NOTE 2. CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES, LONG-TERM

Securities classified as cash and cash equivalents, short-term investments and marketable securities, long-term as of June 30, 2016 and December 31, 2015 are summarized below (in thousands). Estimated fair value is based on quoted market prices for these investments.


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2016	Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	74,567	$	—	$	—	$	74,567
Money market funds		33		—		—		33
Corporate Securities and Commercial paper		13,221		—		—		13,221
Total cash and cash equivalents	$	87,821	$	—	$	—	$	87,821
Short-term investments
Corporate debt securities and Commercial paper with maturities less than 1 year	$	29,922	$	6	$	(3)	$	29,925
Marketable securities, long-term
Corporate debt securities with maturities between 1 and 2 years		1,185		—		(1)		1,184
Total available-for-sale securities	$	31,107	$	6	$	(4)	$	31,109
Total	$	118,928	$	6	$	(4)	$	118,930


			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	65,600	$	—	$	—	$	65,600
Money market funds		64		—		—		64
Corporate Securities and Commercial paper		35,420		—		—		35,420
Total cash and cash equivalents	$	101,084	$	—	$	—	$	101,084
Short-term investments
Corporate debt securities	$	108,717	$	1	$	(34)	$	108,684
Total available-for-sale securities	$	108,717	$	1	$	(34)	$	108,684
Total	$	209,801	$	1	$	(34)	$	209,768

The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and corporate debt securities. The Company invests its cash in marketable securities, U.S. Treasury and government agency securities, and high quality securities of financial and commercial institutions. To date, the Company has not experienced material losses on any of its balances. These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in “accumulated other comprehensive loss” within shareholders’ equity on the Condensed Consolidated Balance Sheets. The Company uses the specific identification method to determine the amount of realized gains or losses on sales of marketable securities. Realized gains or losses have been insignificant and are included in “interest and other income” in the Condensed Consolidated Statement of Operations.

At June 30, 2016, the Company had eight securities in an unrealized loss position. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2016 (in thousands):


	Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Corporate debt securities	$	9,054	$	(4)	$	—	$	—	$	9,054	$	(4)

The gross unrealized losses above were caused by interest rate increases. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the securities held by the Company. Based on the Company’s review of these securities, including the assessment of the duration and severity of the unrealized losses and the Company’s ability and intent to hold the investments until maturity, there were no material other-than-temporary impairments for these securities at June 30, 2016. For debt securities, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company utilizes the following fair value hierarchy based on three levels of inputs:

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

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):


June 30, 2016	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	33	$	—	$	—	$	33
Commercial paper		—		17,386		—		17,386
Corporate debt securities		26,944		—		—		26,944
US Treasury securities		—		—		—		—
Total	$	26,977	$	17,386	$	—	$	44,363
Liabilities:
Contingent consideration—Zipsor	$	—	$	—	$	1,241	$	1,241
Contingent consideration—Lazanda		—		—		12,156		12,156
Contingent consideration—CAMBIA		—		—		1,501		1,501
	$	—	$	—	$	14,898	$	14,898


December 31, 2015	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	64	$	—	$	—	$	64
Commercial paper		—		56,383		—		56,383
Corporate debt securities		44,956		—		—		44,956
US Treasury securities		42,765		—				42,765
Total	$	87,785	$	56,383	$	—	$	144,168
Liabilities:
Contingent consideration—Zipsor	$	—	$	—	$	1,504	$	1,504
Contingent consideration—Lazanda		—		—		12,002		12,002
Contingent consideration—CAMBIA		—		—		1,465		1,465
	$	—	$	—	$	14,971	$	14,971

The fair value measurement of the contingent consideration obligations arises from the Zipsor, CAMBIA and Lazanda acquisitions and relates to fair value of the potential future milestone payments and royalties payable under the respective agreements which are determined using Level 3 inputs. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones and royalties being achieved. At each reporting date, the Company re-measures the contingent consideration obligation arising from the above acquisitions to their estimated fair values. Any changes in the fair value of contingent consideration resulting from a change in the underlying inputs are recognized in operating expenses until the contingent consideration arrangement is settled. Changes in the fair value of contingent consideration resulting from the passage of time are recorded within interest expense until the contingent consideration is settled. The table below provides a summary of the changes in fair value recorded in interest expense and selling, general and administrative expense for the six months ended June 30, 2016:


					Changes in
					fair value
			Changes in		recorded in
			fair value		selling,
	Balance at		recorded in		general and				Balance at
	December 31,		interest		administrative		Royalties		June 30,
	2015		expense		expense		paid		2016
Liabilities:
Contingent consideration obligations—Zipsor	$	1,504	$	69	$	(332)	$	—	$	1,241
Contingent consideration obligations—Lazanda		12,002		1,009		125		(980)		12,156
Contingent consideration obligations—CAMBIA		1,465		116		(80)		—		1,501
Total	$	14,971	$	1,194	$	(287)	$	(980)	$	14,898

The estimated fair value of the 2.50% Convertible Senior Notes Due 2021, which the Company issued on September 9, 2014 is based on a market approach. The estimated fair value, based on quoted market prices of the Company’s debt, was approximately $379.5 million and $395.0 million (par value $345.0 million) as of June 30, 2016 and December 31, 2015, respectively, and represents a Level 2 valuation.