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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

OR

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

For transition period from                      to                     .

Commission File Number: 001-31918

GRAPHIC

IDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

04-3072298

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

505 Eagleview Blvd., Suite 212

Exton, Pennsylvania

(Address of principal executive offices)

19341

(Zip code)

(484) 348-1600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IDRA

Nasdaq Capital Market

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Common Stock, par value $.001 per share

    

35,199,246

Class

Outstanding as of July 31, 2020

Table of Contents

IDERA PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

    

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Condensed Balance Sheets as of June 30, 2020 and December 31, 2019

1

Condensed Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019

2

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

3

Condensed Statements of Redeemable Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2020 and 2019

4

Notes to Condensed Financial Statements

6

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 6.

Exhibits

37

Signatures

38

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to “Idera,” the “Company,” “we,” “us,” and “our” refer to Idera Pharmaceuticals, Inc.

IMO® and Idera® are our trademarks. All other trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

i

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included or incorporated in this report regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond Idera’s control, and which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These important factors include those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020 (the “2019 Form 10-K”), and in our other disclosures and filings with the SEC. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.

In addition, any forward-looking statements represent our estimates only as of the date that this Quarterly Report on Form 10-Q is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. All forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof, and are expressly qualified in their entirety by this cautionary notice. We do not assume any obligation to update any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

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PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

IDERA PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(UNAUDITED)

    

June 30, 

    

December 31, 

(In thousands)

2020

2019*

ASSETS

Current assets:

Cash and cash equivalents

$

27,810

$

40,019

Short-term investments

 

3,196

 

2,774

Prepaid expenses and other current assets

 

2,681

 

3,475

Total current assets

 

33,687

 

46,268

Property and equipment, net

 

63

 

97

Operating lease right-of-use asset

965

1,054

Other assets

 

70

 

70

Total assets

$

34,785

$

47,489

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Accounts payable

$

345

$

457

Accrued expenses

 

7,023

 

7,461

Operating lease liability

166

163

Future tranche right liability

 

 

46,436

Total current liabilities

 

7,534

 

54,517

Warrant liability, long-term

3,053

3,241

Future tranche right liability, long-term

41,074

Operating lease liability, net of current portion

815

899

Total liabilities

 

52,476

 

58,657

Commitments and contingencies

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

Series B1 redeemable convertible preferred stock (Note 7); Designated — 278 shares, Issued and outstanding — 24 shares at June 30, 2020 and December 31, 2019

Stockholders’ equity (deficit)

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share

 

 

Common stock, $0.001 par value, Authorized — 140,000 shares; Issued and outstanding — 34,291 and 29,672 at June 30, 2020 and December 31, 2019, respectively

 

34

 

30

Additional paid-in capital

 

718,574

 

709,692

Accumulated deficit

 

(736,299)

 

(720,890)

Total stockholders’ deficit

 

(17,691)

 

(11,168)

Total liabilities and stockholders’ deficit

$

34,785

$

47,489

*

The condensed balance sheet at December 31, 2019 has been derived from the audited financial statements at that date.

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

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(In thousands, except per share amounts)

    

2020

    

2019

    

2020

    

2019

Alliance revenue

$

$

1,448

$

$

1,448

Operating expenses:

Research and development

 

5,379

 

10,024

$

14,889

$

18,126

General and administrative

 

2,632

 

2,895

 

6,274

 

6,038

Restructuring costs

45

176

Total operating expenses

 

8,011

 

12,964

 

21,163

 

24,340

Loss from operations

 

(8,011)

 

(11,516)

 

(21,163)

 

(22,892)

Other income (expense):

Interest income

 

27

 

339

 

152

 

743

Warrant revaluation (loss) gain

(913)

188

Future tranche right revaluation (loss) gain

(15,349)

5,362

Foreign currency exchange gain (loss)

 

20

 

1

 

52

 

(1)

Net loss

$

(24,226)

$

(11,176)

$

(15,409)

$

(22,150)

Net loss per share applicable to common stockholders (Note 12)

— Basic

$

(0.72)

$

(0.39)

$

(0.48)

$

(0.79)

— Diluted

$

(0.72)

$

(0.39)

$

(0.52)

$

(0.79)

Weighted-average number of common shares used in computing net loss per share applicable to common stockholders

 

— Basic

33,583

28,461

 

31,941

 

28,070

— Diluted

33,583

28,461

 

34,123

 

28,070

Comprehensive loss:

Net loss

$

(24,226)

$

(11,176)

$

(15,409)

$

(22,150)

Other comprehensive income (loss):

Unrealized gain on available-for-sale securities

 

 

 

 

2

Total other comprehensive income

 

2

Comprehensive loss

$

(24,226)

$

(11,176)

$

(15,409)

$

(22,148)

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

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended

June 30, 

(In thousands)

    

2020

    

2019

Cash Flows from Operating Activities:

Net loss

$

(15,409)

$

(22,150)

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

Stock-based compensation

 

1,504

 

1,905

Warrant liability revaluation gain

(188)

Future tranche right liability revaluation gain

(5,362)

Issuance of common stock for services rendered

98

 

59

Accretion of discounts on short-term investments

(36)

 

(353)

Unrealized gain on available-for-sale securities

 

2

Depreciation and amortization expense

 

41

 

67

Gain on disposal of property and equipment

(11)

Changes in operating assets and liabilities:

 

Prepaid expenses and other assets

819

 

(423)

Accounts payable, accrued expenses, and other liabilities

(575)

 

(2,426)

Other

8

Net cash used in operating activities

 

(19,100)

 

(23,330)

Cash Flows from Investing Activities:

Purchases of available-for-sale securities

 

(5,535)

 

(35,486)

Proceeds from maturity of available-for-sale securities

 

5,149

 

23,350

Proceeds from the sale of property and equipment

11

Purchases of property and equipment

 

(7)

 

(11)

Net cash used in investing activities

 

(393)

 

(12,136)

Cash Flows from Financing Activities:

Proceeds from common stock financings, net

 

7,230

3,857

Proceeds from employee stock purchases

 

54

 

68

Other

 

 

(6)

Net cash provided by financing activities

 

7,284

 

3,919

Net decrease in cash and cash equivalents

 

(12,209)

 

(31,547)

Cash and cash equivalent, beginning of period

 

40,019

 

71,431

Cash and cash equivalents, end of period

$

27,810

$

39,884

Supplemental disclosure of cash flow information:

Increase to right-of-use asset upon adoption of ASC 842

$

$

261

Increase to lease liability upon adoption of ASC 842

$

$

261

Supplemental disclosure of non-cash financing and investing activities:

Capitalized offering costs in accounts payable and accrued expenses

$

25

$

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

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

For the Six Months Ended June 30, 2019

Accumulated

Series B1 Preferred

Common Stock

Additional

Other

Total

Number of

$0.01 Par

Number of

$0.001 Par

Paid-In

Accumulated

Comprehensive

Stockholders’

(In thousands)

Shares

 

Value

 

Shares

 

Value

 

Capital

 

Deficit

 

Income

 

Equity

Balance, December 31, 2018

 

$

27,188

$

27

$

728,342

$

(664,375)

$

$

63,994

Sale of common stock, net of issuance costs

 

 

533

 

1

 

1,584

 

 

 

1,585

Issuance of commitment shares (Note 8)

270

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

11

 

 

26

 

 

 

26

Issuance of common stock for services rendered

 

 

6

 

 

23

 

 

 

23

Stock-based compensation

 

 

 

 

1,016

 

 

 

1,016

Unrealized gain on marketable securities

 

 

 

 

 

 

2

 

2

Net loss

 

 

 

 

(10,974)

 

 

(10,974)

Balance, March 31, 2019

$

28,008

$

28

$

730,991

$

(675,349)

$

2

$

55,672

Sale of common stock, net of issuance costs

 

786

1

2,271

2,272

Issuance of common stock under employee stock purchase plan

 

19

42

42

Issuance of common stock for services rendered

14

36

36

Stock-based compensation

889

889

Net loss

(11,176)

(11,176)

Balance, June 30, 2019

$

28,827

$

29

$

734,229

$

(686,525)

$

2

$

47,735

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

(UNAUDITED)

For the Six Months Ended June 30, 2020

Accumulated

Series B1 Preferred

Common Stock

Additional

Other

Total

Number of

$0.01 Par

Number of

$0.001 Par

Paid-In

Accumulated

Comprehensive

Stockholders’

(In thousands)

 

Shares

 

Value

Shares

 

Value

 

Capital

 

Deficit

 

Income

 

Deficit

Balance, December 31, 2019

 

24

$

29,672

$

30

$

709,692

$

(720,890)

$

$

(11,168)

Sale of common stock, net of issuance costs

 

 

854

1

1,405

1,406

Issuance of common stock under employee stock purchase plan

 

 

19

25

25

Issuance of common stock under equity incentive plan (vesting of restricted stock units)

48

Issuance of common stock for services rendered

 

 

14

26

26

Stock-based compensation

 

 

750

750

Net income

 

8,817

8,817

Balance, March 31, 2020

 

24

$

30,607

$

31

$

711,898

$

(712,073)

$

$

(144)

Sale of common stock, net of issuance costs

 

3,607

3

5,821

5,824

Issuance of common stock under employee stock purchase plan

 

21

29

29

Issuance of common stock under equity incentive plan (vesting of restricted stock units)

Issuance of common stock for services rendered

 

56

72

72

Stock-based compensation

 

754

754

Net loss

 

(24,226)

(24,226)

Balance, June 30, 2020

 

24

$

34,291

$

34

$

718,574

$

(736,299)

$

$

(17,691)

The accompanying notes are an integral part of these financial statements

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IDERA PHARMACEUTICALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020

Note 1. Business and Organization

Business Overview

Idera Pharmaceuticals, Inc. (“Idera” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development, and ultimately the commercialization, of drug candidates for both oncology and rare disease indications characterized by small, well-defined patient populations with serious unmet medical needs. The Company’s current focus is on its Toll-like receptor (“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. The Company believes it can develop and commercialize targeted therapies on its own.  To the extent the Company seeks to develop drug candidates for broader disease indications, it has entered into and may explore additional collaborative alliances to support development and commercialization.

