The following tables summarize the Company’s assets carried at fair value measured on a recurring basis at June 30, 2019 and December 31, 2018 by valuation hierarchy (in thousands):

	June 30, 2019
			Quoted prices in		Significant other		Significant
	Total Carrying		active markets		observable inputs		unobservable inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	43,202	$	43,202	$	—	$	—
	$	43,202	$	43,202	$	—	$	—

	December 31, 2018
			Quoted prices in		Significant other		Significant
	Total Carrying		active markets		observable inputs		unobservable inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	43,194	$	43,194	$	—	$	—
	$	43,194	$	43,194	$	—	$	—

Financial instruments that potentially subject the Company to concentrations of credit risk have historically consisted principally of cash and cash equivalents. At June 30, 2019 and December 31, 2018, substantially all of the Company’s interest-bearing cash equivalent balances were concentrated in one U.S. Government institutional money market fund that has investments consisting primarily of U.S. Government Agency debt, U.S. Treasury Repurchase Agreements and U.S. Government Agency Repurchase Agreements. These deposits may be redeemed upon demand and, therefore, generally have minimal risk. The Company’s cash equivalents are classified within Level 1 on the basis of valuations using quoted market prices.

As described in Note 10, the Second Tranche Transaction was determined to be liability classified, which required that the liability be measured at fair value each period with changes in fair value being recorded as a component of net income (loss) in the statement of operations. The purchase price for each share of Common Stock issuable in the Second Tranche Transaction was defined as the lower of (a) $1.265 (which was a 15% premium to the First Tranche Purchase Price) and (b) a 20% discount to the volume weighted average price (“VWAP”) of the shares of Common Stock on the Nasdaq Stock Market for the 20 trading days immediately prior to the closing of the Second Tranche Transaction; provided, however, that the purchase price could not be lower than $0.88, which was a 20% discount to the First Tranche Purchase Price.

The Second Tranche Warrants were exercisable any time on or after the closing of the Second Tranche Transaction until on or prior to the close of business on the 15th business day following the date on which the holders of the Second Tranche Warrants received written notice from the Company that CMS had announced that a new C-code had been established for DEXYCU. The exercise price of each Second Tranche Warrant was an amount equal to the lower of (a) $1.43 (a 30% premium to the First Tranche Purchase Price) and (b) a 20% discount to the VWAP of the shares of the Company’s Common Stock on Nasdaq for the 20 trading days immediately prior to the exercise of a Second Tranche Warrant; provided, however, that the exercise price could not be lower than $0.88, which was a 20% discount to the First Tranche Purchase Price.

The valuation of the Second Tranche Transaction was determined to be a level 3 valuation because it included unobservable inputs. Changes in the valuation subsequent to the initial valuation were recorded as a component of non-operating expense in the consolidated statement of comprehensive loss. The Second Tranche Transaction liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs, including the Common Stock price on the date of valuation, the historical volatility of the price of Common Stock, the risk-free interest rate and management’s assessment of the probability and timing of the issuance of the Units occurring. A significant fluctuation in the Company’s stock price or the Company’s estimate of the number of Units to be issued could result in a material increase or decrease in the fair value of the Second Tranche liability. The Second Tranche Transaction liability was settled upon the closing of the Second Tranche Transaction in June 2018. The Company remeasured the Second Tranche Transaction liability to fair value immediately prior to settlement. This valuation at settlement was calculated as the excess of the sum of (i) the fair value of the Second Tranche Warrants and (ii) the fair value of the shares of Common Stock issued to settle the liability over the cash proceeds received by the Company for the Units. Significant assumptions used to value this liability were as follows:

	March 28, 2018 (Date of Issuance)			June 25, 2018 (Date of Settlement)
Volatility		54.20	%	N/A
Risk free interest rate		1.70	%	N/A
Estimated date of stockholder approval	June 2018			N/A
Estimated number of units issuable		26,900,000			20,184,224
Valuation date stock price	$	1.07		$	1.93

Upon the closing of the Second Tranche Transaction, the Company issued the Second Tranche Warrants, which were determined to be liability classified, which required that the liability be measured at fair value each period with changes in fair value being recorded as a component of non-operating expense in the consolidated statement of comprehensive loss. This valuation was determined to be a level 3 valuation because it included unobservable inputs. The Second Tranche Warrants were valued using a Monte Carlo simulation valuation model. This model incorporated several inputs, including the Common Stock price on the date of valuation, the historical volatility of the price of the Common Stock and the risk-free interest rate. Following written notice of CMS approval to the holders of the Second Tranche Warrants, the Second Tranche Warrants were exercised in September 2018 at a purchase price of $1.43 per share for gross proceeds of $28.9 million. Significant assumptions used to value this liability prior to exercise in September 2018 were as follows:

	June 25, 2018 (Date of issuance)			June 30, 2018
Volatility		81.00	%		85.40	%
Risk free interest rate		2.10	%		2.10	%
Term (in years)	0.5			0.5
Dividend rate		0	%		0	%
Valuation date stock price	$	2.00		$	2.08
Probability of issuance		100	%		100	%

The Additional Advance Warrant Shares were determined to be liability classified (see Note 9), which required that the liability be measured at fair value each period with changes in fair value being recorded as a component of non-operating expense in the condensed consolidated statement of comprehensive loss. The Additional Advance Warrant Shares were recorded as a liability at the SWK Closing Date and were remeasured at fair value at each reporting period until the date of the SWK Additional Advance. The aggregate fair value of the Additional Advance Warrant Shares at the SWK Closing Date was $69,000. The Initial Advance Warrant Shares were recorded as equity on the Company’s balance sheet at their relative fair value of $284,000. Upon the closing of the SWK Additional Advance, the Additional Advance Warrant Shares were re-valued at $87,000 and reclassified to equity.

This valuation was determined to be a level 3 valuation because it included unobservable inputs. The Additional Advance Warrant liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs including the Company’s Common Stock price on the date of valuation, the historical volatility of the price of the Common Stock, the risk-free interest rate and management’s assessments of the probability of the Additional Advance being drawn upon. Upon the closing of the Second Tranche Transaction in June 2018, the Additional Advance Warrants no longer met the criteria to be classified as a liability. The Company remeasured the Additional Advance Warrants immediately prior to the close of the Second Tranche Transaction and reclassified the liability balance to equity. Significant assumptions used to value this liability were as follows:

	March 28, 2018 (Date of Issuance)			June 25, 2018 (Date of Reclassification to Equity)
Volatility		55.20	%		55.10	%
Risk free interest rate		1.70	%		2.80	%
Term (in years)	7			7
Dividend rate		0	%		0	%
Valuation date stock price	$	1.07		$	1.93
Probability of issuance		80	%		100	%

The following table sets forth a summary of changes in the fair value of the Company’s derivative liability for which fair value was determined by Level 3 inputs (in thousands):

	Second Tranche Liability			Additional Advance Warrant Liability			Second Tranche Warrants		Total
Balance at January 1, 2018	$	—		$	—		$	—	$	—
Initial fair value of derivative liability		4,734			69			18,165		22,968
Change in fair value		24,319			18			1,615		25,952
Reclassification to equity		—			(87	)		—		(87	)
Settlement		(29,053	)		—			—		(29,053	)
Balance at June 30, 2018	$	—		$	—		$	19,780	$	19,780

Also included in the change in fair value was $326,000 of transaction costs that were expensed in connection with the issuance of the derivative liabilities.