Fair Value on Financial Instruments

12 Months Ended

Dec. 31, 2015

Fair Value on Financial Instruments

Note 3. Fair Value on Financial Instruments

The Company uses certain assumptions that market participants would use to determine the fair value of an asset or liability in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

• Level 1: Quoted prices in active markets for identical instruments

• Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)

• Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

To estimate the fair value of Level 2 debt securities as of December 31, 2015, the Company’s primary service relies on inputs from multiple industry-recognized pricing sources to determine the price for each investment. Corporate debt and U.S. government agency securities are systematically priced by this service as of the close of business each business day. If the primary pricing service does not price a specific asset a secondary pricing service is utilized.

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2015 (in thousands):

	Balance sheet classification	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	Cash and cash equivalents	$	59,302	$	59,302	$	—	$	—
Corporate debt securities	Short-term investments		25,698		—		25,698		—
Marketable equity securities	Marketable equity securities		11,163		11,163		—		—
Total financial assets		$	96,163	$	70,465	$	25,698	$	—

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2014 (in thousands):

	Balance sheet classification	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	Cash and cash equivalents	$	3,912	$	3,912	$	—	$	—
Corporate debt securities	Short-term investments		26,088		—		26,088		—
United States government agency securities	Short-term investments		3,426		—		3,426		—
Total financial assets		$	33,426	$	3,912	$	29,514	$	—
Warrant liability	Warrant liability	$	10,485	$	—	$	—	$	10,485
Total financial liabilities		$	10,485	$	—	$	—	$	10,485

A reconciliation of the beginning and ending balances for the warrant liability using significant unobservable inputs (Level 3) from December 31, 2013 to December 31, 2015, was as follows (in thousands):

Balance at December 31, 2013	$	20,390
Decrease in fair value of warrants		(7,708	)
Settlement of warrants exercised		(2,197	)
Balance at December 31, 2014		10,485
Decrease in fair value of warrants		(3,566	)
Settlement of warrants exercised		(6,919	)
Balance at December 31, 2015	$	—

See Notes 2 and 12 for further information regarding the Company’s valuation techniques and unobservable inputs for the warrant liability using significant unobservable inputs (Level 3).

The Company did not have any transfers among fair value measurement levels during the years ended December 31, 2015 and 2014.