Liquidity and Financial Condition

As of June 30, 2020, the Company had an accumulated deficit of $736.3 million and a cash, cash equivalents, and short-term investments balance of $31.0 million. The Company expects to incur substantial operating losses in future periods and will require additional capital as it seeks to advance tilsotolimod and any future drug candidates through development to commercialization. The Company does not expect to generate product revenue, sales-based milestones or royalties until the Company successfully completes development of and obtains marketing approval for tilsotolimod or other future drug candidates, either alone or in collaboration with third parties, which the Company expects will take a number of years. In order to commercialize tilsotolimod and any future drug candidates, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding, and history of operating losses.

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management currently believes that the Company’s balance of cash, cash equivalents, and short-term investments on hand as of June 30, 2020, plus $5.1 million gross proceeds received in July 2020 pursuant to the July 2020 Securities Purchase Agreement (Note 13), is sufficient to fund operations into the second quarter of 2021. As a result, there is substantial doubt about the Company’s ability to continue as a going concern through the one-year period from the date these financial statements are issued. Management’s plans that are intended to mitigate the risk of going concern include raising additional capital through the Company’s December 2019 Securities Purchase Agreement (Note 7), Common Stock Purchase Agreement (Note 8), “At-The-Market” Equity Program (Note 8), April 2020 Securities Purchase Agreement (Note 8), July 2020 Securities Purchase Agreement (Note 13), or additional financing or strategic transactions.  Management’s plans may also include the possible deferral of certain operating expenses unless additional capital is received. The Company has and will continue to evaluate available alternatives to extend its operations beyond the one-year period after the date the financial statements are issued. Management’s operating plan, which underlies the analysis of the Company’s ability to continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary from the operating plan.

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Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements included herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation of interim period results have been included. Interim results for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020. For further information, refer to the financial statements and footnotes thereto included in the Company’s 2019 Form 10-K.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at June 30, 2020 and December 31, 2019 consisted of cash and money market funds.

Financial Instruments

The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note 3. The Company is required to disclose the estimated fair values of its financial instruments. As of June 30, 2020 and December 31, 2019, the Company’s financial instruments consisted of cash, cash equivalents, short-term investments, receivables and warrant and future tranche right liabilities. The estimated fair values of these financial instruments approximate their carrying values. As of June 30, 2020, the Company did not have any other derivatives, or any hedging or other similar financial instruments.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash, cash equivalents, and short-term investments. The Company’s credit risk is managed by investing in highly rated money market instruments, corporate bonds, commercial paper and/or other debt securities. Due to these factors, no significant credit risk is believed by management to be inherent in the Company’s assets. As of June 30, 2020, all of the Company’s cash, cash equivalents and short-term investments were held at two financial institutions.

Operating Lease Right-of-use Asset and Lease Liability

The Company accounts for leases under ASC Topic 842, Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in long-term right-of-use assets and current and long-term lease liabilities within the Company’s condensed balance sheets. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The right-of-use assets are tested for impairment according to ASC Topic 360, Property, Plant, and Equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. 

As of June 30, 2020 and December 31, 2019, the Company’s operating lease ROU asset and corresponding short-term and long-term lease liabilities relate to its existing Exton, PA facility operating lease which expires on May 31, 2025 as a result of the Company’s election to exercise its five-year renewal option in January 2020.

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Note 2. Summary of Significant Accounting Policies (Continued)

Warrant Liability

The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) and/or ASC Topic 815, Derivatives and Hedging (ASC 815), depending on the specific terms of the warrant agreement. Freestanding warrants for shares that are potentially redeemable, whereby the Company may be required to transfer assets (e.g. cash or other assets) outside of its control, are classified as liabilities. Liability-classified warrants are recorded at their estimated fair values at each reporting period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-classified warrants are recorded in Warrant Revaluation (Loss) Gain in the Company’s condensed statements of operations and comprehensive loss. Equity-classified warrants are recorded within additional paid-in capital at the time of issuance and not subject to remeasurement. For additional discussion on warrants, see Note 7.

Future Tranche Right Liability

On December 23, 2019, the Company entered into a Securities Purchase Agreement (the “December 2019 Securities Purchase Agreement”) with institutional investors affiliated with Baker Brothers (the “Purchasers”), an existing stockholder and related party (see Note 11). As more fully described in Note 7, the December 2019 Securities Purchase Agreement contains call options on redeemable preferred shares with warrants (conditionally exercisable for shares that are puttable). The Company determined that these call options represent freestanding financial instruments and accounts for the options as liabilities (“Future Tranche Right Liability”) under ASC 480, which requires the measurement and recognition of the fair value of the liability at the time of issuance and at each reporting period. Any change in fair value is recognized in Future Tranche Right Liability Revaluation (Loss) Gain in the Company’s condensed statements of operations and comprehensive loss.

As of June 30, 2020, the Future Tranche Right Liability is classified as a long-term liability in the Company’s condensed balance sheet as settlement is in the form of the applicable Series B convertible preferred stock and warrants exercisable for shares of either Series B1 Preferred Stock or the Company’s common stock. As of December 31, 2019, the Future Tranche Right Liability was classified as a current liability as the Future Tranche Rights and related Option Fee, each defined in Note 7, were subject to the Company obtaining required shareholder approval and filing the Charter Amendment, as defined in Note 3.

Preferred Stock

The Company applies ASC 480 when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.

Accretion of redeemable convertible preferred stock includes the accretion of the Company's Series B redeemable convertible preferred stock to its stated value. The carrying value of the Series B redeemable convertible preferred stock is being accreted to redemption value using the effective interest method, from the date of issuance to the earliest date the holders can demand redemption.

Income Taxes

In accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis.  For the three and six months ended June 30, 2020 and 2019, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses.  The Company has not recorded its net deferred tax asset as of either June 30, 2020 or December 31, 2019 because it maintained a full valuation allowance against all deferred tax assets as of these dates as management has determined that it is not more likely than not that the Company will realize these future tax benefits. As of June 30, 2020 and December 31, 2019, the Company had no uncertain tax positions.

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Note 2. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that the Company has or will adopt as of a specified date. Unless otherwise noted, management does not believe that any other recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have, a material impact on the Company’s present or future financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company adopted ASU 2016-13 in the first quarter of 2020. The adoption of this ASU did not have a material effect on the Company’s financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted ASU 2018-13 in the first quarter of 2020. The adoption of this ASU did not have a material effect on the Company’s financial statements.

COVID-19

The full extent to which the novel coronavirus disease ("COVID-19") pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses and manufacturing, clinical trials and research and development costs, will depend on future developments that are highly uncertain at this time.

Note 3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company applies the guidance in ASC Topic 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis.  Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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Note 3. Fair Value Measurements (Continued)

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2 and 3 during the six months ended June 30, 2020.

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at June 30, 2020 and December 31, 2019 categorized by the level of inputs used in the valuation of each asset and liability.

June 30, 2020

(In thousands)

Total

Level 1

Level 2

Level 3

Assets

Cash

$

250

$

250

$

$

Cash equivalents – money market funds

27,560

27,560

Short-term investments – commercial paper

 

3,196

 

 

3,196

 

Total assets

$

31,006

$

27,810

$

3,196

$

Liabilities

Warrant liability

$

3,053

$

$

$

3,053

Future tranche right liability

41,074

41,074

Total liabilities

$

44,127

$

$

$

44,127

December 31, 2019

(In thousands)

Total

Level 1

Level 2

Level 3

Assets

Cash

$

250

$

250

$

$

Cash equivalents – money market funds

39,769

39,769

Short-term investments – commercial paper

 

2,774

 

 

2,774

 

Total assets

$

42,793

$

40,019

$

2,774

$

Liabilities

Warrant liability

$

3,241

$

$

$

3,241

Future tranche right liability

46,436

46,436

Total liabilities

$

49,677

$

$

$

49,677

The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of commercial paper whose fair value may not represent actual transactions of identical securities. The fair value of commercial paper is generally determined based on the relationship between the investment’s discount rate and the discount rates of the same issuer’s commercial paper available in the market which may not be actively traded daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as Level 2.

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

Warrant Liability and Future Tranche Right Liability

The reconciliation of the Company's warrant and future tranche right liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

Future

Warrant

Tranche Right

(In thousands)

Liability

Liability

Balance, December 31, 2019

 

$

3,241

$

46,436

Change in the fair value of liability

 

 

(188)

 

(5,362)

Balance, June 30, 2020

 

$

3,053

$

41,074

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Note 3. Fair Value Measurements (Continued)

Assumptions Used in Determining Fair Value of Liability-Classified Warrants

The Company utilizes an option pricing model to value its liability-classified warrants. Inherent in the valuation model are assumptions related to volatility, risk-free interest rate, expected term, dividend rate, and other scenarios (i.e. probability of complex features of the warrants being triggered).

The fair value of the warrants has been estimated with the following weighted-average assumptions:

June 30, 

December 31, 

2020

2019

Risk-free interest rate

0.42%

1.79%

Expected dividend yield

Expected term (years)

6.48

6.98

Expected volatility

80%

80%

Exercise price (per share)

$

1.52

$

1.52

Assumptions Used in Determining Fair Value of Future Tranche Rights

The Company utilizes a binomial lattice model to value the Series B2 (tranche 2) and B3 (tranche 3) tranches and a Monte Carlo simulation to value the Series B4 (tranche 4) future tranche rights. The Company selected these models as it believes they are reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the Future Tranche Rights (as defined in Note 7). Such assumptions include, among other inputs, stock price volatility, risk-free rates, redemption and early exercise assumptions, cancellation and conversion assumptions, and the potential for future adjustment of the conversion price due to a future dilutive financing.

