Warrants and Derivative Liabilities

3 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Warrants and Derivative Liabilities

Warrants and Derivative Liabilities

Senior Convertible Note Warrant

On April 4, 2012, the Company entered into the Purchase Agreement with CVI. The Purchase Agreement included a warrant to purchase 309,406 shares of the Company’s common stock (the “Original Warrant”). Pursuant to an exchange in October 2013, the Original Warrant was exchanged for a new warrant (the “Exchanged Warrant”). The Exchanged Warrant is exercisable at any time on or after the date that is six months after the issuance of the Original Warrant and entitles CVI to purchase shares of the Company’s common stock for a period of five years from the date the Original Warrant becomes exercisable at an exercise price equal to $15.94 per share, subject to certain price-based and other anti-dilution adjustments. The Exchanged Warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates, would beneficially own in excess of 4.99% of the Company’s common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of CVI, upon at least 61-days prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.

The Company calculated the fair value of the Exchanged Warrant, utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. See Note 4, "Fair Value Measurements", for further discussion.

The Company accounts for the Exchanged Warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The Exchanged Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to equity.

Following is a summary of the key assumptions used to calculate the fair value of the Exchanged Warrant:

Fiscal Year 16	June 30, 2016
Risk-free interest rate	0.48%
Expected annual dividend yield	—
Expected volatility	76.30%
Term  (years)	1.26
Fair value	$0.4 million

Fiscal Year 15	March 31, 2016	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015
Risk-free interest rate	0.66%	0.96%	0.64%	0.74%	0.73%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	76.76%	76.68%	73.39%	71.61%	70.42%
Term  (years)	1.51	1.76	2.01	2.26	2.51
Fair value	$0.4 million	$0.3 million	$0.1 million	$0.2 million	$0.3 million

The Company recorded no change in the fair value of the Exchanged Warrant during the three months ended June 30, 2016, and a net gain of $0.1 million, resulting from the decrease in the fair value of the Exchanged Warrant during the three months ended June 30, 2015.

Hercules Warrant

On December 19, 2014, the Company entered into the Hercules Second Amendment. See Note 9, “Debt” for additional information.  In conjunction with the agreement, the Company issued the Hercules Warrant to purchase 58,823 shares of the Company’s common stock.  The Hercules Warrant is exercisable at any time after its issuance at an initial exercise price of $11.00 per share, subject to certain price-based and other anti-dilution adjustments, and expires on June 30, 2020.  As a result of the equity offering in April 2015, the exercise price of the Hercules Warrant was reduced to $9.41 per share.  

The Company accounts for the Hercules Warrant as a liability due to certain provisions within the warrant.  The Hercules Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.

Following is a summary of the key assumptions used to calculate the fair value of the Hercules Warrant:

Fiscal Year 16	June 30, 2016
Risk-free interest rate	0.86%
Expected annual dividend yield	—
Expected volatility	68.34%
Term  (years)	4.00
Fair value	$0.3 million

Fiscal Year 15	March 31, 2016	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015
Risk-free interest rate	1.08%	1.65%	1.31%	1.63%	1.41%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	70.25%	73.57%	75.32%	72.57%	74.60%
Term  (years)	4.25	4.50	4.75	5.00	5.25
Fair value	$0.2 million	$0.2 million	$0.1 million	$0.2 million	$0.2 million

The Company recorded a net loss, resulting from an increase in the fair value of the Hercules Warrant, of $0.1 million during the three months ended June 30, 2016 to change in fair value of derivatives and warrants, and no change in the fair value of the Hercules Warrant during the three months ended June 30, 2015.

November 2014 Warrant

On November 13, 2014, the Company completed an offering of approximately 909,090 units of the Company’s common stock with Hudson Bay Capital. Each unit consisted of one share of the Company’s common stock and 0.9 of a warrant to purchase one share of common stock, or a warrant to purchase in the aggregate 818,181 shares (the “November 2014 Warrant”).  The November 2014 Warrant is exercisable at any time, at an initial exercise price equal to $11.00 per share, subject to certain price-based and other anti-dilution adjustments, and expires on November 13, 2019.  As a result of the April 2015 equity offering, the exercise price of the November 2014 Warrant was reduced to $9.41 per share.  

The Company accounts for the November 2014 Warrant as a liability due to certain provisions within the warrant.  The November 2014 Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.  

Following is a summary of the key assumptions used to calculate the fair value of the November 2014 Warrant:

Fiscal Year 16	June 30, 2016
Risk-free interest rate	0.77%
Expected annual dividend yield	—
Expected volatility	70.01%
Term  (years)	3.37
Fair value	$3.2 million

Fiscal Year 15	March 31, 2016	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015
Risk-free interest rate	0.98%	1.51%	1.17%	1.44%	1.28%
Expected annual dividend yield	—	—	—	—	—
Expected volatility	69.88%	70.02%	73.02%	74.18%	75.96%
Term  (years)	3.62	3.87	4.12	4.37	4.62
Fair value	$2.6 million	$2.1 million	$1.3 million	$1.8 million	$2.5 million

The Company recorded a net loss, resulting from an increase in the fair value of the November 2014 Warrant, of $0.6 million in the three months ended June 30, 2016, and a net gain, resulting from a decrease in the fair value of the November 2014 Warrant, of $0.7 million during the three months ended June 30, 2015. 

The Company prepared its estimates for the assumptions used to determine the fair value of the warrants issued in conjunction with both the Term Loans and our unsecured, senior convertible note with CVI, as well as the November 2014 Warrant utilizing the respective terms of the warrants with similar inputs, as described above.