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Fair Value Measurement
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Dec. 31, 2014
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurement |
9. Fair Value Measurement From time to time, the Company invests in marketable securities, which are classified as trading securities and are stated at fair value as determined by quoted market prices. As of December 31, 2014, the Company held $20.0 million in marketable securities, which primarily consisted of a U.S. treasury bill. As of December 31, 2013, the Company did not hold any marketable securities. Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities. The carrying value of the accrued Ovamed Manufacturing Agreement rights license included in both current liabilities and long-term liabilities in the consolidated balance sheets has been recorded at its net present value, which approximates its fair value. The estimated fair value of the Hercules note payable at December 31, 2013, computed using the effective interest rate method, was $13.7 million. The effective interest rate considers the fair value of the warrant issued in connection with the loan, loan issuance costs and the deferred charge. The fair value measurement utilizes inputs that are categorized as Level 3. On March 17, 2014, the Company invested $250,000 for a 35% ownership position in a third-party company developing a laser device to treat migraine headaches. The Company elected the fair value option for recording this investment. In conjunction with this investment, the Company entered into a Purchase Agreement with the third-party company, in which the Company received 13,409,962 Class A Preferred Units, representing 83% of a total 16,091,954 Class A Preferred Units. On April 18, 2014, the Company paid $243,000 for the Option to purchase the exclusive rights to a Phase 2, topical product, 1UO, a third party and paid an additional $50,000 in August 2014 to extend the term of the Option for a total purchase price of $293,000. On September 30, 2014, the Company recognized a loss of $293,000 in connection with the expiration of the Option. As of December 31, 2014 this loss was reflected in the Consolidated Statement of Operations. In September 2014, the Company formed CB Pharma, a blank check company and received 1.1 million insider shares of CB Pharma in exchange for $25,000. In December 2014, CB Pharma closed its IPO, including an over-allotment exercise, and a private placement raising net proceeds of $42.9 million. In connection with the IPO, in a private placement, the Company purchased 265,000 units of CB Pharma at $10.00 per unit. Each unit included 1 ordinary share, one right to receive one-tenth of a ordinary share upon consummation of a business combination and a warrant exercisable for one-half of an ordinary share at $11.50 per share upon the later of a business combination or twelve months from December 12, 2014, and expiring in five years, for an aggregate purchase price of $2.7 million. None of the ordinary shares or units purchased by the Company have liquidation rights. The Company valued their investment in CB Pharma in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and estimated the fair value to be $3.9 million.The value of these ordinary shares and rights were based on the trading prices in January 2015, upon the commencement of CB Pharma’s instruments trading separately. Since the insider shares are restricted through a specified period following a business combination, the “Ghaidarov Model” was utilized to estimate a discount for lack of marketability with the following assumptions: risk free rate of return of 0.1%, the restriction period of approximately one year from a business combination, volatility of 9.3%, and no dividend rate; yielding an underlying value of $2.93 per ordinary share for the insider shares and $2.99 per ordinary share for the private placement units. The rights and warrants were valued utilizing a binomial-lattice model which assumes a volatility of 20.7%, a risk free rate of return of 1.68% and a strike price of $11.50 per share, and applied a probability factor (implied likelihood of a successful business combination occurring within 18 months from the IPO date) arriving at an estimated value of $0.18 for each warrant and $0.30 each right. Based upon the valuation, the Company recorded a change in fair-value of investment of $1.2 million; increasing the fair-value of the investment to $3.9 million as of December 31, 2014. As of December 31, 2014, CB Pharma had net assets, including ordinary shares subject to possible redemption, of approximately $38.0 million. Operations since inception have been insignificant. The Company has a working capital commitment of up to $0.5 million to fund CB Pharma Operations. As of December 31, 2014 the fair value of this commitment was insignificant. The value of the Company’s investment in the third party developing a laser treatment for migraine headaches and the Option were determined based on a valuation which takes into consideration, when applicable, cash received, cost of the investment, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The values at which the Company’s investments are carried on its books are adjusted to estimated fair value at the end of each quarter taking into account general economic and stock market conditions and those characteristics specific to the underlying investments. Based upon these inputs at December 31, 2014, the fair values approximated cost.
The following table classifies into the fair value hierarchy, financial instruments measured at fair value on a recurring basis in the accompanying Consolidated Balance Sheets as of December 31, 2014; at December 31, 2013, the Company had no investments at fair value:
The table below provides a rollforward of the changes in fair value of Level 3 financial instruments for the year ended December 31, 2014:
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