The estimated fair value of the Future Tranche Rights is determined using Level 2 and Level 3 inputs. Significant inputs and assumptions used in the valuation models are as follows:

June 30, 

December 31, 

2020

2019

Risk-free interest rate

0.49% - 0.55%

1.84% - 1.88%

Expected dividend yield

Expected term (years) of call option on preferred stock

0.66 - 1.62

1.16 - 2.16

Expected term (years) of warrants

7.66 - 8.62

8.16 - 9.16

Expected volatility

80%

80%

Exercise price (per share) for common stock equivalent for preferred stock and warrant

$

1.52 - 1.82

$

1.52 - 1.82

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Note 4. Investments

The Company’s available-for-sale investments at fair value consisted of the following as of June 30, 2020 and December 31, 2019:

June 30, 2020

    

    

Gross

    

Gross

    

Estimated

Unrealized

Unrealized

Fair

(In thousands)

Cost

(Losses)

Gains

Value

Short-term investments – commercial paper

$

3,196

$

$

$

3,196

Total short-term investments

$

3,196

$

$

$

3,196

December 31, 2019

Gross

Gross

Estimated

Unrealized

Unrealized

Fair

(In thousands)

    

Cost

    

(Losses)

    

Gains

    

Value

Short-term investments – commercial paper

$

2,774

$

$

$

2,774

Total short-term investments

$

2,774

$

$

$

2,774

The Company had no realized gains or losses from the sale of investments in available-for-sale securities during each of the six months ended June 30, 2020 and December 31, 2019. In accordance with ASU 2016-13, if the fair value of the Company’s investments in available-for-sale debt securities is less than the amortized cost, the Company records (i) an allowance for credit losses with a corresponding charge to net income (loss) for any credit-related impairment, with subsequent improvements in expected credit losses recognized as a reversal of the allowance, and/or (ii) any non-credit impairment loss to other comprehensive income (loss).

As of June 30, 2020 and December 31, 2019, the Company had no allowance for credit losses pertaining to the Company’s investments in available-for-sale debt securities. Additionally, there were no impairment charges or recoveries recorded during each of the periods ended June 30, 2020 and December 31, 2019.

Note 5. Property and Equipment

At June 30, 2020 and December 31, 2019, property and equipment, net, consisted of the following:

June 30, 

December 31, 

(In thousands)

    

2020

    

2019

Leasehold improvements

$

107

$

107

Equipment and other

 

770

 

764

Total property and equipment, at cost

$

877

871

Less: Accumulated depreciation and amortization

 

814

 

774

Property and equipment, net

$

63

$

97

Depreciation and amortization expense on property and equipment was less than $0.1 million for each of the three and six months ended June 30, 2020 and 2019. Additionally, there were no non-cash property additions or impairment-related charges recognized during each of the respective time periods.

Note 6. Accrued Expenses

At June 30, 2020 and December 31, 2019, accrued expenses consisted of the following:

    

June 30, 

December 31, 

(In thousands)

2020

    

2019

Payroll and related costs

$

1,796

$

2,179

Clinical and nonclinical trial expenses

 

4,405

 

4,199

Professional and consulting fees

 

692

 

859

Restructuring expenses

 

16

 

113

Other

 

114

 

111

Total accrued expenses

$

7,023

$

7,461

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Note 7. Redeemable Convertible Preferred Stock

December 2019 Private Placement

On December 23, 2019, the Company entered into the December 2019 Securities Purchase Agreement, under which the Company sold 23,684 shares of Series B1 convertible preferred stock (“Series B1 Preferred Stock”) and warrants to purchase 2,368,400 shares of the Company’s common stock at an exercise price of $1.52 per share (or, if the holder elects to exercise the warrants for shares of Series B1 Preferred Stock, 23,684 shares of Series B1 Preferred Stock at an exercise price of $152 per share) for aggregate gross proceeds of $3.9 million (the “Initial Closing”).

In addition, the Company has agreed to sell to the Purchasers, at their option and subject to certain conditions, shares of Series B2 convertible preferred stock (“Series B2 Preferred Stock”), Series B3 convertible preferred stock (“Series B3 Preferred Stock”) and Series B4 convertible preferred stock (“Series B4 Preferred Stock) and accompanying warrants to purchase common stock (or preferred stock at the election of the holder) over a 21-month period following stockholder approval for the Charter Amendment (the “Future Tranche Rights”). As of June 30, 2020, the Company’s outstanding Future Tranche Rights are as follows:

Price Per

Aggregate

Future Tranche Rights

Preferred Shares

Share

Purchase Price

Tranche 2 (Series B2) (1)

98,685

$

152

$

15,000,120

Tranche 3 (Series B3) (2)

82,418

$

182

15,000,076

Tranche 4 (Series B4) (2)

82,418

$

182

15,000,076

Total

263,521

$

45,000,272

(1) Accompanied by related warrants to purchase up to 9,868,500 shares of the Company’s common stock (or, if the holder elects to exercise the warrants for shares of Series B1 Preferred Stock, 98,685 shares of Series B1 Preferred Stock), at an exercise price of $1.52 per share (or, if the holder elects to exercise the warrants for Series B1 Preferred Stock, $152 per share of Series B1 Preferred Stock).
(2) Accompanied by related warrants to purchase up to 6,593,440 shares of the Company’s common stock (or, if the holder elects to exercise the warrants for shares of Series B1 Preferred Stock, 65,934 shares of Series B1 Preferred Stock), at an exercise price of $1.82 per share (or, if the holder elects to exercise the warrants for Series B1 Preferred Stock, $182 per share of Series B1 Preferred Stock).

As consideration for the Future Tranche Rights, the Company received aggregate gross proceeds of $6.2 million (the “Option Fee”) in December 2019. In the event the Company did not receive the required shareholder approval to increase the Company’s authorized shares of common stock in an amount sufficient to cover the conversion of all potential convertible securities issuable under the December 2019 Securities Purchase Agreement on or prior to December 31, 2020, the Option Fee was refundable to the Purchasers. At the Company’s 2020 Annual Meeting of Stockholders held on May 12, 2020, stockholders of the Company voted to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized number of shares of common stock, par value $0.001 per share, to 140,000,000 (the “Charter Amendment”), representing an amount sufficient to cover the conversion of all potential future convertible securities. As a result of stockholder approval of the Charter Amendment, the Company is not required to return the Option Fee.

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Note 7. Redeemable Convertible Preferred Stock (Continued)

The purchase and sale of the securities issuable under tranches 2, 3 and 4 may occur in up to three separate closings, each to be conducted at the Purchasers’ discretion. The right of the Purchasers to purchase Series B2, Series B3 and Series B4 Preferred Stock will expire on February 12, 2021 (or on the 10th business day following the Company’s ORR Data Announcement, as defined in the December 2019 Securities Purchase Agreement, for its ILLUMINATE-301 study, if later), August 12, 2021, and February 12, 2022, respectively. However, the Purchasers’ right to purchase securities under tranches 3 and 4 is contingent on the purchase of all of the securities in each preceding tranche right. In the event the Purchaser’s do not purchase all of the securities in a given tranche, their right to purchase shares in future tranches terminates and any outstanding warrants issued under the December 2019 Securities Purchase Agreement would terminate. Additionally, the Company has the right to decline the Series B4 Preferred Stock investment if its common stock trades at $7.60 for 20 days out of 30 days subsequent to the closing of the Series B3 Preferred Stock investment.

In addition to the aggregate gross proceeds received from the Initial Closing and the Option Fee, the Company is eligible, at the discretion of the Purchasers, to receive aggregate gross proceeds of up to an additional $87.6 million under the December 2019 Securities Purchase Agreement.

Accounting Considerations

The Company determined that the Series B1 Preferred Stock, the accompanying Series B1 warrants, and each of the Future Tranche Rights represented a freestanding financial instrument. The warrants and the Future Tranche Rights are liability classified as the underlying shares are potentially redeemable and such redemption is deemed to be outside of the Company’s control.

Due to the redeemable nature of the Series B1 Preferred Stock, the Series B1 Preferred Stock is currently classified as temporary equity. While the Series B1 Preferred Stock is not currently redeemable, it will become redeemable either on (i) the fifth anniversary of the initial issue date, or December 23, 2024, provided that certain events (the “Redemption Loss Events”) do not occur first or (ii) upon a liquidation or deemed liquidation event, provided that certain events (the “Liquidation Loss Events”) do not occur first. The Company cannot assess the probability of whether the Redemption Loss Events will occur prior to the fifth anniversary of the initial issue date, if ever, as certain factors triggering such events are outside the control of the Company. Accordingly, the carrying value of the Series B1 Preferred Stock is being accreted to its redemption value as of June 30, 2020. In the event the holders of the Series B1 Preferred Stock lose their right to request redemption, the Series B Preferred Stock will no longer be accreted to its redemption value until redemption upon a liquidation event is deemed probable. For the three and six months ended June 30, 2020, accretion was de minimis.

Note 8. Stockholders’ Equity

Common Stock – Authorized Shares

On May 12, 2020, the Company’s stockholders approved the Charter Amendment. Also on May 12, 2020, following stockholder approval, the Company filed the Charter Amendment with the Secretary of State of the State of Delaware.

Equity Financings

April 2020 Private Placement

On April 7, 2020, the Company entered into a Securities Purchase Agreement (the “April 2020 Securities Purchase Agreement”) with Pillar Partners, an existing stockholder and related party as more fully described in Note 11, under which the Company sold 3,039,514 shares of common stock and accompanying warrants to purchase 3,039,514 shares of the Company’s common stock with an exercise price of $2.28 per share, for aggregate gross proceeds of $5.0 million. Each share and the accompanying common warrant had a combined purchase price of $1.645, which included $0.125 for each share of common stock underlying each warrant.

 

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Note 8. Stockholders’ Equity (Continued)

Through June 30, 2020, net proceeds received pursuant to the April 2020 Securities Purchase Agreement, after deduction of offering expenses, was $4.7 million. All proceeds have been recorded within the Company’s condensed statements of stockholders’ equity (deficit) as all securities issued in connection with the April 2020 Securities Purchase Agreement, including the option provided to Pillar Partners’ to participate in the April 2020 Private Placement Second Closing as further described below, were determined to be freestanding equity-classified instruments.

