Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 4. Fair Value of Financial Instruments

The carrying value of the Company’s cash, restricted cash, cash equivalents and accounts payable, approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

• Level I — Unadjusted quoted prices in active markets for identical assets or liabilities;

• Level II — Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

• Level III — Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).

	Fair Value Measurements at December 31, 2018
	Total		Level 1		Level 2		Level 3
Liabilities
Series A warrant liability	$	49	$	49	$	—	$	—
Series C warrant liability		—		—		—		—
2017 PIPE warrant liability		4,563		—		—		4,563
2018 PIPE warrant liability		600		—		—		600
Essentialis purchase price contingency liability		5,649		—		—		5,649
Total common stock warrant and contingent    consideration liability	$	10,861	$	49	$	—	$	10,812

	Fair Value Measurements at December 31, 2017
	Total		Level 1		Level 2		Level 3
Liabilities
Series A warrant liability	$	70	$	70	$	—	$	—
Series C warrant liability		6		—		—		6
2017 PIPE warrant liability		5,076		—		—		5,076
Essentialis purchase price contingency liability		5,082		—		—		5,082
Total common stock warrant and contingent    consideration liability	$	10,234	$	70	$	—	$	10,164

The Series A Warrant is a registered security that trades on the open market and the fair value of the Series A Warrant liability is based on the publicly quoted trading price of the warrants which is listed on and obtained from NASDAQ. Accordingly, the fair value of Series A Warrants is a Level 1 measurement. The fair value measurement of the Series C Warrants is based on significant inputs that are unobservable and thus represent Level 3 measurements. The Company’s estimated fair value of the Series C Warrant liability is calculated using the Black-Scholes valuation model, which is equivalent to fair value computed using the Binomial Lattice Option Model. Key assumptions include the volatility of the Company’s stock, the expected warrant term, expected dividend yield and risk-free interest rates. The Company’s estimated fair value of the 2017 PIPE Warrants and the 2018 PIPE Warrants was calculated using a Monte Carlo simulation of a geometric Brownian motion model. The Monte Carlo simulation pricing model requires the input of highly subjective assumptions including the expected stock price volatility, the expected term, the expected dividend yield and the risk-free interest rate. The fair value of the Essentialis purchase price contingent liability is estimated using scenario-based methods based upon the Company’s analysis of the likelihood of obtaining specified approvals from the Federal Drug Administration as well as reaching cumulative revenue milestones (see Note 8). The Level 3 estimates are based, in part, on subjective assumptions.

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the periods presented.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 1 and Level 3 warrants, which are treated as liabilities (dollars in thousands).

	Series A Warrant					Series C Warrant					2017 PIPE Warrants					2018 PIPE Warrants				Purchase Price
	Number of Warrants		Liability			Number of Warrants		Liability			Number of Warrants		Liability			Number of Warrants		Liability		Contingent Liability
Balance at January 1, 2018		485,121	$	70			118,083	$	6			6,024,425	$	5,076			—	$	—	$	5,082
Change in value of Series    A Warrants		—		(21	)		—		—			—		—			—		—		—
Change in value of Series    C Warrants		—		—			—		(6	)		—		—			—		—		—
Change in value of 2017 PIPE Warrants		—		—			—		—			—		(513	)		—		—		—
Issuance of 2018 PIPE Warrants		—		—			—		—			—		—			513,617		582		—
Change in value of 2018 PIPE Warrants		—		—			—		—			—		—			—		18		—
Change in value of contingent liability		—		—			—		—			—		—			—		—		567
Balance at December 31, 2018		485,121	$	49			118,083	$	—			6,024,425	$	4,563			513,617	$	600	$	5,649