4. Fair Value Measurements

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017:

 

		Fair Value Measurement as of September 30, 2018
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	10,237,703			$	—			$	—
Marketable securities			26,645,137				—				—
Warrant liabilities			—				—				35,379,814
Total		$	36,882,840			$	—			$	35,379,814
		Fair Value Measurement as of December 31, 2017
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	5,949,477			$	—			$	—
Marketable securities			39,858,864				—				—
Warrant liabilities			—				—				13,549,437
Total		$	45,808,341			$	—			$	13,549,437

The Company issued a warrant to the representative of the underwriter of its initial public offering (the “Representative’s Warrant”). The Company determined that this warrant should be classified as a liability and considers it as a Level 3 financial instrument (see also Note 7, “Capital Structure”). The Representative’s Warrant is re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black- Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2018				As of December 31, 2017
Expected volatility			64.0	%			88.1	%
Remaining contractual term (in years)			0.92				1.67
Risk-free interest rate			2.59	%			1.89	%
Expected dividend yield			—	%			—	%

The Company issued warrants to the purchasers of its 2016 Offering (the “2016 Warrants”), The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 7, “Capital Structure”). The 2016 Warrants are re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2018				As of December 31, 2017
Expected volatility			82.6	%			80.3	%
Remaining contractual term (in years)			2.83				3.58
Risk-free interest rate			2.88	%			2.09	%
Expected dividend yield			—	%			—	%

 

The Company issued warrants to the purchasers of its 2017 Offering (the “2017 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 7, “Capital Structure”). The 2017 Warrants are re-measured at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

		As of September 30, 2018				As of December 31, 2017
Expected volatility			87.0	%			81.5	%
Remaining contractual term (in years)			3.83				4.58
Risk-free interest rate			2.91	%			2.20	%
Expected dividend yield			—	%			—	%

The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2018 and 2017:

Warrant liabilities

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Balance at beginning of period		$	38,626,579			$	9,581,916			$	13,549,437			$	12,698,980
Issuance of warrants			—				12,383,435				—				12,383,435
(Decrease) increase in fair value (1)			(3,246,765	)			(5,941,144	)			21,830,377				(9,058,208	)
Balance at end of period		$	35,379,814			$	16,024,207			$	35,379,814			$	16,024,207

 

(1)	The change in fair values of the warrant liabilities is recorded in other income (expense) in the consolidated statement of operations.

The key inputs into the Black-Scholes option pricing model are the current per-share value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities.