Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.6.0.2
Fair Value Measurement
12 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurement

NOTE 2 –FAIR VALUE MEASUREMENT

The Company measures certain assets and liabilities at fair value on a recurring basis, including cash equivalents, available-for-sale securities and the contingent consideration liability. The fair value is determined based on a three-tier hierarchy under the authoritative guidance for fair value measurements and disclosures that prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; and

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The fair value measurements of cash equivalents, available-for-sale securities and the contingent consideration liability are identified at the following levels within the fair value hierarchy (in thousands):

 

 

 

December 31, 2016

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,992

 

 

$

18,992

 

 

$

 

 

$

 

Total

 

 

18,992

 

 

 

18,992

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

23,185

 

 

 

 

 

 

23,185

 

 

 

 

Corporate debt securities

 

 

10,004

 

 

 

 

 

 

10,004

 

 

 

 

U.S. government sponsored entity debt securities

 

 

87,285

 

 

 

 

 

 

87,285

 

 

 

 

Total

 

 

120,474

 

 

 

 

 

 

120,474

 

 

 

 

Total cash equivalents and marketable securities

 

$

139,466

 

 

$

18,992

 

 

$

120,474

 

 

$

 

 

 

 

December 31, 2015

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

25,070

 

 

$

25,070

 

 

$

 

 

$

 

Commercial paper securities

 

 

2,000

 

 

 

2,000

 

 

 

 

 

 

 

U.S. government sponsored entity debt securities

 

 

38,867

 

 

 

38,867

 

 

 

 

 

 

 

Total

 

 

65,937

 

 

 

65,937

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

30,717

 

 

 

 

 

 

30,717

 

 

 

 

Corporate debt securities

 

 

17,263

 

 

 

 

 

 

17,263

 

 

 

 

U.S. government sponsored entity debt securities

 

 

91,538

 

 

 

 

 

 

91,538

 

 

 

 

Total

 

 

139,518

 

 

 

 

 

 

139,518

 

 

 

 

Total cash equivalents and marketable securities

 

$

205,455

 

 

$

65,937

 

 

$

139,518

 

 

$

 

 

Investments

The Company generally classifies its marketable securities as Level 2. Instruments are classified as Level 2 when observable market prices for identical securities that are traded in less active markets are used. When observable market prices for identical securities are not available, such instruments are priced using benchmark curves, benchmarking of like securities, sector groupings, matrix pricing and valuation models. These valuation models are proprietary to the pricing providers or brokers and incorporate a number of inputs, including, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. For certain security types, additional inputs may be used, or some of the standard inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on any given day.

Contingent Consideration Liability

In August 2013 the Company acquired Ceregene and recorded a liability for the estimated fair value of contingent consideration payments to former Ceregene stockholders, as outlined under the terms of the merger agreement with Ceregene. These contingent payments are owed if the Company grants a third-party license to develop and commercialize certain product candidates acquired from Ceregene, or if the Company commercializes any of such product candidates itself. The fair value of this liability is estimated using a probability-weighted discounted cash flow analysis. Such valuations require significant estimates and assumptions including but not limited to: determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows and developing appropriate discount rates. The Company has classified this liability as Level 3.

Subsequent changes in the fair value of this contingent consideration liability are recorded to the research and development expense line item in the accompanying consolidated statements of operations as operating expenses. During the year ended December 31, 2015, the recognized amount of the liability for contingent consideration decreased by $1.8 million due to the decrease in the probability of incurring potential future royalty payments associated with the impairment of IPR&D assets acquired from Ceregene (see Note 6).

The following sets forth the changes in the estimated fair value for our contingent consideration liability classified as Level 3 (in thousands):

 

Fair value as of December 31, 2014

 

 

1,800

 

Change in fair value

 

 

(1,800

)

Fair value as of December 31, 2015

 

 

 

Change in fair value

 

 

 

Fair value as of December 31, 2016

 

$