DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2016

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

11.DERIVATIVE INSTRUMENTS

In May 2014, in connection with a public offering, the Company issued warrants that have anti-dilution protection provisions that allow for a reduction in the exercise price of the warrants if the Company subsequently issues equity securities, including common stock or any security convertible or exchangeable for shares of common stock, for no consideration or for consideration less than the exercise price of the warrants. Accordingly, these warrants are accounted for as derivative liabilities. The Company used the Binomial Lattice option pricing model and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in fair value of the derivative financial instruments are recognized in the Company’s consolidated statement of operations as a derivative gain or loss. The warrant derivative gains (losses) are non-cash income (expenses); and for the three months ended September 30,  2016 and 2015 a (loss) gain of $(336) and $3,591, respectively, was included in other income (expense) in the Company’s consolidated statement of operations. For the nine months ended September 30,  2016 and 2015 a loss of $(788) and $(11,349), respectively, was included in other income (expense) in the Company’s consolidated statement of operations. The assumptions used principally in determining the fair value of the warrants were as follows:

	September 30,		December 31,
	2016		2015
Risk free interest rate	0.90	%	0.65	%
Expected dividend yield	0.00	%	0.00	%
Expected term (in years)	2.61		3.36
Expected volatility	92.67	%	100.20	%

The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying common stock for each reporting period.

Changes in the derivative warrant liability for the three and nine months ended September 30,  2016 and 2015 are as follows (in thousands):

	Three Months Ended September 30,
	2016		2015
Balance at June 30,	$	2,359	$	7,722
Fair value of warrants issued		—		—
Reduction in derivative liability due to exercise and modification of warrants		—		(1,680)
Increase (decrease) in the fair value of warrants		336		(3,591)
Balance at September 30,	$	2,695	$	2,451

	Nine Months Ended September 30,
	2016		2015
Balance at December 31,	$	1,907	$	7,224
Fair value of warrants issued		—		—
Reduction in derivative liability due to exercise and modification of warrants		—		(16,122)
Increase in the fair value of warrants		788		11,349
Balance at September 30,	$	2,695	$	2,451

The March 2016 public offering resulted in a repricing of the Company’s liability-classified warrants. The liability-classified warrants’ prices were decreased from $5.75 per share to $3.87 per share. In addition, the number of shares subject to the warrants increased from 395,716 to 587,950. The increase in the warrant liability for the three months ended September 30, 2016 was primarily driven by the increase in the fair value of the underlying stock price since June 30, 2016. The increase in the liability for the nine months ended September 30, 2016 was due to the issuance of additional shares underlying the warrants in connection with the repricing of liability-classified warrants, partially offset by the decrease in the fair value of the underlying stock price since December 31, 2015.