| Business, Liquidity and Summary of Significant Accounting Policies | Note 1 Business, Liquidity and Summary of Significant
Accounting Policies Business Marina Biotech, Inc. (we, Marina,
or the Company) is a biotechnology company that has focused on the discovery, development and commercialization of
nucleic acid-based therapies to treat orphan diseases. Our pipeline includes CEQ508, a product in clinical development for the
treatment of Familial Adenomatous Polyposis (FAP), for which we have received Orphan Drug Designation (ODD)
and Fast Track Designation (FTD) from the U.S. Food and Drug Administration (FDA), and preclinical
programs for the treatment of type 1 myotonic dystrophy (DM1) and Duchenne muscular dystrophy (DMD). Since 2010, we have strategically acquired/in-licensed
and further developed nucleic acid chemistry and delivery-related technologies in order to establish a novel and differentiated
drug discovery platform. This platform allows us to distinguish ourselves from others in the nucleic acid therapeutics area in
that we are the only company capable of creating a wide variety of therapeutics targeting coding and non-coding RNA via multiple
mechanisms of action such as RNA interference (RNAi), messenger RNA translational inhibition, exon skipping, microRNA
(miRNA) replacement, miRNA inhibition, and steric blocking in order to modulate gene expression either up or down
depending on the specific mechanism of action. Our goal has been to dramatically improve the lives of the patients and families
affected by orphan diseases through either our own efforts or those of our collaborators and licensees. Merger with IthenaPharma On November 15, 2016, we entered into, and
consummated the transactions contemplated by, an Agreement and Plan of Merger between and among our company, IthenaPharma Inc.,
a Delaware corporation (Ithena), Ithena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary
of Marina (Merger Sub), and Vuong Trieu as the Ithena representative (the Merger Agreement), pursuant
to which Ithena merged into Merger Sub (the Merger). Upon completion of the Merger and subject to the applicable
provisions of the Merger Agreement, Merger Sub has ceased to exist and Ithena continues as the surviving corporation of the Merger
and as a wholly-owned subsidiary of Marina. As consideration for the Merger, the Company issued to the former shareholders of Ithena
58,392,828 shares of the Companys common stock, representing approximately 65% of the issued and outstanding shares of the
Companys common stock following the completion of the Merger. In addition, the Company assumed warrants to purchase 300,000
shares of Ithena common stock, appointed Vuong Trieu, the president of Ithena, as the Chairman of the Board of Directors of the
Company and gave the right to appoint one additional member of the Board of Director to the former shareholders of Ithena. In the Merger, Marina acquired the business
and assets of Ithena, which consist primarily of pharmaceutical compounds in various stages of development. In addition, Vuong
Trieu, the Chief Executive Officer of Ithena, extended to the Company a $540,000 demand line of credit, of which $15,000 had been
drawn at November 18, 2016. Moreover, we entered into a License Agreement
with Autotelic LLC, a stockholder of Ithena, pursuant to which (A) we will license to Autotelic LLC certain patent rights, data
and know-how relating to Familial Adenomatous Polyposis and nasal insulin, for human therapeutics other than for oncology-related
therapies and indications, and (B) Autotelic LLC licensed to us certain patent rights, data and know-how relating to IT-102 and
IT-103, in connection with individualized therapy of pain using a non-steroidal anti-inflammatory drug and an anti-hypertensive
without inducing intolerable edema, and treatment of certain aspects of proliferative disease, but not including rights to IT-102/IT-103
for TDM guided dosing for all indications using an Autotelic TDM Device. We also granted a right of first refusal to Autotelic
LLC with respect to any license by us of the rights licensed by or to us under the License Agreement in any cancer indication outside
of gastrointestinal cancers. Further, we entered into a Master Services
Agreement with Autotelic Inc., a stockholder of Ithena, pursuant to which Autotelic Inc. agreed to provide certain business functions
and services from time to time during regular business hours at our request. As the former shareholders of Ithena will control
greater than 50% of the Company subsequent to the Merger, it is anticipated that Ithena will be considered the acquirer for accounting
purposes and that future financial disclosures for the Company will be the historical information of Ithena. Ithena will account
for the acquisition of the Company under the purchase accounting method following completion. We will need additional capital to execute
our business, which may involve acquiring other assets or selling existing assets. If we are not successful in raising additional
capital, strategic alternatives will be considered, which may include delaying the development of certain compounds, selling (or
otherwise losing our rights to) existing technology or ceasing operations. For further information regarding the Merger
Agreement, the Merger, and the other documents and transactions contemplated thereby, see our Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 18, 2016. Recent Licensing and IP Developments In February 2016, we entered into an evaluation
and option agreement covering certain of our platforms for the delivery of an undisclosed genome editing technology. The agreement
contains an option provision for the exclusive license of our SMARTICLES platform in a specific gene editing field. In March 2016, we entered into a license agreement
covering certain of our platforms for the delivery of an undisclosed genome editing technology. Under the terms of the agreement,
we received an upfront license fee of $0.25 million, and could receive up to $40 million in success-based milestones. In July 2016, we entered into a license agreement
with an undisclosed licensee that grants such licensee rights to use our technology and intellectual property to develop and commercialize
products combining certain molecules with our liposomal delivery technology known as NOV582. Under the terms of this agreement,
the licensee agreed to pay to us an upfront license fee in the amount of $0.35 million (to be paid in installments through the
end of 2017), along with milestone payments on a per-licensed-product basis and royalty payments in the low single digit percentages.
As of September 30, 2016, we have received $0.05 million per the terms of this license agreement. In conjunction with this transaction,
we pledged to issue common stock valued at $0.002 million to Novosom. This obligation is included in Fair Value of Stock to be
Issued to Settle Liabilities at September 30, 2016. We believe that, as a result of the issuance
of US patent no. 9,023,793 on May 5, 2015, we became entitled to receive a milestone payment in the amount of $2 million under
an Asset Purchase Agreement dated August 25, 2010 between us and Cypress Biosciences (Cypress), which was subsequently
assigned by Cypress to Kyalin Biosciences, Inc., and further assigned to Retrophin, Inc. (Retrophin). We have advised
Retrophin of our claim to payment of this milestone. However, Retrophin has denied our claim. Although we intend to vigorously
pursue our right to receive the milestone payment, there can be no assurance that we will be successful in our endeavors to receive
the payments to which we believe we are entitled. Note Purchase Agreement On June 20, 2016, we entered into a Note Purchase
Agreement (the Purchase Agreement) with certain investors (the Purchasers), pursuant to which we issued
to the Purchasers unsecured promissory notes in the aggregate principal amount of $0.3 million (the Notes). Interest
shall accrue on the unpaid principal balance of the Notes at the rate of 12% per annum beginning on September 20, 2016. The Notes
will become due and payable on June 20, 2017, provided, that, upon the closing of a financing transaction that occurs while the
Notes are outstanding, each Purchaser shall have the right to either: (i) accelerate the maturity date of the Note held by such
Purchaser or (ii) convert the entire outstanding principal balance under the Note held by such Purchaser and accrued interest thereon
into our securities that are issued and sold at the closing of such financing transaction. Further, if we at any time while the Notes
are outstanding receive any cash payments in the aggregate amount of not less than $0.25 million, as a result of the licensing,
partnering or disposition of any of the technology held by us or any related product or asset, we shall pay to the holders of the
Notes, on a pro rata basis, an amount equal to 25% of each payment actually received by us, which payments shall be applied against
the outstanding principal balance of the Notes and the accrued and unpaid interest thereon, until such time as the Notes are repaid
in full. As of September 30, 2016, the accrued interest
expense on the Notes amounted to $0.007. In the Purchase Agreement, we agreed: (x) to
extend the termination date of all of the warrants to purchase shares of our common stock (such warrants, the Prior Warrants)
that were delivered to the purchasers pursuant to that certain Note and Warrant Purchase Agreement, dated as of February 10, 2012
between us and the purchasers identified on the signature pages thereto, as it has been amended to date, to February 10, 2020 and
(y) to extend the exercise price protection afforded of the Prior Warrants so that such protection would apply to any financing
transaction effected by us on or prior to June 19, 2017 (with any such adjustment only applying to 80% of the Prior Warrants, ad
with such protection not resulting in the issuance of any additional shares of our common stock). As the Prior Warrants were already
recorded at fair value as a result of price adjustable terms, the impacts of the modification of the terms is included in the change
in fair value of price adjustable warrants in the statement of operations. Liquidity The accompanying condensed consolidated financial
statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and
the satisfaction of liabilities in the normal course of business. At September 30, 2016, we had an accumulated deficit of approximately
$334.1 million, $108.3 million of which has been accumulated since we focused on RNA therapeutics in June 2008. To the extent that
sufficient funding is available, we will continue to incur operating losses as we execute our plan to raise additional funds and
investigate strategic and business development initiatives. In addition, we have had and will continue to have negative cash flows
from operations. We have funded our losses primarily through the sale of common and preferred stock and warrants, the sale of the
Notes, revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans.
In 2015 and 2016, we funded operations with a combination of the issuance of the Notes, preferred stock and license-related revenues.
At September 30, 2016, we had negative working capital of $2.8 million and $0.1 million in cash. Our limited operating activities
consume the majority of our cash resources. We believe that our current cash resources,
including the proceeds from the Notes received in June 2016 as noted above, and the $0.54 million line of credit associated with
the Merger Agreement, will enable us to fund our intended operations through March 2017. Our ability to execute our operating plan
beyond March 2017 depends on our ability to obtain additional funding. The volatility in our stock price, as well as market conditions
in general, could make it difficult for us to raise capital on favorable terms, or at all. If we fail to obtain additional capital
when required, we may have to modify, delay or abandon some or all of our planned activities, or terminate our operations. There
can be no assurance that we will be successful in any such endeavors. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty. Basis of Preparation and Summary of Significant
Accounting Policies Basis of Preparation Use of Estimates Reclassifications Fair Value of Financial Instruments We follow authoritative guidance with respect
to fair value reporting issued by the Financial Accounting Standards Board (FASB) for financial assets and liabilities,
which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply
to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable
market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices
that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs in which
little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that
a market participant would use. Our cash is subject to fair value measurement
and value is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using
Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes using the Black-Scholes
option pricing model (Black-Scholes) under various probability weighted scenarios, using Level 3 inputs. The following
tables summarize our liabilities measured at fair value on a recurring basis as of December 31, 2015 and September 30, 2016:
Level 1 Level 3
Quoted prices in Level 2 Significant
Balance at active markets for Significant other unobservable
(In thousands) December 31, 2015 identical assets observable inputs inputs
Liabilities:
Fair value liability for price adjustable warrants $ 2,491 $ - $ - $ 2,491
Fair value liability for shares to be issued 60 60 - -
Total liabilities at fair value $ 2,551 $ 60 $ - $ 2,491
Level 1 Level 3
Quoted prices in Level 2 Significant
Balance at active markets for Significant other unobservable
(In thousands) September 30, 2016 identical assets observable inputs inputs
Liabilities:
Fair value liability for price adjustable warrants $ 109 $ - $ - $ 109
Total liabilities at fair value $ 109 $ - $ - $ 109 The following presents activity of the
fair value liability of price adjustable warrants determined by Level 3 inputs for the nine-month period ended September 30, 2016,
including the impact of the modifications to the Prior Warrants made in conjunction with the Purchase Agreement:
Fair value
liability for price Weighted average as of each measurement date
adjustable warrants Exercise Stock Contractual life Risk free
(in thousands) Price Price Volatility (in years) rate
Balance at December 31, 2015 $ 2,491 $ 0.42 $ 0.27 99 % 1.79 0.46 %
Fair value of derivative warrant liability reclassified to additional paid-in capital (86 )
Change in fair value included in Statement of Operations (2,296 )
Balance at September 30, 2016 $ 109 $ 0.43 $ 0.18 90 % 1.73 0.02 % Net Income (Loss) per Common Share
Three Months Ended September 30, Nine Months Ended September 30,
2015 2016 2015 2016
Stock options outstanding 1,316,106 1,548,106 1,316,106 1,548,106
Warrants 1,236,946 3,416,104 1,236.946 3,416,104
Convertible preferred stock 10,150,000 7,550,000 10,150,000 7,550,000
Total 12,703,052 12,514,210 12,703,052 12,514,210 The following is a reconciliation of basic and diluted net
income (loss) per share:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands except per share amounts) 2015 2016 2015 2016
Net income (loss) numerator basic $ 769 $ (38 ) $ 2,087 $ 386
Change in fair value liability for price adjustable warrants (2,485 ) (82 ) (6,128 ) (685 )
Net loss excluding change in fair value liability for price adjustable warrants $ (1,716 ) $ (120 ) $ (4,041 ) $ (299 )
Weighted average common shares outstanding denominator basic 26,462 29,760 26,047 29,264
Effect of price adjustable warrants 4,477 (27,113 ) 7,437 (23,512 )
Weighted average dilutive common shares outstanding 30,939 2,647 33,484 5,752
Net income (loss) per common share basic $ 0.03 $ (0.00 ) $ 0.08 $ 0.01
Net income (loss) per common share diluted $ (0.06 ) $ (0.05 ) $ (0.12 ) $ (0.05 ) Impairment of long-lived assets
● For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, such as property and equipment, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
● For indefinite-lived intangible assets, such as IPR&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any. |