In addition, the Company has agreed to sell to Pillar Partners, at its option, 2,747,252 shares of the Company’s common stock (or pre-funded warrants to purchase shares of the Company’s common stock in lieu of certain shares to the extent that purchasing such shares will cause Pillar Investment Entities to beneficially own in excess of 19.99% of the total number of shares of common stock outstanding post transaction) and warrants to purchase up to 1,373,626 shares of the Company’s common stock (with an exercise price of $2.71), for aggregate gross proceeds of $5.0 million (the “April 2020 Private Placement Second Closing”). Each share and the accompanying 0.5 common warrant will have a combined purchase price of $1.82 and each pre-funded warrant and the accompanying 0.5 common warrant will have a combined purchase price of $1.81. The pre-funded warrants issued in the April 2020 Private Placement Second Closing will have an exercise price of $0.01 per share of common stock. The April 2020 Private Placement Second Closing can occur on or before December 30, 2020 (at the option of Pillar Partners) and will be held on or before the fifth day following delivery of written notice by Pillar Partners to the Company; provided that, if at any time after June 30, 2020, the Company’s common stock has achieved a closing price on the Nasdaq Capital Market of at least $3.01 per share for twenty (20) consecutive trading days, the Company may elect, in its sole discretion, to cancel the April 2020 Private Placement Second Closing.

Common Stock Purchase Agreement

On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the Company’s sole discretion (the “LPC Purchase Agreement”). As consideration for entering into the LPC Purchase Agreement, the Company issued 269,749 shares of Company common stock to Lincoln Park as a commitment fee (the “Commitment Shares”). The closing price of the Company’s common stock on March 4, 2019 was $2.84 and the Company did not receive any cash proceeds from the issuance of the Commitment Shares. During the six months ended June 30, 2020 and 2019, the Company sold 600,000 and 785,848 shares pursuant to the LPC Purchase Agreement, resulting in net proceeds of $1.1 million and $2.3 million, respectively. As of June 30, 2020, the Company may sell up to an additional $30.2 million of shares under the LPC Agreement, subject to certain limitations.

"At-The-Market" Equity Program

In November 2018, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million (the “Shares”) through JMP as its agent. Subject to the terms and conditions of the ATM Agreement, JMP will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions, by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or if specified by the Company, by any other method permitted by law, including but not limited to in negotiated transactions. The Company has no obligation to sell any of the Shares, and the Company or JMP may at any time suspend sales under the ATM Agreement or terminate the ATM Agreement. JMP is entitled to a fixed commission of 3.0% of the gross proceeds from Shares sold. During the six months ended June 30, 2020 and 2019, the Company sold 821,018 and 532,700 Shares, respectively, pursuant to the ATM Agreement, resulting in net proceeds, after deduction of commissions and other offering expenses, of $1.4 million and $1.6 million, respectively. As of June 30, 2020, the Company may sell up to an additional $46.8 million of shares under the ATM Agreement.

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Note 8. Stockholders’ Equity (Continued)

Common Stock Warrants

In connection with various financing transactions, the Company has issued warrants to purchase shares of the Company’s common and preferred stock. The Company accounts for common and preferred stock warrants as equity instruments or liabilities, depending on the specific terms of the warrant agreement.

The following table summarizes outstanding warrants to purchase shares of the Company’s common and preferred stock as of June 30, 2020 and December 31, 2019:

Number of Shares

June 30, 

December 31,

Weighted-Average

Description

2020

2019

Exercise Price

Expiration Date

Liability-classified Warrants

December 2019 Series B1 warrants (1)

2,368,400

2,368,400

$ 1.52

Dec 2026

2,368,400

2,368,400

Equity-classified Warrants

May 2013 warrants

 

1,949,754

1,949,754

$ 0.08

None

September 2013 warrants

 

514,756

514,756

$ 0.08

None

February 2014 warrants

 

266,006

266,006

$ 0.08

None

April 2020 warrants

3,039,514

$ 2.28

Apr 2023

5,770,030

2,730,516

Total outstanding

 

8,138,430

5,098,916

(1) The Series B1 warrants are exercisable for either common stock (exercise price of $1.52) or Series B1 Convertible Preferred Stock (exercise price of $152) at the discretion of the warrant holder.

Note 9. Collaboration and License Agreements

Option and License Agreement with Licensee

In April 2019, the Company entered into an amended and restated option and license agreement with a privately-held biopharmaceutical company (“Licensee”), pursuant to which the Company granted Licensee (i) exclusive worldwide rights to develop and market IMO-8400 for the treatment, palliation and diagnosis of all diseases, conditions or indications in humans (the “IMO-8400 License”), (ii) an exclusive right and license to develop IMO-9200 in accordance with certain IMO-9200 pre-option exercise protocols (the “IMO-9200 Option Period License”), and (iii) an exclusive option, exercisable at Licensee’s discretion, to obtain the exclusive worldwide rights to develop and market IMO-9200 for the treatment, palliation and diagnosis of all diseases, conditions or indications in humans (the “IMO-9200 Option”) (collectively, the “Licensee Agreement”).  In connection with the Licensee Agreement, the Company transferred certain drug material to Licensee for Licensee’s use in development activities.  Licensee is solely responsible for the development and commercialization of IMO-8400 and, if Licensee exercises the IMO-9200 Option, Licensee would be solely responsible for the development and commercialization of IMO-9200.

