Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 6 — Fair Value Measurements

We value our financial assets and liabilities at fair value, defined as the price that would be received for assets when sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

We primarily apply the market approach for recurring fair value measurements and endeavors to utilize the best information reasonably available. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and consider the security issuers’ and the third-party issuers’ credit risk in our assessment of fair value.

We classify fair value based on the observability of those inputs using a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement):

Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or through corroboration with observable market data; and

Level 3 — Unobservable inputs, for which there is little or no market data for the assets or liabilities, such as internally-developed valuation models.

Fair value of financial assets:

Financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 are classified in the table below in one of the three categories described above (in thousands):

	September 30, 2018
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Assets At Fair Value
Assets:
Money market funds	$	26,353	$	—	$	—	$	26,353
U.S. Treasury securities		79,392		—		—		79,392
Agency bonds		—		27,666		—		27,666
Commercial paper		—		62,856		—		62,856
Corporate obligations		—		13,879		—		13,879
	$	105,745	$	104,401	$	—	$	210,146

	December 31, 2017
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Assets At Fair Value
Assets:
Money market funds	$	51,001	$	—	$	—	$	51,001
U.S. Treasury securities		165,801		—		—		165,801
Agency bonds		—		54,329		—		54,329
Equity securities		573		—		—		573
	$	217,375	$	54,329	$	—	$	271,704

The carrying amount of our accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments.

Fair value of financial liabilities:

As of September 30, 2018 and December 31, 2017, the fair value of the long-term debt approximated its carrying value of $41.9 million and $31.7 million, respectively, because it is carried at a market observable interest rate, which is considered Level 2.

As of September 30, 2018, the fair value of liability related to the sale of future royalties is based on our current estimates of future royalties expected to be paid to RPI Finance Trust (“RPI”), an entity related to Royalty Pharma, over the life of the arrangement, which are considered Level 3 (See Note 9 – “Liability Related to Sale of Future Royalties”).

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented.