The Company measures certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. U.S. GAAP requires disclosure of methodologies used in determining the reported fair values, and establishes a hierarchy of inputs used when available. The three levels of the fair value hierarchy are described below:

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amount of cash and cash equivalents, accrued income from related parties, prepaid expenses, other assets, accounts payable, accrued expenses and other current liabilities reflected in the consolidated balance sheets approximate their fair values due to their short-term maturities.

The following table sets forth the Company’s assets and liabilities that are required to be measured at fair value on a recurring basis as of June 30, 2019, and December 31, 2018:


	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		Classification in consolidated balance sheets
		(in thousands)
At December 31, 2018
Assets:
Cash, cash equivalents and restricted cash	$	237,342	$	—	$	—	$	237,342	Cash and cash equivalents; restricted cash
Total assets	$	237,342	$	—	$	—	$	237,342
Liabilities:
Derivative financial instruments - debt	$	—	$	—	$	572	$	572	Accrued expenses and other current liabilities
Derivative financial instruments - related party		—		—		803		803
Total liabilities	$	—	$	—	$	1,375	$	1,375
At June 30, 2019
Assets:
Cash, cash equivalents and restricted cash	$	187,035	$	—	$	—	$	187,035	Cash and cash equivalents; restricted cash
Total assets	$	187,035	$	—	$	—	$	187,035
Liabilities:
Derivative financial instruments - related party		—		—		3,251		3,251
Total liabilities	$	—	$	—	$	3,251	$	3,251

Changes in Level 3 items during the six months ended June 30, 2019, are as follows


	Derivative
	financial
	instruments
	(in thousands)
Balance at December 31, 2018	$	1,375
Losses recognized in profit or loss		2,634
Exercise of warrants		(770)
Currency translation effects		12
Balance at June 30, 2019	$	3,251

Derivative financial instruments

The Company issued derivative financial instruments related to its collaboration with Bristol-Meyers Squibb Company and in relation to the issuance of the Hercules Technology Growth Corp. (“Hercules”) loan facility. The Hercules warrants were exercised as of February 1, 2019. The Company issued 37,175 ordinary shares at $34.25 following the exercise of all Hercules warrants and receipt of $0.5 million from Hercules.

The fair value of the BMS derivative financial instruments (“BMS warrants”) as of June 30, 2019, was $3.3 million compared to a fair value of both the BMS and Hercules derivative financial instruments of $1.4 million as of December 31, 2018. Changes in the fair value of the BMS warrants are primarily impacted by changes in the Company’s share price, whereby an increase in share price generally results in an increase of the fair value. These BMS warrants are described in more detail below.

BMS warrants

Pursuant to the BMS CLA, the Company granted BMS two warrants:

●

A warrant allowing BMS to purchase a specific number of uniQure ordinary shares such that its ownership will equal 14.9% immediately after such purchase. The warrant can be exercised on the later of (i) the date on which the Company receives from BMS the Target Designation Fees (as defined in the BMS CLA) associated with the first six new targets (a total of seven Collaboration Targets); and (ii) the date on which BMS designates the sixth new target (the seventh Collaboration Target).

●

A warrant allowing BMS to purchase a specific number of uniQure ordinary shares such that its ownership will equal 19.9% immediately after such purchase. The warrant can be exercised on the later of (i) the date on which uniQure receives from BMS the Target Designation Fees associated with the first nine new targets (a total of ten Collaboration Targets); and (ii) the date on which BMS designates the ninth new target (the tenth Collaboration Target).

Pursuant to the terms of the BMS CLA, the exercise price in respect of each warrant is equal to the greater of (i) the product of (A) $33.84, multiplied by (B) a compounded annual growth rate of 10% (or approximately $49.93 as of June 30, 2019) and (ii) the product of (A) 1.10 multiplied by (B) the VWAP for the 20 trading days ending on the date that is five trading days prior to the date of a notice of exercise delivered by BMS.

As of June 30, 2019, BMS had designated a total of four Collaboration Targets, and as such, the warrants were not exercisable. The Company had estimated the exercise of warrants to occur within two and four years after the balance sheet date.

The Company conducted a sensitivity analysis to assess the impact on changes in assumptions on the fair value. Specifically, the Company examined the impact on the fair market value of the warrants by increasing the volatility by 10% to 82.5%. A further sensitivity analysis was performed assuming the warrants would be exercised a year later than currently estimated. The table below illustrates the impact on the fair market valuation associated with these changes in assumptions as of June 30, 2019.


		Total warrants
	(in thousands)
Base case	$	3,251
Increase volatility by 10% to 82.5%		687
Extend exercise dates by one year		(38)