Under the terms of the Licensee Agreement, the Company received upfront, non-refundable fees totaling approximately $1.4 million and ownership of 10% of Licensee’s outstanding common stock, subject to future adjustment, for granting Licensee the IMO-8400 License, the IMO-9200 Option Period License and transfer of related drug materials. In addition, the Company is eligible to receive a $1 million non-refundable fee upon Licensee exercising the IMO-9200 Option (“Option Fee”) and is entitled to certain sub-licensing payments on sublicense revenue received by Licensee, if any. The Company may also be eligible for certain development and sales-based milestone payments and royalties on global net sales for any future products. The Company does not anticipate the receipt of any of the future milestones or royalties in the short term, if ever.

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Note 9. Collaboration and License Agreements (Continued)

The Company accounts for the Licensee Agreement in accordance with ASC Topic 606. As of June 30, 2020, the Option Fee and all potential future development/sales milestone payments were fully constrained, and there were no remaining performance obligations under the Licensee Agreement. The Company re-evaluates its performance obligations and the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

As disclosed above, in connection with the Licensee Agreement, the Company owns 10% of Licensee’s outstanding common stock, subject to future adjustment. The Company accounts for the investment using the measurement alternative provided for in ASC Topic 321, Investments-Equity Securities, as the equity securities are without a readily determinable fair value, and the arrangement does not result in Idera having control or significant influence over Licensee. Accordingly, the securities are measured at cost, less any impairment, plus or minus changes resulting from observable price changes and are recorded in Other assets at a value of less than $0.1 million in the accompanying balance sheets. As of June 30, 2020, the Company considered the cost of the investment to not exceed the fair value of the investment and did not identify any observable price changes.

Note 10. Stock-Based Compensation

As of June 30, 2020, the only equity compensation plans from which the Company may currently issue new awards are the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock Purchase Plan (as amended to date, the “2017 ESPP”), each as more fully described below.

Equity Incentive and Employee Stock Purchase Plans

2013 Stock Incentive Plan

The 2013 Plan allows for the issuance of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards and performance awards. The total number of shares of common stock authorized for issuance under the 2013 Plan is 5,653,057 shares of the Company’s common stock, plus such additional number of shares of common stock (up to 868,372 shares) as is equal to the number of shares of common stock subject to awards granted under the Company’s 2005 Stock Incentive Plan or 2008 Stock Incentive Plan (the “2008 Plan”), to the extent such awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

As of June 30, 2020, options to purchase a total of 4,035,439 shares of common stock and 376,210 restricted stock units were outstanding and up to 1,464,378 shares of common stock remained available for grant under the 2013 Plan.

Other Awards and Inducement Grants

The Company has not made any awards pursuant to other equity incentive plans, including the 2008 Plan, since the Company’s stockholders approved the 2013 Plan. As of June 30, 2020, options to purchase a total of 327,262 shares of common stock were outstanding under the 2008 Plan. In addition, as of June 30, 2020, non-statutory stock options to purchase an aggregate of 393,750 shares of common stock were outstanding. These options were issued outside of the 2013 Plan to certain newly-hired employees in 2017, 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of such new hires’ employment compensation.

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Note 10. Stock-Based Compensation (Continued)

2017 Employee Stock Purchase Plan

The 2017 ESPP is intended to qualify as an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code. The total number of shares of common stock authorized for issuance under the 2017 ESPP is 412,500 shares of common stock, subject to adjustment as described in the 2017 ESPP. As of June 30, 2020, 281,317 shares remained available for issuance under the 2017 ESPP.

For the six months ended June 30, 2020 and 2019, the Company issued 40,024 and 30,570 shares of common stock, respectively, under the 2017 ESPP and received proceeds of less than $0.1 million during each period, as a result of employee stock purchases.

Accounting for Stock-based Compensation

The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity incentive plans over an award’s requisite service period, or vesting period, using the straight-line attribution method, based on their grant date fair value determined using the Black-Scholes option-pricing model. The Company also recognizes non-cash compensation for stock purchases made under the 2017 ESPP. The fair value of the discounted purchases made under the Company’s 2017 ESPP is calculated using the Black-Scholes option-pricing model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over each plan period.

Total stock-based compensation expense attributable to stock-based payments made to employees and directors and employee stock purchases included in operating expenses in the Company's condensed statements of operations for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended

Six Months Ended

    

June 30, 

June 30, 

(in thousands)

2020

    

2019

2020

    

2019

Stock-based compensation:

    

    

Research and development

Employee Stock Purchase Plans

$

15

    

$

12

$

26

    

$

18

Equity Incentive Plans

192

    

320

385

    

650

$

207

    

$

332

$

411

    

$

668

General and administrative

 

 

Employee Stock Purchase Plans

$

1

    

$

8

$

2

    

$

14

Equity Incentive Plans

546

    

549

1,091

    

1,223

$

547

    

$

557

$

1,093

    

$

1,237

Total stock-based compensation expense

$

754

    

$

889

$

1,504

    

$

1,905

During the six months ended June 30, 2020 and 2019, the weighted average fair market value of stock options granted was $1.09 and $1.83, respectively.

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