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EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - ZOGENIX, INC.ex312-2014331.htm
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EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - ZOGENIX, INC.ex322-2014331.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - ZOGENIX, INC.ex321-2014331.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - ZOGENIX, INC.ex311-2014331.htm
EX-10.3 - INDEPENDENT DIRECTOR COMPENSATION POLICY AMENDED MARCH 2014 - ZOGENIX, INC.ex103directorcomppolicyres.htm
EX-10.2 - AMENDMENT 1 TO ALTUS DEVELOPMENT & OPTION AGREEMENT - ZOGENIX, INC.ex102amend1toaltusdoagrmt.htm
EX-10.1 - MALLINCKRODT CO-PROMOTION TERMINATION AGREEMENT - ZOGENIX, INC.ex101mallinckrodtterminati.htm
v2.4.0.8
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2014
Accounting Policies [Abstract]  
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis at March 31, 2014 and December 31, 2013 are as follows (in thousands):
 
 
Fair Value Measurements at Reporting Date Using
 
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
At March 31, 2014
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents(1)
$
46,725

 

 

 
$
46,725

Liabilities
 
 
 
 
 
 
 
Common stock warrant liabilities(2)
$

 

 
22,156

 
$
22,156

Embedded derivative liabilities(3)
$

 

 
247

 
$
247

At December 31, 2013
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents(1)
$
69,120

 

 

 
$
69,120

Liabilities
 
 
 
 
 
 
 
Common stock warrant liabilities(2)
$

 

 
31,341

 
$
31,341

Embedded derivative liabilities(3)
$

 

 
233

 
$
233



(1)
Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheets.
(2)
Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 5) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 4), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management's projections regarding the probability of the occurrence of an extraordinary event and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement. The decrease in the fair value of the common stock warrant liabilities as of March 31, 2014 was primarily driven by the decrease in the Company's stock price at March 31, 2014 as compared against December 31, 2013 measurement dates.
(3)
Embedded derivatives are measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management's revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving interest payments over the term of the Healthcare Royalty financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement of the liability.
Reconciliation of Liabilities Measured at Fair Value Using Significant Observable Inputs (Level 3)
The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the three months ended March 31, 2014 (in thousands):
 
Common
Stock
Warrant
Liabilities
 
Embedded
Derivative
Liabilities
Balance at December 31, 2013
$
31,341

 
$
233

Changes in fair value
(8,269
)
 
14

Exercises
$
(916
)
 
$

Balance at March 31, 2014
$
22,156

 
$
247

Basic and Diluted Net Loss Per Share
The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):
 
 
Three Months Ended March 31,
 
2014
 
2013
Numerator
 
 
 
Net loss for basic EPS
$
(20,932
)
 
$
(21,055
)
 
 
 
 
Effect of dilutive securities:
 
 
 
Common stock warrants
$
(8,269
)
 
$

Non-employee stock options and restricted stock units
(132
)
 

 
$
(8,401
)
 
$

 
 
 
 
Net loss for diluted EPS
$
(29,333
)
 
$
(21,055
)
 
 
 
 
Denominator
 
 
 
Weighted average common shares outstanding, basic
139,309

 
100,809

 
 
 
 
Effect of dilutive securities:
 
 
 
Common stock warrants
5,870

 

Non-employee stock options and restricted stock units
144

 

Dilutive potential shares of common stock
6,014

 

 
 
 
 
Weighted average common shares outstanding, diluted
145,323

 
100,809

 
 
 
 
Basic net loss per share
$
(0.15
)
 
$
(0.21
)
Diluted net loss per share
$
(0.20
)
 
$
(0.21
)
Schedule of Calculation of Diluted Net Loss Per Share
The following table presents potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands, of common equivalent shares):
 
 
Three Months Ended March 31,
 
2014
 
2013
Common stock options and restricted stock units
11,246

 
123

Common stock warrants
508

 

 
11,754

 
123