Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis.

The Company uses the accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires fair value measurements be classified and disclosed in one of the following three categories within the hierarchy: 

•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period.

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:

	September 30, 2015
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	36,931	$	—	$	—	$	36,931
Liabilities:
Warrant liability	$	—	$	—	$	6,964	$	6,964

	December 31, 2014
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	37,495	$	—	$	—	$	37,495
Liabilities:
Warrant liability	$	—	$	—	$	11,286	$	11,286

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis - Common Stock Warrants.

The reconciliation of the warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) was as follows:

	Warrant
($ in thousands)	Liability
Balance at December 31, 2014	$	11,286
Exercise of warrants (1)	(82		)
Change in fair value of warrant liability	(4,240		)
Balance at September 30, 2015	$	6,964

(1) All warrants were exercised under the cashless exercise method per the corresponding warrant agreement. As a result of such exercises, the Company issued 11,584 shares of common stock. Consequently, these instruments were no longer classified as liabilities. These common stock warrants were remeasured to their fair value as of the exercise date with the change in fair value recorded to other income. The fair value related to the shares issued in connection with the exercised warrants was reclassified from liability to additional paid-in capital in the condensed consolidated balance sheet.

Effect of Fibrocell's Stock Price and Volatility Assumptions on the Calculation of Fair Value of Warrant Liabilities.

The fair value of the warrant liability is based on Level 3 inputs. As discussed in Note 5, the Company uses a Monte Carlo simulation valuation method to value its liability-classified warrants. The determination of fair value as of the reporting date is affected by Fibrocell's stock price as well as assumptions regarding a number of subjective variables that do not have observable inputs or available market data to support the fair value. These variables include, but are not limited to, expected stock price volatility over the term of the warrants and the risk-free interest rate. The primary factors affecting the fair value of the warrant liability are the Company's stock price and volatility as well as certain assumptions by the Company as to the likelihood of provisions to the underlying warrant agreements being triggered. The methods described above and in Note 5 may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value could result in a different fair value measurement at the reporting date.

Fair Value of Certain Financial Assets and Liabilities.

The Company believes that the fair values of the Company’s current assets and liabilities approximate their reported carrying amounts. There were no transfers between Level 1, 2 and 3 during the periods presented.