd in September 2014.

We were incorporated in October 2001. We have devoted substantially all of our resources to research and development of our product candidates. We have not generated any revenue from the commercial sales of our product candidates, and since inception we have funded our operations through the private placement and public offering of equity securities and through payments received under our former collaboration with Merck KGaA. As of March 31, 2016 and December 31, 2015, we had cash, cash equivalents and marketable securities of $38.0 million and $48.7 million, respectively.

15


 

Subject to our ability to obtain additional funding and to otherwise advance the development of our product candidates, we expect to devote substantial resources to research and development in future periods as we potentially start additional clinical trials on our own or with a potential future partner or collaborator. Research and development expenses are expected to decrease in 2016 compared to 2015 primarily as a result of Merck KGaA’s and our decision to cease further joint development of evofosfamide and our decision to cease further enrollment in all Threshold-sponsored clinical trials of evofosfamide and, to a lesser extent, the impact of workforce reduction implemented in December 2015.  

We believe that our cash, cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least the next twelve months based upon current operating plans and spending assumptions. However, we will need to raise additional capital to advance the clinical development of evofosfamide and tarloxotinib, whether through new collaborative or partnering arrangements or otherwise, and to in-license or otherwise acquire and develop additional product candidates or programs.  In particular, our ability to advance the clinical development of evofosfamide is dependent upon our ability to enter into new collaborative or partnering arrangements for evofosfamide, or to otherwise obtain sufficient additional funding for such development, particularly since we are no longer eligible to receive any further milestone payments or other funding from Merck KGaA, including the 70% of worldwide development costs for evofosfamide that were previously borne by Merck KGaA.  If we are unable to secure additional funding on a timely basis or on terms favorable to us, we may be required to cease or reduce certain development projects, to conduct additional workforce reductions, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities, and if we are unable to obtain additional funding, there is uncertainty regarding our continued existence.

Results of Operations

Revenue. For the three months ended March 31, 2016 and March 31, 2015, we recognized no revenue and $3.7 million in revenue, respectively, from the amortization of the aggregate of $110 million in upfront and milestone payments earned in 2013 and 2012 from our former collaboration with Merck KGaA. We were amortizing them ratably over the estimated period of performance, which we originally estimated to end on March 31, 2020. Merck KGaA’s and our decision to cease further joint development of evofosfamide in December 2015, resulted in the immediate recognition of all the remaining deferred revenue into revenue during the quarter ended December 31, 2015. Further, in March 2016, we and Merck KGaA agreed to terminate the collaboration and under the terms of the Termination Agreement, all rights under the original agreement were returned to Threshold, as well as all rights to Merck KGaA technology developed under the original agreement. Also as a result of the termination of our former collaboration, we were no longer eligible to receive any further milestone payments from Merck KGaA.

Research and Development. Research and development expenses were $6.0 million for the three months ended March 31, 2016 compared to $10.7 million for the three months ended March 31, 2015, in each case net of the reimbursement for Merck KGaA’s 70% share of total development expenses for evofosfamide. The $4.7 million decrease in expenses was due primarily to a $3.1 million decrease in employee related expenses, a $1.5 million decrease in clinical development expenses net of the reimbursement for Merck KGaA’s 70% share of total development expenses for evofosfamide and a decrease of $0.1 million in consulting expenses. The decrease in employee related expenses was also due to the reduction in workforce of 34 employees in clinical development and discovery research in December 2015. As result of the termination of our former collaboration with Merck KGaA, we are no longer entitled to any reimbursement for evofosfamide development expenses apart from Merck KGaA’s 70% reimbursement obligation for costs to wind-down the discontinued trials and return the evofosfamide rights back us.

During  the three months ended March 31, 2016 and 2015, we were engaged in three primary research and development programs: the development of evofosfamide, which was the subject of two pivotal Phase 3 clinical trials and multiple Phase 2 and Phase 1 clinical trials; the clinical development of tarloxotinib, which is subject of two Phase 2 proof of concept trials; and our discovery research program aimed at identifying new drug candidates. Research and development expenses consist primarily of costs of conducting clinical trials, salaries and related costs for personnel including non-cash stock-based compensation, costs of clinical materials, costs for research projects and preclinical studies, costs related to regulatory filings, and facility costs. Contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas. The following table summarizes our research and development expenses (net of reimbursement for Merck KGaA’s 70% share of total development expenses in the case of evofosfamide) attributable to each of our programs for each period presented:

 

Research and Development Expenses by Project (in thousands):

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Evofosfamide

 

$

4,278

 

 

$

8,594

 

