Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

4.	Fair Value of Financial Instruments

The Company’s financial instruments that are carried at fair value mainly consist of Level 1 assets and Level 3 liabilities. Level 1 assets include highly liquid bank deposits and money market funds, which were not material at September 30, 2018 and December 31, 2017. Level 3 liabilities that are measured on a recurring basis consist of the 2017 and 2016 Placement Warrants, as described in Note 8. Placement warrant liabilities are valued using the Black-Scholes option-pricing model. Generally, increases (decreases) in the fair value of the underlying stock, volatility and estimated term would result in a directionally similar impact to the fair value of the warrants (see Note 10).

The gains and losses from re-measurement of Level 3 financial liabilities are recorded as part of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2018, the Company recorded a loss of $6.7 million and a gain of $0.4 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. During the three and nine months ended September 30, 2017, the Company recorded a gain of $2.3 million and a loss of $6.7 million in other income (expense), net within the condensed consolidated statements of operations and comprehensive loss, respectively, related to the change in fair value of the 2017 and 2016 Placements Warrants. There were no transfers between Level 1, Level 2 and Level 3 in any periods presented.

The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands):

	At September 30, 2018
	Level 1		Level 2		Level 3		Total
2017 Placement Warrants Liability	$	—	$	—	$	12,400	$	12,400
2016 Placement Warrants Liability		—		—		9,562		9,562
Total	$	—	$	—	$	21,962	$	21,962

	At December 31, 2017
	Level 1		Level 2		Level 3		Total
2017 Placement Warrants Liability	$	—	$	—	$	12,487	$	12,487
2016 Placement Warrants Liability		—		—		9,933		9,933
Total	$	—	$	—	$	22,420	$	22,420

The following table sets forth a summary of the changes in fair value of the Company’s Level 3 financial liabilities (in thousands):

	Nine Months Ended September 30,
	2018			2017
Fair value, beginning of period	$	22,420		$	2,723
Issuance of 2017 Placement Warrants		—			3,373
Fair value of common stock warrants reclassified from liability to additional paid-in capital upon exercise		(342	)		—
Change in fair value of Level 3 financial liabilities		(116	)		6,739
Fair value, end of period	$	21,962		$	12,835

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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