Equity Investment in Viracta Therapeutics	3 Months Ended
Mar. 31, 2021
Viracta Therapeutics, Inc.
Investment	4. Equity Investment in Viracta Therapeutics In March 2017, we participated in a Series B convertible preferred stock financing and invested $8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company, which was initially recorded at cost. In May 2017, we executed an exclusive worldwide license with Viracta to develop and commercialize Viracta’s proprietary histone deacetylase inhibitor drug candidate for use in combination with natural killer cell therapy and possibly additional therapies. In June 2018, Viracta executed a 2018 Note and Warrant Purchase Agreement with existing and new investors, including us. The initial closing under the Purchase Agreement occurred in June 2018, at which point we purchased a convertible note for $0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common stock. In September 2018, a milestone closing under the Purchase Agreement occurred, at which point we purchased an additional convertible note for $0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common stock. Effective January 31, 2019, the notes, together with accrued interest then outstanding, were converted to Series B preferred stock resulting in an increase to our investment in Viracta’s Series B convertible preferred stock of $0.8 million. In May 2019, we exercised warrants to acquire 253,120 shares of Viracta common stock. Based on the level of equity investment at risk, Viracta was not a VIE and therefore was not consolidated under the VIE model. In addition, we did not hold a controlling financial interest in Viracta, and therefore we did not consolidate Viracta under the voting interest model. As the preferred stock was not considered in-substance common stock, the investment was not within the scope of accounting for the investment under the equity method. As the preferred stock did not have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value in accordance with ASC 820, we had elected to apply the measurement alternative under ASC 321, pursuant to which we measured our investment in Viracta at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer. As of December 31, 2020, our fair value assessment indicated that the offering of Viracta’s Series E preferred stock in November 2020, at a lower offering price per share than the per share carrying amount of our investment in Viracta, was a directional indicator representing an observable price change in an orderly transaction for a similar investment. On December 31, 2020, we reduced the carrying value by $1.4 million due to the observable price change, which was included in interest and investment income, net, on the condensed combined consolidated statements of operations for the year ended December 31, 2020. As of December 31, 2020, the carrying value of our investment in Viracta, which was reflected in non-marketable equity investment, on the condensed combined consolidated balance sheets, was $7.8 million. On February 24, 2021, Sunesis Pharmaceuticals, Inc., a public company, completed a business combination with Viracta. In connection with this business combination, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021. As of March 31, 2021, the carrying value of our investment in Viracta, which is reflected in marketable securities, on the condensed combined consolidated balance sheets totaled $14.5 million (including an unrealized gain of $6.6 million).

Equity Investment in Viracta Therapeutics

3 Months Ended

Mar. 31, 2021

4. Equity Investment in Viracta Therapeutics

In March 2017, we participated in a Series B convertible preferred stock financing and invested $8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company, which was initially recorded at cost. In May 2017, we executed an exclusive worldwide license with Viracta to develop and commercialize Viracta’s proprietary histone deacetylase inhibitor drug candidate for use in combination with natural killer cell therapy and possibly additional therapies.

In June 2018, Viracta executed a 2018 Note and Warrant Purchase Agreement with existing and new investors, including us. The initial closing under the Purchase Agreement occurred in June 2018, at which point we purchased a convertible note for $0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common stock. In September 2018, a milestone closing under the Purchase Agreement occurred, at which point we purchased an additional convertible note for $0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common stock. Effective January 31, 2019, the notes, together with accrued interest then outstanding, were converted to Series B preferred stock resulting in an increase to our investment in Viracta’s Series B convertible preferred stock of $0.8 million. In May 2019, we exercised warrants to acquire 253,120 shares of Viracta common stock.

Based on the level of equity investment at risk, Viracta was not a VIE and therefore was not consolidated under the VIE model. In addition, we did not hold a controlling financial interest in Viracta, and therefore we did not consolidate Viracta under the voting interest model. As the preferred stock was not considered in-substance common stock, the investment was not within the scope of accounting for the investment under the equity method. As the preferred stock did not have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value in accordance with ASC 820, we had elected to apply the measurement alternative under ASC 321, pursuant to which we measured our investment in Viracta at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer.

As of December 31, 2020, our fair value assessment indicated that the offering of Viracta’s Series E preferred stock in November 2020, at a lower offering price per share than the per share carrying amount of our investment in Viracta, was a directional indicator representing an observable price change in an orderly transaction for a similar investment. On December 31, 2020, we reduced the carrying value by $1.4 million due to the observable price change, which was included in interest and investment income, net, on the condensed combined consolidated statements of operations for the year ended December 31, 2020. As of December 31, 2020, the carrying value of our investment in Viracta, which was reflected in non-marketable equity investment, on the condensed combined consolidated balance sheets, was $7.8 million.

On February 24, 2021, Sunesis Pharmaceuticals, Inc., a public company, completed a business combination with Viracta. In connection with this business combination, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021. As of March 31, 2021, the carrying value of our investment in Viracta, which is reflected in marketable securities, on the condensed combined consolidated balance sheets totaled $14.5 million (including an unrealized gain of $6.6 million).