Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

10.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached as of March 31, 2020 and December 31, 2019 for financial instruments measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

Fair Value Hierarchy Classification

 

 

 

Balance

 

 

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

195

 

 

$

195

 

 

 

 

 

 

 

Restricted cash

 

 

273

 

 

 

273

 

 

 

 

 

 

 

Money market funds

 

 

20,058

 

 

 

20,058

 

 

 

 

 

 

 

Total assets

 

$

20,526

 

 

$

20,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

13,628

 

 

 

 

 

 

 

 

$

13,628

 

Derivative liability

 

 

2,492

 

 

 

 

 

 

 

 

 

2,492

 

Total liabilities

 

$

16,120

 

 

 

 

 

 

 

 

$

16,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

23

 

 

$

23

 

 

 

 

 

 

 

Restricted cash

 

 

273

 

 

 

273

 

 

 

 

 

 

 

Money market funds

 

 

41,897

 

 

 

41,897

 

 

 

 

 

 

 

Total assets

 

$

42,193

 

 

$

42,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

18,396

 

 

 

 

 

 

 

 

$

18,396

 

Derivative liability

 

 

3,192

 

 

 

 

 

 

 

 

 

3,192

 

Total liabilities

 

$

21,588

 

 

 

 

 

 

 

 

$

21,588

 

 

The Company measures cash equivalents at fair value on a recurring basis. The fair value of cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company uses the Black-Scholes option valuation model to value the Level 3 warrant liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.  The unobservable input for all of the Level 3 warrant liabilities includes volatility.  The historical volatility of the Company, using its closing common stock prices, is utilized to reflect future volatility over the expected term of the warrants.  At March 31, 2020, the range and weighted average of the Level 3 volatilities utilized in the Black-Scholes model to fair value the warrant liabilities were 73.7% to 78.4% and 75.0%, respectively.  Additionally, the expected term associated with the December 2019 Public Offering warrants is an unobservable unit given that the expiration of the warrants is the earlier of (i) such date that is six months after the Company publicly announces the approval from the U.S. Food and Drug Administration for ibrexafungerp for the treatment of vulvovaginal candidiasis and (ii) June 12, 2023.  The Company utilized a probability assessment to estimate the likelihood of occurrence for the two potential expiration dates and allocated the probability of occurrence percentage to the fair values calculated based on the two potential expected terms.  The weighted average expected term is 2.6 years as of March 31, 2020 for the December 2019 Public Offering warrants with a range of 1.6 to 3.2 years.  

The Company uses the binomial lattice valuation model to value the Level 3 derivative liability at inception and on subsequent valuation dates.  This model incorporates transaction details such as the Company’s stock price, contractual terms, dividend yield, risk-free rate, historical volatility, credit rating, market credit spread, and estimated effective yield.  The unobservable inputs associated with the Level 3 derivative liability are adjusted equity volatility, market credit spread, and estimated yield.  As of March 31, 2020, these inputs were 56.8%, 2,063 basis points, and 21.0%, respectively.  The senior convertible notes are initially fair valued using the binomial lattice model and with the straight debt fair value calculated using the discounted cash flow method.  The discounts for lack of marketability, 12.07% as of March 31, 2020, is then applied to the value of the senior convertible notes.  The residual difference represents the fair value of the embedded derivative liability and the fair value of the embedded derivative liability is reassessed using the binomial lattice valuation model on a quarterly basis.  

A reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

 

 

 

Warrant Liabilities

 

Balance – December 31, 2019

 

 

$

18,396

 

Gain adjustment to fair value

 

 

 

(4,768

)

Balance – March 31, 2020

 

 

$

13,628

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

Balance – December 31, 2019

 

 

$

3,192

 

Gain adjustment to fair value

 

 

 

(700

)

Balance – March 31, 2020

 

 

$

2,492