Tarloxotinib

 

 

1,332

 

 

 

830

 

Discovery Research

 

 

395

 

 

 

1,256

 

Total Research and Development Expenses

 

$

6,005

 

 

$

10,680

 

16


 

Research and development expenses associated with our internally discovered compound evofosfamide were $4.3 million for the three months ended March 31, 2016 and $8.6 million for the three months ended March 31, 2015, in each case net of the reimbursement for Merck KGaA’s 70% share of total eligible collaboration expenses for evofosfamide. The decrease of $4.3 million during the three months ended March 31, 2016 compared to the same period in 2015, was due to Merck KGaA’s and our joint decision to cease further development in evofosfamide in December 2015 and the related discontinuation of enrollment and closure of all company sponsored evofosfamide trials.

Research and developments expenses associated with tarloxotinib, which we licensed rights to in September 2014, were $1.3 million for the three months ended March 31, 2016 compared to $0.8 million for the three months ended March 31, 2015. The increase of $0.5 million was due to the continued enrollment of two Phase 2 proof-of-concept clinical trials of tarloxotinib beginning in the middle of 2015. Discovery research and development expenses were $0.3 million for the three months ended March 31, 2016 compared to $1.3 million for the three months ended March 31, 2015, respectively. With the reduction in workforce enacted in December of 2015 pursuant to which we eliminated our in-house discovery research activities, we expect a substantial decrease in our discovery research expense for 2016.

The largest component of our total operating expenses has historically been our ongoing investment in our research and development activities, primarily with respect to the development of evofosfamide. Subject to our ability to obtain additional funding and to otherwise advance the development of our product candidates, we expect to devote substantial resources to research and development in future periods as we potentially start new clinical trials on our own or with a potential future partner or collaborator.  However research and development expenses are expected to decrease in 2016 compared to 2015 due primarily to our and Merck KGaA’s decision to cease further joint development of evofosfamide in December 2015 and our subsequent decision to cease enrollment in all Threshold-sponsored clinical trials of evofosfamide.  In addition, the reduction in workforce implemented in December 2015 will also result in a decrease in employee-related expenses.

The process of conducting the clinical research necessary to obtain FDA and foreign regulatory approvals is costly, uncertain and time consuming. We consider the active management of our research and development programs to be critical to our long-term success. The actual probability of success for evofosfamide, tarloxotinib and potential future clinical product candidates may be impacted by a variety of factors, including, among others, the quality of the product candidate, early clinical data, investment in the program and the availability of adequate funding, competition, manufacturing capability and commercial viability. Furthermore, our strategy depends upon our ability to enter into potential new partnering or collaborative arrangements with third parties to assist in the development of our product candidates, including evofosfamide, or to otherwise obtain sufficient additional funding to permit such development.  In the event we enter into partnering or collaborative arrangements for our product candidates, the preclinical development or clinical trial process for a product candidate and the estimated completion date may largely be under the control of that third party and not under our control. We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements. In addition, the length of time required for clinical development of a particular product candidate and our development costs for that product candidate may be impacted by the scope and timing of enrollment in clinical trials for the product candidate, unanticipated additional clinical trials that may be required, future decisions to develop a product candidate for subsequent indications, and whether in the future we decide to pursue development of the product candidate with a collaborator or independently. For example, evofosfamide may have the potential to be approved for multiple indications, and we do not yet know how many of those indications we and a potential future collaborator will pursue. In this regard, the decision to pursue regulatory approval for subsequent indications will depend on several variables outside of our control, including the strength of the data generated in our prior and ongoing clinical studies and the willingness of potential collaborators to jointly fund such additional work. Furthermore, the scope and number of clinical studies required to obtain regulatory approval for each pursued indication is subject to the input of the applicable regulatory authorities, and we have not yet sought such input for all potential indications that we may elect to pursue, and even after having given such input applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies, or for other reasons outside of our control. In addition, our development of tarloxotinib is at a very early stage and it is possible that tarloxotinib may not be found to be safe or effective in our two ongoing Phase 2 proof-of- concept clinical trials or in any other studies that we may conduct, and we may otherwise fail to realize the anticipated benefits of our licensing of this product candidate.

We did not track research and development expenses by project prior to 2003, and therefore we cannot provide cumulative project expenses to date. The risks and uncertainties associated with our research and development projects are discussed more fully in the “Risk Factors” section in Part II, Item 1A of this quarterly report on Form 10-Q. As a result of the risks and uncertainties discussed in the “Risk Factors” section and above, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, anticipated completion dates or when and to what extent we will receive cash inflows from the commercialization and sale of a product candidate, including evofosfamide. To date, we have not commercialized any of our product candidates and in fact may never do so.

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General and Administrative. General and administrative expenses were $2.2 million for the three months ended March 31, 2016 compared to $2.6 million for three months ended March 31, 2015. The $0.4 million decrease was due to a $0.2 million decrease in employee related expenses and a $0.2 million decrease in consulting expenses. We currently expect our general and administrative expenses to decrease in 2016 compared to 2015 due to the termination of the collaboration with Merck KGaA and to a lesser extent due to the reduction in workforce in December 2015.

Interest Income (Expense), Net. Interest income (expense), net for the three months ended March 31, 2016 was $32,000 compared to $33,000 of interest income for same period in 2015.

Other Income (Expense). Other income (expense) for the three months ended March 31, 2016 was non-cash income of $0.4 million compared to non-cash expense of $1.5 million for the three months ended March 31, 2015. The non-cash income during the three months ended March 31, 2016 was due to a net decrease in the fair value of the outstanding warrants as result of a decrease in the underlying price of the common stock during the period. The non-cash expense during the three months ended March 31, 2015 was due to a net increase in the fair value of the outstanding warrants as result of an increase in the underlying price of the common stock during the period

Liquidity and Capital Resources

We have not generated and do not expect to generate revenue from sales of product candidates in the near term. Since our inception we have funded our operations primarily through private placements and public offerings of equity securities and through payments received under our former collaboration with Merck KGaA. We have received $110 million in upfront and milestone payments from our former collaboration with Merck KGaA. We had cash, cash equivalents and marketable securities of $38.0 million and $48.7 million at March 31, 2016 and December 31, 2015, respectively, available to fund operations.

Net cash used in operating activities for the three months ended March 31, 2016 was $10.6 million compared to net cash used in operating activities of $3.8 million for the three months ended March 31, 2015. The increase of $6.8 million in cash used in operations was due to an increase in payment of previously accrued expenses and a decrease in the 70% cash reimbursement of expenses related to our former collaboration with Merck KGaA.  

Net cash provided by investing activities for the three months ended March 31, 2016 was $12.2 million compared with net cash provided by investing activities of $12.0 million for the three months ended March 31, 2015.

Net cash provided by financing activities for the three months ended March 31, 2016 and 2015 was $13,000 and $28.5 million, respectively. The $28.5 million decrease in cash provided by financing activities was primarily due to the $28.1 million net proceeds received from the completion of our underwritten public offering in February 2015 and to lesser extent a $0.4 million decrease in proceeds for the exercise of stock options and purchase rights under our equity plans.

We believe that our cash, cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least the next 12 months based upon current operating plans and spending assumptions. However, we will need to raise additional capital to advance the clinical development of evofosfamide and tarloxotinib, whether through new collaborative or partnering arrangements or otherwise, and to in-license or otherwise acquire and develop additional product candidates or programs.  In particular, our ability to advance the clinical development of evofosfamide is dependent upon our ability to enter into new collaborative or partnering arrangements for evofosfamide, or to otherwise obtain sufficient additional funding for such development, particularly since we are no longer eligible to receive any further milestone payments or other funding from Merck KGaA, including the 70% of worldwide development costs for evofosfamide that were previously borne by Merck KGaA.

While we have been able to fund our operations to date, we currently have no ongoing collaborations for the development and commercialization of our product candidates and no source of revenue, nor do we expect to generate revenue for the foreseeable future. We also do not have any commitments for future external funding.  Until we can generate a sufficient amount of product revenue, which we may never do, we expect to finance future cash needs through a variety of sources, including:

 

·

the public equity market;

 

·

private equity financing;

 

·

collaborative arrangements;

 

·

licensing arrangements; and/or

 

·

public or private debt.

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Our ability to raise additional funds and the terms upon which we are able to raise such funds have been severely harmed by the negative results reported from our two pivotal Phase 3 clinical trials of evofosfamide, and may in the future be adversely impacted by the uncertainty regarding the prospects for future development of evofosfamide and our ability to advance the development of evofosfamide and tarloxotinib or otherwise realize any return on our investments in evofosfamide and tarloxotinib, if at all. Our ability to raise additional funds and the terms upon which we are able to raise such funds may also be adversely affected by the uncertainties regarding our financial condition, the sufficiency of our capital resources, our ability to maintain the listing of our common stock on The NASDAQ Capital Market and recent and potential future management turnover. As a result of these and other factors, we cannot be certain that sufficient funds will be available to us or on satisfactory terms, if at all. To the extent we raise additional funds by issuing equity securities, our stockholders may experience significant dilution, particularly given our currently depressed stock price, and debt financing, if available, may involve restrictive covenants. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to our product candidates, technologies or potential markets, any of which could result in our stockholders having little or no continuing interest in our evofosfamide or tarloxotinib programs as stockholders or otherwise, or which could delay or require that we curtail or eliminate some or all of our development programs or otherwise have a material adverse effect on our business, financial condition and results of operations. In addition, we may have to delay, reduce the scope of or eliminate some of our development, which could delay the time to market for any of our product candidates, if adequate funds are not available.

On January 21, 2016, we received a letter from the staff, or Staff, of the NASDAQ Stock Market, or NASDAQ, providing notification that, for the previous 30 consecutive business days, the closing bid price for our common stock was below the minimum $1.00 per share requirement for continued listing on The NASDAQ Capital Market, or the Bid Price Requirement. The notification had no immediate effect on the listing of our common stock.  In accordance with NASDAQ listing rules, we were afforded 180 calendar days, or until July 19, 2016, to regain compliance with the Bid Price Requirement. If we do not regain compliance with the Bid Price Requirement by July 19, 2016, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to meet, on the 180th day of the first compliance period, the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The NASDAQ Capital Market, with the exception of the Bid Price Requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. However, if it appears to the Staff that we will not be able to cure the deficiency, or if we are not eligible for a second compliance period, NASDAQ will notify us that our common stock will be subject to delisting. In the event of such a notification, we may appeal the Staff’s determination to delist our common stock, but there can be no assurance the Staff would grant our request for continued listing.  In addition, we may be unable to meet other applicable NASDAQ listing requirements, including maintaining minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted notwithstanding our ability to demonstrate compliance with the Bid Price Requirement, whether through the implementation of a reverse stock split or otherwise. If our common stock is delisted, this would, among other things, substantially impair our ability to raise additional funds to fund our operations and to advance the development of evofosfamide and tarloxotinib, and could result in the loss of institutional investor interest and fewer development opportunities for us.

If we are unable to secure additional funding on a timely basis or on terms favorable to us, we may be required to cease or reduce certain development projects, to conduct additional workforce reductions, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities, and if we are unable to obtain additional funding, there is uncertainty regarding our continued existence.

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“At-the-Market” Sales Agreements

On November 2, 2015, we entered into a sales agreement, with Cowen and Company, LLC, or Cowen, or the Cowen Sales Agreement, which provides that, upon the terms and subject to the conditions and limitations set forth in the Cowen Sales Agreement, we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through Cowen as our sales agent. Sales of our common stock through Cowen, if any, will be made on The NASDAQ Capital Market by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by us and Cowen. Subject to the terms and conditions of the sales agreement, Cowen would use commercially reasonable efforts to sell our common stock from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions we may impose). We are not obligated to make any sales of common stock under the Cowen Sales Agreement.  We would pay Cowen an aggregate commission rate of up to 3.0% of the gross proceeds of the sales price per share of any common stock sold under the Cowen Sales Agreement. Although the Cowen Sales Agreement remains in effect, the Cowen Sales Agreement is not currently a practical source of liquidity for us.  In this regard, given our currently-depressed stock price, we are significantly limited in our ability to sell shares of common stock through Cowen under the Cowen Sales Agreement since the issuance and sale of common stock under the Cowen Sales Agreement, if it occurs, would be effected under a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, and in accordance with the rules governing those registration statements, we generally can only sell shares of our common stock under that registration statement in an amount not to exceed one-third of our public float, which limitation for all practical purposes precludes our ability to obtain any meaningful funding through the Cowen Sales Agreement at this time. Even if our stock price and public float substantially increases, the number of shares we would be able to sell under the Cowen Sales Agreement would be limited in practice based on the trading volume of our common stock. In addition, we must maintain the effectiveness of our registration statement on Form S-3 to be filed with the Securities and Exchange Commission in order to sell any common stock under the Cowen Sales Agreement. We have not yet sold any common stock pursuant to the Cowen Sales Agreement.

Obligations and Commitments

We lease certain of our facilities under noncancelable leases, which qualify for operating lease accounting treatment under ASC 840, “Leases,” and, as such, these facilities are not included on our unaudited condensed consolidated balance sheets.

During the three months ended March 31, 2016, there have been no significant changes in our payments due under contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, which we filed with Securities and Exchange Commission on March 10, 2016.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For further information on our critical accounting policies, see the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2015, which we filed with the SEC on March 10, 2016.

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update regarding revenue from customer contracts to transfer goods and services or non-financial assets unless the contracts are covered by other standards (for example, insurance or lease contracts). Under the new guidance, an entity should recognize revenue in connection with the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB deferred the effective date of the update by one year, with early adoption on the original effective date permitted. The updates are effective for us beginning in the first quarter of the fiscal year 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the impact of this accounting standard update on our consolidated financial statements.

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In August 2014, the FASB issued an accounting standard update that is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. It requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments: (1) provide a definition of the term substantial doubt; (2) require an evaluation every reporting period including interim periods; (3) provide principles for considering the mitigating effect of management’s plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans; (5) require an express statement and other disclosures when substantial doubt is not alleviated; and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance will be effective for us beginning with our annual report for fiscal 2016 and interim periods thereafter. We are currently evaluating the impact the standard will have on our financial statements.

In November 2015, the FASB issued an accounting standard update for the presentation of deferred income taxes. Under this new guidance, deferred tax liabilities and assets should be classified as noncurrent in a classified balance sheet. The update is effective for us beginning in the first quarter of fiscal year 2018 with early adoption permitted as of the beginning of an interim or annual reporting period. Additionally, this guidance may be applied either prospectively or retrospectively to all periods presented. We are currently evaluating the impact the standard will have on our financial statements.

In February 2016, the FASB issued an accounting standard update, which requires the recognition of lease assets and lease liabilities arising from operating leases in the statement of financial position. We will adopt the standard effective the first quarter of 2019 and do not anticipate that this new accounting guidance will have a material impact on our consolidated statement of operations.

In March 2016, the FASB issued an accounting standard update, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. We are evaluating the full effect this accounting update may have on our consolidated financial statements and will adopt the standard effective the first quarter of 2017.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable Securities and Exchange Commission regulations.

 

 


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three months ended March 31, 2016, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our annual report on Form 10-K for the year ended December 31, 2015.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

We have carried out an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation as of March 31, 2016, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal controls over financial reporting.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the effectiveness of controls.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Threshold Pharmaceuticals, Inc. have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot be certain that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of March 31, 2016 to provide reasonable assurance that the objectives of our disclosure control system were met.

 

 

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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ITEM 1A. RISK FACTORS

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should refer to the other information contained in this quarterly report on Form 10-Q, including our condensed consolidated financial statements and related notes.

Risks Related to Drug Discovery, Development and Commercialization

We remain substantially dependent upon the success of evofosfamide. If we are unable to successfully develop and obtain regulatory approval for evofosfamide, our business and future prospects will be severely harmed.  

We have focused our development activities on evofosfamide, and substantially all of our efforts and expenditures continue to be devoted to evofosfamide. Accordingly, our future prospects are substantially dependent on the successful development, regulatory approval and commercialization of evofosfamide. In this regard, a substantial portion of our efforts have been devoted to two pivotal Phase 3 clinical trials of evofosfamide: the “406 trial” evaluating evofosfamide in combination with doxorubicin versus doxorubicin alone in patients with soft tissue sarcoma, and the MAESTRO trial of evofosfamide in combination with gemcitabine in patients with previously untreated, locally advanced unresectable or metastatic pancreatic adenocarcinoma, conducted by Merck KGaA.   The 406 trial and the MAESTRO trial failed to meet their primary endpoints of demonstrating a statistically significant improvement in overall survival as agreed upon with the FDA, based on our analyses for the 406 trial and Merck KGaA’s analyses for the MAESTRO trial. This has significantly depressed our stock price and harmed our future prospects. We are conducting additional analyses of the data from MAESTRO trial and intend to review and discuss the results of our analyses with health regulatory authorities, to determine potential registration pathways. Evofosfamide and the activities associated with its development and commercialization, including testing, manufacture, safety, efficacy, recordkeeping, labeling, and storage, are subject to approval and continuing regulation by the FDA, PMDA and other regulatory agencies in and outside the U.S.  Failure to obtain regulatory approval will prevent us from commercializing evofosfamide.  Different regulatory agencies may reach different decisions in assessing the approval evofosfamide. Securing regulatory approval requires the submission of extensive preclinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information to the regulatory agencies for each therapeutic indication to establish evofosfamide’s safety and efficacy.  Historically, Japan has required that pivotal clinical data submitted in support of a new drug application be performed on a significant population of Japanese patients. The PMDA may accept U.S. or E.U. patient data when submitted along with a bridging study, but only if it demonstrates that Japanese and non-Japanese subjects react comparably to the product. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Changes in the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of evofosfamide. The FDA, PMDA and other foreign regulatory agencies have substantial discretion in the approval process and may refuse to accept any application or may decide that the data from the MAESTRO trial are insufficient to support the approval of any marketing authorization and that one or more additional clinical trials of evofosfamide would be required to be successfully conducted by us in order to support any such approval, including with respect to any patient subgroups that we may identify that we believe may potentially benefit from treatment with evofosfamide and gemcitabine. If we are required to successfully conduct and complete any additional clinical trials of evofosfamide in order to support potential approval of evofosfamide, we would be required to obtain additional capital and there can be no assurances that we would be successful in obtaining the additional funding, whether through new partnering or collaboration arrangements or otherwise, necessary to support any additional clinical development of evofosfamide. Any regulatory approval we ultimately obtain may be limited in scope or subject to restrictions or post-approval commitments that render the product not commercially viable. If any regulatory approval that we obtain is delayed or is limited, we may decide not to commercialize the product candidate after receiving the approval.  In addition, in March 2016, we and Merck KGaA agreed to terminate our collaboration and, as a result, we will not any receive any clinical development milestones or any other funding from Merck KGaA for the purpose of conducting any further clinical development of evofosfamide. Under our former collaboration with Merck KGaA, Merck KGaA was responsible for 70% of the worldwide development expenses for evofosfamide. If we are unable to obtain sufficient additional finding for the further development of evofosfamide, whether through new partnering or collaborative arrangements or otherwise, we may be required to cease further development of our evofosfamide program. Also, issues with the successful and timely transfer of evofosfamide development activities from Merck KGaA could significantly impact our ability to analyze the MAESTRO data for the purposes of  pursuing discussions with regulatory authorities and potential partners, and there can be no assurance that such development activities will be successfully transferred to us in a timely manner or at all. For these and other reasons, we cannot assure you that we will be able to advance the development of evofosfamide.  In such event, we may be required to abandon the development of evofosfamide and forego any return on our investment from our evofosfamide program, which would severely harm our future prospects and may cause us to cease operations.  

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Even if we are able to advance the development of evofosfamide, the failure of evofosfamide in the future to achieve successful clinical trial endpoints, delays in clinical trial enrollment or events or in the clinical development of evofosfamide, unanticipated adverse side effects related to evofosfamide or any other unfavorable developments or information related to evofosfamide would further significantly harm our business and our future prospects. For example, in January 2016, we announced that an IDSMB concluded that our registrational Phase 2 clinical trial of evofosfamide plus pemetrexed versus pemetrexed alone in patients with non-squamous non-small cell lung cancer was unlikely to reach its primary endpoint of improving overall survival with statistical significance and, as a result, enrollment in this trial was closed and in connection therewith, we determined to cease enrollment in all Threshold-sponsored trials of evofosfamide.  Moreover, evofosfamide is not expected to be commercially available in the near term, if at all. Further, the commercial success of evofosfamide, if any, will depend upon its acceptance by physicians, patients, third party payors and other key decision-makers as a therapeutic and cost effective alternative to currently available products. In any event, if we are unable to successfully develop, obtain regulatory approval for and commercialize evofosfamide, our ability to generate revenue from product sales will be significantly delayed or precluded altogether and our business would be materially and adversely affected, and we may not be able to continue as a going concern.

If we do not establish collaborations for our product candidates or otherwise raise substantial additional capital, we will likely need to alter, delay or abandon our development and any commercialization plans.

