Warrants | 6 Months Ended |
Jun. 30, 2014 |
Warrants [Abstract] | ' |
Warrants | ' |
-11 | Warrants | | | | | | | | | | | | | | | | | | | |
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The Company accounts for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Stock warrants are accounted for as derivative liabilities if the stock warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of common stock are at a lower price per share than the then-current warrant exercise price. The Company classifies derivative warrant liabilities on the balance sheet as a current liability, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant. |
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The following table summarizes outstanding warrants to purchase common stock: |
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| | Shares Exercisable as of | | | | | | | | | | | | | | | | |
| | December 31, | | June 30, | | | Weighted-average Exercise | | | | | | | | | | | | | |
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| | 2013 | | 2014 | | | Price | | Expiration | | | | | | | | | | | |
Equity-classified warrants | | | | | | | | | | | | | | | | | | | | |
Issued to lenders and vendors | | 18,375 | | 18,202 | | $ | 157.52 | | September 2014 through | | | | | | | | | | | |
Sep-19 | | | | | | | | | | |
| | 18,375 | | 18,202 | | | | | | | | | | | | | | | | |
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Liability-classified warrants | | | | | | | | | | | | | | | | | | | | |
2013 and 2014 Interest Warrants | | 1,057,944 | | 2,356,848 | | $ | 0.001 | | July 2023 through April 2024 | | | | | | | | | | | |
2013 Warrants (1) | | 191,213,801 | | 264,057,161 | | $ | 0.21 | | June 2018 through June 2023 | | | | | | | | | | | |
2013 Celgene Warrants (1) | | 77,586,207 | | 107,142,857 | | $ | 0.21 | | June 2018 through June 2023 | | | | | | | | | | | |
2012 Warrants (1) | | 136,663,804 | | 188,726,206 | | $ | 0.21 | | October 2014 through October 2022 | | | | | | | | | | | |
2011 Warrants (2) | | 74,761,830 | | 103,119,783 | | $ | 0.29 | | Mar-16 | | | | | | | | | | | |
| | 481,283,586 | | 665,402,855 | | | | | | | | | | | | | | | | |
Total | | 481,301,961 | | 665,421,057 | | | | | | | | | | | | | | | | |
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(1)As of December 31, 2013 the 2013 Warrants, 2013 Celgene Warrants and 2012 Warrants had an exercise price of $0.29 per share. | | | | | | | | | | | |
(2)As of December 31, 2013 the 2011 Warrants had an exercise price of $0.40 per share. | | | | | | | | | | |
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2012 Warrants, 2013 Warrants and 2013 Celgene Warrants |
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On October 2, 2012, as part of the 2012 Financing, the Company issued the 2012 Warrants to holders of the 2012 Convertible Notes. The 2012 Warrants were exercisable at an exercise price of $0.75 per share subject to certain adjustments as specified in the warrant agreement. The Company valued the 2012 Warrants as derivative financial instruments as of the date of issuance and will record their changes in fair value at each reporting date, with any changes in fair value being recorded on the Statement of Operations and Comprehensive Loss. On January 2, 2014 and April 1, 2014, the Company made interest payments to the holders of the 2012 Convertible Notes and the 2013 Convertible Notes by the issuance of shares of common stock and warrants to purchase shares of common stock for nominal consideration. Both the January 2, 2014 and April 1, 2014 issuances of the shares and warrants were dilutive to the holders of the 2013 Warrants, 2013 Convertible Notes, 2012 Warrants, 2012 Convertible Notes, and 2011 Warrants, and the anti-dilution provisions of each were simultaneously triggered. As of June 30, 2014, the exercise price of the 2012 Warrants was adjusted to $0.21 per share, and the number of shares issuable upon exercise of the 2012 Warrants was increased to 188,726,206 shares. |
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On June 28, 2013, as part of the 2013 Financing, the Company issued the 2013 Warrants to holders of the 2013 Convertible Notes. The 2013 Warrants were initially exercisable at an exercise price of $0.69 per share subject to certain adjustments as specified in the warrant agreement. In addition, on June 28, 2013, the Company entered into a Collaboration and Option Agreement with Celgene Corporation under which Celgene paid the Company $15 million in exchange for (i) five-year warrants to purchase 7,425,743 shares of common stock and ten-year warrants to purchase 14,851,485 shares of common stock (the Celgene Warrants); (ii) a right of first negotiation to the Company’s Neo-Kidney Augment Program; and (iii) entering into the Collaboration and Option Agreement. The Celgene Warrants were initially exercisable at an exercise price of $1.01 per share. The Company valued the 2013 Warrants and the Celgene Warrants as derivative financial instruments as of the date of issuance and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statement of Operations and Comprehensive Loss. On January 2, 2014 and April 1, 2014, the Company made interest payments to the holders of the 2012 Convertible Notes and the 2013 Convertible Notes by the issuance of shares of common stock and warrants to purchase shares of common stock for nominal consideration. Both the January 2, 2014 and April 1, 2014 issuances of the shares and warrants were dilutive to the holders of the 2013 Warrants, 2013 Celgene Warrants, 2013 Convertible Notes, 2012 Warrants, 2012 Convertible Notes, and 2011 Warrants, and the anti-dilution provisions of each were simultaneously triggered. As of June 30, 2014, the exercise price of the 2013 Warrants and 2013 Celgene Warrants was adjusted to $0.21 per share, and the number of shares issuable upon exercise of the 2013 Warrants and 2013 Celgene Warrants was increased to 264,057,161 shares and 107,142,857, respectively. |
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The 2012 Warrants, 2013 Warrants and 2013 Celgene Warrants contain provisions that require the modification of the exercise price and shares to be issued under certain circumstances, including in the event the Company completes subsequent equity financings at a price per share lower than the then-current warrant exercise price. In addition, the warrants contain a net cash settlement provision under which the warrant holders may require the Company to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Major Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange). The net cash settlement provision requires use of the Black-Scholes model in calculating the cash payment value in the event of a Major Transaction. |
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2011 Warrants |
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In March 2011, the Company issued warrants (2011 Warrants) to purchase 1,046,102 shares of common stock in connection with a private placement transaction. Each warrant was exercisable in whole or in part at any time until March 4, 2016 at a per share exercise price of $28.80, subject to certain adjustments as specified in the warrant agreement. The Company classified the warrants as derivative financial instruments as of the date of issuance (March 4, 2011) and will record the changes in their fair value at each reporting date, with any changes in fair value being recorded on the Statement of Operations and Comprehensive Loss. On January 2, 2014 and April 1, 2014, the Company made interest payments to the holders of the 2012 Convertible Notes and the 2013 Convertible Notes by the issuance of shares of common stock and warrants to purchase shares of common stock for nominal consideration. Both the January 2, 2014 and April 1, 2014 issuances of the shares and warrants were dilutive to the holders of the 2013 Warrants, 2013 Celgene Warrants, 2013 Convertible Notes, 2012 Warrants, 2012 Convertible Notes, and 2011 Warrants, and the anti-dilution provisions of each were simultaneously triggered. As of June 30, 2014, the exercise price of the 2011 Warrants was adjusted to $0.29 per share, and the number of shares issuable upon exercise of the 2011 Warrants was increased to 103,119,783 shares. |
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The warrants contain provisions that require the modification of the exercise price and shares to be issued under certain circumstances, including in the event the Company completes subsequent equity financings at a price per share lower than the then-current warrant exercise price. In addition, the warrants contain a net cash settlement provision under which the warrant holders may require the Company to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Fundamental Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange). The net cash settlement provision requires use of the Black-Scholes model in calculating the cash payment value in the event of a Fundamental Transaction. |
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The following tables summarize the calculated aggregate fair values for the liability-classified warrants as of the dates indicated along with the assumptions utilized in each calculation. |
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| | Fair value as of June 30, 2014 | |
| | 2011 | | | 2012 | | | 2013 | | | 2013 | | | 2013 and 2014 Interest | |
Warrants | Warrants | Warrants | Celgene | Warrants |
| | | Warrants | |
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Calculated aggregate value (in thousands) | | $ | 4,468 | | | $ | 13,839 | | | $ | 20,199 | | | $ | 8,191 | | | $ | 303 | |
Exercise price per share of warrant | | $ | 0.29 | | | $ | 0.21 | | | $ | 0.21 | | | $ | 0.21 | | | $ | 0.001 | |
Weighted-average equity volatility | | | 110 | % | | | 110 | % | | | 110 | % | | | 110 | % | | | 110 | % |
Weighted-average asset volatility | | | 85 | % | | | 85 | % | | | 85 | % | | | 85 | % | | | 85 | % |
Probability of Fundamental or Major Transaction | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Weighted-average risk-free interest rate | | | 0.3 | % | | | 0.3 | % | | | 0.3 | % | | | 0.3 | % | | | 0.3 | % |
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| | | Fair value as of December 31, 2013 | |
| | | 2011 | | | | 2012 | | | | 2013 | | | | 2013 | | | | 2013 Interest Warrants | |
Warrants | Warrants | Warrants | Celgene Warrants |
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Calculated aggregate value (in thousands) | | $ | 720 | | | $ | 3,430 | | | $ | 5,139 | | | $ | 2,083 | | | $ | 53 | |
Exercise price per share of warrant | | $ | 0.4 | | | $ | 0.29 | | | $ | 0.29 | | | $ | 0.29 | | | $ | 0.001 | |
Equity volatility | | | 120 | % | | | 120 | % | | | 120 | % | | | 120 | % | | | 120 | % |
Asset volatility | | | 95 | % | | | 95 | % | | | 95 | % | | | 95 | % | | | 95 | % |
Probability of Fundamental or Major Transaction | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Weighted-average risk-free interest rate | | | 0.2 | % | | | 0.2 | % | | | 0.2 | % | | | 0.2 | % | | | 0.2 | % |
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The following table summarizes the calculated net cash settlement values for the liability-classified warrants as of the dates indicated along with the assumptions utilized in each calculation. |
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| | | Net cash settlement as of June 30, 2014 | |
| | | 2011 | | | | 2012 | | | | 2013 | | | | 2013 | | | | 2013 and | |
Warrants | Warrants | Warrants | Celgene Warrants | 2014 |
| | | | Interest Warrants |
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Calculated aggregate value (in thousands) (1) | | $ | 7,364 | | | $ | 26,487 | | | $ | 39,278 | | | $ | 15,924 | | | | — | |
Exercise price per share of warrant | | $ | 0.29 | | | $ | 0.21 | | | $ | 0.21 | | | $ | 0.21 | | | | — | |
Closing price per share of warrant | | $ | 0.19 | | | $ | 0.19(2) | | | $ | 0.19(2) | | | $ | 0.19(2) | | | | — | |
Equity volatility (3) | | | 100% | | | | 94% | | | | 94% | | | | 94% | | | | — | |
Expected term (years) | | | 1.7 | | | | 6.5 | | | | 7.3 | | | | 7.3 | | | | — | |
Weighted-average risk-free interest rate | | | 0.40% | | | | 1.80% | | | | 2.00% | | | | 2.00% | | | | — | |
Dividend yield | | | None | | | | None | | | | None | | | | None | | | | — | |
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-1 | Represents the net cash settlement value of the warrant as of June 30, 2014, which value was calculated utilizing the Black-Scholes model specified in the warrant agreement. | | | | | | | | | | | | | | | | | | | |
-2 | Represents the five-day Company stock VWAP used to calculate the net cash settlement value as of June 30, 2014. | | | | | | | | | | | | | | | | | | | |
-3 | Represents the volatility assumption used to calculate the net cash settlement value as of June 30, 2014 based on the terms of the warrant agreement. | | | | | | | | | | | | | | | | | | | |
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During the six months ended June 30, 2013 and 2014, the Company recorded non-operating expense of $1.8 million and $35.3 million, respectively, due to a change in the estimated fair values of these warrants. During the three months ended June 30, 2013 and 2014, the Company recorded non-operating expense of $1.9 million and $11.1 million, respectively, due to a change in the estimated fair values of these warrants. |