XML 26 R15.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Fair Value of Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | 9. Fair Value of Financial Instruments The Company applies various valuation approaches in determining the fair value of its financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: Level 1— Quoted prices for identical instruments in active markets. Level 2— Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3— Significant inputs to the valuation model that are unobservable. The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement. Cash Equivalents — Cash equivalents consist of highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase, that are readily convertible into cash. As of September 30, 2017 and December 31, 2016, the Company held cash equivalents of $18.4 million and $20.5 million, respectively, comprised of money market funds. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy). Note Payable to Principal Stockholder —The fair value of the note payable to principal stockholder cannot be reasonably estimated as the Company would not be able to obtain a similar credit arrangement in the current economic environment. Therefore the fair value is based upon carrying value. Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments (in millions):
| As of September 30, 2017 |
|  |  |  | Fair Value Measurements Using |
| Carrying Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Fair Value |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior convertible notes | $ | 27.7 |  |  | $ | — |  |  | $ | — |  |  | $ | 24.7 |  |  | $ | 24.7 |
Facility financing obligation |  | 57.9 |  |  |  | — |  |  |  | — |  |  |  | 60.0 |  |  |  | 60.0 |
Milestone rights |  | 8.9 |  |  |  | — |  |  |  | — |  |  |  | 18.7 |  |  |  | 18.7 |
Total financial liabilities | $ | 94.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 103.4 |  |  | $ | 103.4 |
|  | As of December 31, 2016 |
|  |  |  |  |  | Fair Value Measurements Using |
|  | Carrying Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Fair Value |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior convertible notes |  | $ | 27.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 22.9 |  |  | $ | 22.9 |
Facility financing obligation |  |  | 71.3 |  |  |  | — |  |  |  | — |  |  |  | 74.5 |  |  |  | 74.5 |
Milestone rights |  |  | 8.9 |  |  |  | — |  |  |  | — |  |  |  | 18.4 |  |  |  | 18.4 |
Warrant liability (at recurring fair value) |  |  | 7.4 |  |  |  | — |  |  |  | — |  |  |  | 7.4 |  |  |  | 7.4 |
Total financial liabilities |  | $ | 115.2 |  |  | $ | — |  |  | $ | — |  |  | $ | 123.2 |  |  | $ | 123.2 |
On May 12, 2016, the Company issued certain warrants with a fair value of $12.8 million. On September 29, 2017 the Company and four holders of 9.7 million outstanding warrants entered into separate, privately-negotiated exchange agreements, pursuant to which the Company agreed to issue to such holders shares of the Company’s common stock (to be delivered on October 3, 2017) in exchange for such warrants. The warrant liability associated with the exchanged warrants was adjusted to fair value and reclassified into equity as of September 29, 2017. As of December 31, 2016, the fair value of the warrant liability was $7.4 million. The fair value of the warrants liability as of December 31, 2016 was estimated using a Monte Carlo valuation pricing model with the following underlying assumptions: (a) a risk-free interest rate of 1.14%; (b) an assumed dividend yield of zero percent; (c) an expected term of 1.4 years; and (d) an expected volatility of 118%. The following table provides a roll forward of the fair value of the warrant liability which is the only Level 3 financial instrument that is carried at fair value (in millions):
Balance at beginning of period December 31, 2016 |  | $ | 7.4 |
Additions |  |  | — |
Changes in fair value |  |  | (5.5 | )
Settlement through exchange for common shares |  |  | (1.9 | )
Payments |  |  | — |
Fair value, end of period September 30, 2017 |  | $ | 0.0 |
Senior Convertible Notes — The estimated fair value of the 2018 notes was calculated based on model-derived valuations whose inputs were observable, such as the Company’s stock price and yields on U.S. Treasury notes and actively traded bonds, and non-observable, such as the Company’s longer-term historical volatility, and estimated yields implied from any available market trades of the Company’s issued debt instruments. As there was no current active and observable market for the 2018 notes, the Company determined the estimated fair value using a convertible bond valuation model within a lattice framework. The convertible bond valuation model combined expected cash flows based on terms of the notes with market-based assumptions regarding risk-free rate, risk-adjusted yields (20%), stock price volatility (107%) and recent price quotes and trading information regarding Company issued debt instruments and shares of common stock into which the notes are convertible (Level 3 in the fair value hierarchy). Facility Agreement — As discussed in Note 6 — Borrowings, the Company issued 2019 notes and subsequently issued Tranche B notes (the “Facility Financing Obligation”) in connection with the Facility Agreement. As there is no current observable market for the 2019 notes or Tranche B notes, the Company determined the estimated fair value using a bond valuation model based on a discounted cash flow methodology. The bond valuation model combined expected cash flows associated with principal repayment and interest based on the contractual terms of the debt agreement discounted to present value using a selected market discount rate. On September 30, 2017, the market discount rate was recalculated at 12% for the principal for the facility financing obligation. Under the terms of the Facility Agreement, the Company is restricted from distributing any of its assets or declaring and distributing a dividend to its stockholders. On October 23, 2017, the Company entered into an exchange agreement with the holders of the 2018 notes and a Fourth Amendment to the Facility Agreement as further discussed in Note 15 – Subsequent Events. The assumptions used to determine the fair value of the 2018 notes and the Facility Agreement do not include the impacts of these transactions. Milestone Rights Liability — In addition to the Facility Financing Obligation, the Company also issued the Milestone Rights. These rights are not reflected in the Facility Financing Obligation. The estimated fair value of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones, discounted to present value using a selected market discount rate (Level 3 in the fair value hierarchy). The expected timing and probability of achieving the milestones, starting in 2014, was developed with consideration given to both internal data, such as progress made to date and assessment of criteria required for achievement, and external data, such as market research studies. The discount rate (14%) was selected based on an estimation of required rate of returns for similar investment opportunities using available market data. As of September 30, 2017, the carrying value of the milestone rights liability was $8.9 million and the fair value was estimated at $18.7 million. The fair value measurement of the liability is sensitive to the discount rate and the timing and probability of making milestone payments. If the achievement of each of the milestones which require payments were to be six months later than in the current forecast, the fair value of the liability would decrease by 7%. If the probabilities of meeting the milestones were to decrease by 5% or 10%, the fair value of the liability would decrease by 16% and 30%, respectively. Over the long term, these inputs are interrelated because if the Company’s performance improves, the timing of meeting the milestones would likely be earlier, the probability of making payments on the milestones would likely be higher and the discount rate would likely decrease, all of which would increase the fair value of the liability. The inverse is also true. Warrant Liability — Warrant liabilities were measured at fair value using a Monte Carlo pricing valuation model. The assumptions used in the valuation model for the common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero percent based on the Company’s expectation that it will pay no dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; (d) an expected volatility based upon the Company’s historical volatility over the remaining contractual term of the warrants; and (e) probability of a dilutive financing that may trigger a price protection clause. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities is the expected volatility. Significant increases in volatility would result in a higher fair value measurement (Level 3 in the fair value hierarchy). Embedded Derivatives — The Company identified and evaluated a number of embedded features in the notes issued under the Facility Agreement to determine if they represented embedded derivatives that are required to be separated from the notes and accounted for as freestanding instruments. The Company analyzed the Tranche B notes and identified embedded derivatives, which required separate accounting. However, all of the embedded derivatives were determined to have a de minimis value at September 30, 2017 and December 31, 2016.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration