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Note H - Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2016
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
H.
 Fair Value of Financial Instruments
 
The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash and accounts payable
, approximate their respective fair values due to the short-term nature of such instruments.
 
The fair value of the Deerfield Convertible Notes and the 2021 Notes was $8.5 million and 
$48.0 million, respectively, at June 30, 2016. Both the Deerfield Convertible Notes and the 2021 Notes fall within Level 3 of the fair value hierarchy as their value is based on the credit worthiness of the Company, which is an unobservable input.
 
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 judgements t
o be made. The following table summarizes the conclusions reached regarding fair value measurements as of June 30, 2016, and December 31, 2015 (in thousands):
 
   
Balance at
June 30
,
2016
    
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
  
Underwri
ter Warrant liability
   $ 53     $ —     $ —     $ 53  
Deerfield Warrant liability
     5,404       —       —       5,404  
Embedded Put Option
     557       —       —       557  
Fundamental change and make-whole interest provisions embedded in 2021 Notes
     29       —       —       29  
Total liabilities
   $ 6,043     $ —     $ —     $ 6,043  
Trading securities:
                                
Certificates of deposit
     11,911       11,911       —       —  
Government bonds
     62,073       62,073       —       —  
Total assets
   $ 73,984     $ 73,984     $ —     $ —  
 
 
   
Balance at
December 31,
2015
    
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
  
Underwriter Warrant liability
   $ 3,877     $ —     $ —     $ 3,877  
Deerfield Warrant liability
     33,750       —       —       33,750  
Embedded Put Option
     212       —       —       212  
Total liabilities
   $ 37,839     $ —     $ —     $ 37,839  
Trading securities:
                                
Certificates of deposit
     8,951       8,951       —       —  
Government bonds
     10,051       10,051       —       —  
Total assets
   $ 19,002     $ 19,002     $ —     $ —  
 
The Company
’s Underwriter Warrant liability, Deerfield Warrant liability, embedded Put Option, and the fundamental change and the make-whole interest provisions embedded in the 2021 Notes, as well as the trading securities are measured at fair value on a recurring basis. As of June 30, 2016 and December 31, 2015, the Underwriter Warrant liability, Deerfield Warrant liability, and embedded Put Option are reported on the balance sheet in derivative and warrant liability, while the trading securities are reported on the balance sheet in marketable securities and long-term investments. The 2021 Notes were issued during the first quarter of 2016 and the fundamental change and make-whole interest provisions embedded in the 2021 Notes are reported on the balance sheet in derivative and warrant liability. The Company used a Monte Carlo simulation to value the Underwriter Warrant liability and the embedded Put Option at June 30, 2016 and December 31, 2015. A Monte Carlo simulation was also used to value the fundamental change and make-whole interest provisions embedded in the 2021 Notes as of the issuance date and June 30, 2016. Significant unobservable inputs used in measuring the fair value of these financial instruments included the Company’s estimated enterprise value, an estimate of the timing of a liquidity or fundamental change event, a present value discount rate and an estimate of the Company’s stock volatility using the volatilities of guideline peer companies. Changes in the fair value of the Underwriter Warrant liability, the Deerfield Warrant liability, the embedded Put Option and the fundamental change and make-whole interest provisions embedded in the 2021 Notes are reflected in the statements of operations as a fair value adjustment. A 10% increase in the enterprise value would result in an increase of $11,000 in the estimated fair value of the Underwriter Warrant liability, an increase of $0.6 million in the estimated fair value of the Deerfield Warrant liability, an increase of $38,000 in the estimated fair value of the embedded Put Option, and an increase of $7,000 in the estimated fair value of the fundamental change and make-whole interest provisions embedded in the 2021 Notes at June 30, 2016.
 
A reconciliation of the beginning and ending balances for the deriv
ative and warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):
 
   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2016
    
2015
    
2016
    
2015
  
Balance at beginning of period
   $ 27,479     $ 17,728     $ 37,839     $ 15,966  
  Reclassification of 2013 Convertible Notes     —       (1,110 )     —       (1,110 )
Exercise of warrants
     (673 )     —       (755 )     —  
Adjustment to fair value
     (20,763 )     22,661       (31,041 )     24,423  
Balance at end of period
   $ 6,043     $ 39,279     $ 6,043     $ 39,279  
 
From June 2013 through October 2013, the Company issued 10.0% unsecured convertible promissory notes (the “2013 Convertible Notes”). The 2013 Convertible Notes accrued interest from the date of issuance through the maturity date, with such interest payable in cash upon maturity.
The 2013 Convertible Notes did not have a stated maturity date and instead matured under various scenarios, such as the sale of substantially all of the assets of the Company, dissolution of the Company, failure to observe covenants, and voluntary or involuntary bankruptcy. In accordance with the terms of the 2013 Convertible Notes, and effected by the written consent of the holders of a majority of the outstanding principal of such notes, on June 2, 2014, the principal amount of the 2013 Convertible Notes and all accrued interest converted into shares of Series D Preferred. Upon the conversion of the 2013 Convertible Notes, the embedded conversion feature of the 2013 Convertible Notes and Put Option were marked to fair value and recorded in derivative and warrant liability. Upon the IPO, in April 2015, the Company reclassified the 2013 Convertible Notes into equity.