Our strategy includes selectively partnering or collaborating with leading pharmaceutical and biotechnology companies to assist us in furthering the development and potential commercialization of our product candidates. In this regard, as result of the termination of our collaboration with Merck KGaA, we are no longer eligible to receive any further milestone payments or other funding from Merck KGaA, including the 70% of worldwide development costs for evofosfamide that were previously borne by Merck KGaA. Since we are now solely responsible for the further development and commercialization of evofosfamide at our own cost, we are evaluating potential partnering opportunities for evofosfamide, and in this regard, we are currently seeking a pharmaceutical partner for evofosfamide with a commercial presence in oncology in Japan. In this regard, our ability to advance the clinical development of evofosfamide is dependent upon our ability to enter into new collaborative or partnering arrangements for evofosfamide, or to otherwise obtain sufficient additional funding for such development. We face significant competition in seeking appropriate collaborators, and collaborations are complex and time consuming to negotiate and document. We may not be successful in entering into new collaborations with third parties on acceptable terms, or at all. In addition, we are unable to predict when, if ever, we will enter into any additional collaborative arrangements because of the numerous risks and uncertainties associated with establishing such arrangements. If we are unable to negotiate new collaborations, we may have to curtail the development of a particular product candidate, reduce, delay, or terminate its development or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. For example, we may have to cease further development of our evofosfamide program if we are unable to raise sufficient funding for any additional clinical development of evofosfamide through new partnering or collaborative arrangements with third parties or other financing alternatives.  In this regard, if we decide to undertake any further development of our product candidates beyond our ongoing clinical trials and preclinical development, we would need to obtain additional funding for such development, either through financing or by entering into collaborative arrangements or partnerships with third parties for any such further development and we may be unable to do. In addition, we may not be able to dedicate further resources to tarloxotinib after the conclusion of our ongoing Phase 2 proof-of-concept clinical trials of tarloxotinib and while we are currently determining third party interest in partnering or acquiring this asset and other preclinical oncology compounds, we may be unable to partner or divest these assets in a timely manner, or at all, and therefore may not receive any return on our investment in tarloxotinib.  Likewise, any meaningful preclinical development, beyond identifying other potential lead clinical compounds from our preclinical oncology program, will require us to obtain additional funding, and our ability to meaningfully advance development of other oncology compounds is subject to our ability to obtain additional funding.  If we do not have sufficient funds, we will not be able to advance the development of our product candidates or otherwise bring our product candidates to market and generate product revenues.

Any collaborative arrangements that we establish in the future may not be successful or we may otherwise not realize the anticipated benefits from these collaborations.  In addition, any future collaborative arrangements may place the development and commercialization of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us

We have in the past established and intend to continue to establish collaborations with third parties to develop and commercialize our product candidates, and these collaborations may not be successful or we may otherwise not realize the anticipated benefits from these collaborations. For example, in March 2016, we and Merck KGaA, mutually agreed to terminate our collaboration for the development and commercialization of our evofosfamide product candidate, and, as a result, we will not receive any additional milestone payments or other funding from Merck KGaA on account of our collaboration with Merck KGaA. As of the date of this report, we have no ongoing collaborations for the development and commercialization of our product candidates. We may not be able to locate third-party collaborators to develop and market our product candidates, and we lack the capital and resources necessary to develop our product candidates alone.

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Dependence on collaborative arrangements subjects us to a number of risks, including:

 

·

we may not be able to control the amount and timing of resources that our potential collaborators may devote to our product candidates;

 

·

potential collaborations may experience financial difficulties or changes in business focus;

 

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we may be required to relinquish important rights such as marketing and distribution rights;

 

·

should a collaborator fail to develop or commercialize one of our compounds or product candidates, we may not receive any future milestone payments and will not receive any royalties for the compound or product candidate;

 

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business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

 

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under certain circumstances, a collaborator could move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

 

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collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our product candidates.

Although Merck KGaA obtained agreement with the FDA on a Special Protocol Assessment, or SPA for the pivotal Phase 3 clinical trial of evofosfamide in combination with gemcitabine for the treatment of previously untreated locally advanced unresectable or metastatic pancreatic cancer, the interpretation of the SPA may affect the outcome from regulatory review, including any regulatory approval.

Merck KGaA obtained an agreement with the FDA on an SPA for the MAESTRO trial of evofosfamide. The SPA process allows for FDA evaluation of a clinical trial protocol intended to form the primary basis of an efficacy claim in support of a new drug application, or NDA, and provides a product sponsor with an agreement confirming that the design and size of a trial will be appropriate to form the primary basis of an efficacy claim for an NDA if the trial is performed according to the SPA. Reaching agreement on an SPA is not an indication of approvability. Even if we believe that the reanalyzed data from the MAESTRO clinical trial are supportive, the SPA is not a guarantee of approval, and we cannot be certain that the design of, or data collected from, the MAESTRO trial will be adequate to demonstrate safety and efficacy, or otherwise be sufficient to support regulatory approval. There can be no assurance that the terms of the SPA will ultimately be binding on the FDA, and the FDA is not obligated to approve an NDA, if any, even if the reanalyzed data from the MAESTRO clinical trial are supportive. The FDA retains significant latitude and discretion in interpreting the terms of the SPA and the data and results from a clinical trial, and can require trial design changes or additional studies if issues arise essential to determining safety or efficacy. Data may subsequently become available that causes the FDA to reconsider the previously agreed upon scope of review and the FDA may have subsequent safety or efficacy concerns that override the SPA, and we can give no assurance that as part of a regulatory review process, if any, the FDA will determine that the SPA is still valid. As a result, we do not know how the FDA will interpret the commitments under the SPA agreement, how it will interpret the data and results from the MAESTRO trial, or whether evofosfamide will receive any regulatory approvals.

Accordingly, even with the SPA, we cannot be certain that the trial results from the MAESTRO trial will be found to be adequate to support an efficacy claim and product approval, even if we believe that the reanalyzed data from the MAESTRO clinical trial are supportive. Therefore, despite the potential benefits of SPA agreements, significant uncertainty remains regarding the clinical development of and regulatory approval process for evofosfamide and it is possible that we might never receive any regulatory approvals for evofosfamide.

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Preclinical studies and Phase 1 or 2 clinical trials of our product candidates may not predict the results of subsequent human clinical trials.

Preclinical studies, including studies of our product candidates in animal models of disease, may not accurately predict the results of human clinical trials of those product candidates. In particular, promising animal studies suggesting the efficacy of evofosfamide for the treatment of different types of cancer may not accurately predict the ability of evofosfamide to treat cancer effectively in humans. Likewise, preclinical and Phase 1 clinical data that suggest that plasma concentrations of tarloxotinib that are active in tumor xenograft  models in mice could be attained in patients may not accurately predict whether a safe and effective dose can be attained in humans. Similarly, while tarloxotinib has demonstrated, in preclinical studies, an ability to overcome non-T790M mediated resistance to conventional EGFR tyrosine kinase inhibitors and in preclinical studies hypoxia has been shown to increase EGFR signaling, these preclinical studies may not accurately predict the results of our ongoing Phase 2 proof-of-concept clinical trials of tarloxotinib in patients with EGFR-positive, T790M-negative non-small cell lung cancer and in patients with recurrent or metastatic squamous cell carcinoma of the head and neck or skin. Evofosfamide, tarloxotinib or any other compounds we may develop may be found not to be efficacious in treating cancer, alone or in combination with other agents, when studied in human clinical trials. In addition, we will not be able to commercialize our product candidates until we obtain FDA approval in the United States or approval by comparable regulatory agencies in Europe and other countries. A number of companies in the pharmaceutical industry, including us and those with greater resources and experience than us, have suffered significant setbacks in Phase 3 clinical trials, even after encouraging results in earlier clinical trials.

To satisfy FDA or foreign regulatory approval standards for the commercial sale of our product candidates, we must demonstrate in adequate and controlled clinical trials that our product candidates are safe and effective. Success in early clinical trials, including in Phase 2 clinical trials, does not ensure that later clinical trials will be successful. Initial results from Phase 1 and Phase 2 clinical trials of evofosfamide have in the past not been, and may again in the future not be, confirmed by later analysis or in subsequent larger clinical trials. For example, the results that achieved the primary endpoint for progression-free survival in the Phase 2b trial of evofosfamide in pancreatic cancer did not predict the results of overall survival for patients in the MAESTRO trial. Likewise, the results in the Phase 1/2 trial of evofosfamide in patients with soft tissue sarcoma did not predict the results of overall survival for patients in the 406 trial. In both cases, the 406 trial and the MAESTRO trial failed to meet their primary endpoints of demonstrating a statistically significant improvement in overall survival, based on our analyses for the 406 trial and Merck KGaA’s analyses for the MAESTRO trial, notwithstanding positive results in earlier clinical trials. In addition, in January 2016, we announced that an IDSMB concluded that our registrational Phase 2 clinical trial of evofosfamide plus pemetrexed versus pemetrexed alone in patients with non-squamous non-small cell lung cancer was unlikely to reach its primary endpoint of improving overall survival with statistical significance and, as a result, enrollment in this trial was closed and in connection therewith, we determined to cease enrollment in all Threshold-sponsored trials of evofosfamide.  As these examples illustrate, despite the results reported in earlier clinical trials for evofosfamide, we do not know whether potential future clinical trials that we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market evofosfamide. Our failure to successfully complete any potential future clinical trials and obtain regulatory approval for evofosfamide would materially and adversely affect our business and severely harm our future prospects.

Delays in our clinical trials could result in us not achieving anticipated developmental milestones when expected, increased costs and delay our ability to obtain regulatory approval and commercialize our product candidates.

Delays in the progression of our clinical trials could result in us not meeting previously announced clinical milestones and could materially impact our product development costs and milestone revenue and delay regulatory approval of our product candidates. We do not know whether our clinical trials of tarloxotinib or potential future clinical trials of evofosfamide will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including:

 

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adverse safety events experienced during our clinical trials;

 

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a lower than expected frequency of clinical trial events;

 

·

delays in obtaining clinical materials;

 

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slower than expected patient recruitment to participate in clinical trials;

 

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delays in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review board approval,

 

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delays in obtaining regulatory app