Fair Value Measurements

3 Months Ended

Mar. 31, 2015

9.	Fair Value Measurements

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. We follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

· Level 1: Quoted prices in active markets for identical assets or liabilities.

· Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

· Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

The following table provides a summary of the recognized assets and liabilities that we measure at fair value on a recurring basis:

	Balance as of March 31, 2015		Basis of Fair Value Measurements
	Balance as of March 31, 2015		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	6,144,000	$	6,144,000	$	—	$	—
Liabilities:
Warrant liability	$	25,237,000	$	—	$	—	$	25,237,000

	Balance as of December 31, 2014		Basis of Fair Value Measurements
	Balance as of December 31, 2014		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	8,144,000	$	8,144,000	$	—	$	—
Liabilities:
Warrant liability	$	9,793,000	$	—	$	—	$	9,793,000

We use quoted market prices to determine the fair value of our cash equivalents, which consist of money market funds that are classified in Level 1 in the fair value hierarchy.

Warrants with exercise price reset features (down-round protection) are accounted for as liabilities, with changes in the fair value included in net loss for the respective periods. Because some of the inputs to our valuation model are either not observable or are not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy.

Our stock price can be volatile and there could be material fluctuations in the value of warrants in the future periods.

The following table summarizes the change in our Level 3 warrant liability value:

Warrant liability	Three months ended March 31, 2015

Beginning balance	$	9,793,000
Change in fair value		15,444,000
Ending balance	$	25,237,000

The main driver for the change in the fair value of warrants was 141% increase in our stock price at March 31, 2015, as compared to the stock price at December 31, 2014.