Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

FASB Accounting Standards Codification (ASC) 820-10 “Fair Value Measurements and Disclosures” (ASC 820-10) provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value 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. ASC 820-10 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities consist of money market investments.

Level 2 - Observable inputs other than Level 1 prices, 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 Company’s Level 3 assets and liabilities consist of the put option liability associated with the issuance of the Company’s 2.45% Convertible Notes. The fair value of the put option liability was determined utilizing a probability weighted discounted financial model based on management’s assessment of the likelihood of achievement of certain outcomes.

The following table sets forth the Company’s assets and liabilities that were measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 by level within the fair value hierarchy. As required by ASC 820-10, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability:

Assets and Liabilities	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2013
Assets:
Cash and cash equivalents	$	92,685,912	$	—	$	—	$	92,685,912
Total assets at fair value	$	92,685,912	$	—	$	—	$	92,685,912
Liabilities:
Put Option	$	—	$	—	$	—	$	—
Total liabilities at fair value	$	—	$	—	$	—	$	—

Assets and Liabilities	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of December 31, 2012
Assets:
Cash and cash equivalents	$	2,025,338	$	—	$	—		$	2,025,338
Total assets at fair value	$	2,025,338	$	—	$	—		$	2,025,338
Liabilities:
Put Option	$	—	$	—	$	(30,415	)	$	(30,415	)
Total liabilities at fair value	$	—	$	—	$	(30,415	)	$	(30,415	)

The Company measures the put option liability at fair value based on significant inputs not observable in the market, which causes it to be classified as a Level 3 measurement within the fair value hierarchy. The valuation of the put option liability uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. Changes in the fair value of the put option liability related to updated assumptions and estimates are recognized within the statements of operations.

The put option liability may change significantly as additional data is obtained, impacting the Company’s assumptions regarding probabilities of outcomes used to estimate the fair value of the liability. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

Level 3 Disclosures

The following table provides quantitative information associated with the fair value measurement of the Company’s Level 3 inputs:

	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Put option liability	$	30,415	Probability-adjusted discounted cash flow	Probabilities of success	25% — 45% (35)%
				Periods in which outcomes are expected to be achieved	2013
				Discount rate	12%

The changes in fair value of the Company’s Level 3 put option liability during the six months ended June 30, 2013 were as follows:

	Level 3
Balance at December 31, 2012	$	30,415
Fair value adjustment to put option liability included in other income	(30,415		)
Balance as of June 30, 2013	$	—

For the six months ended June 30, 2013, the changes in the fair value of the put option liability resulted from the expiration of the put option in conjunction with the conversion of half of the principal of the 2.45% convertible note, along with accrued interest, into common stock as a result of the IPO.  The balance of the note will be due upon its maturity in February 2014. No other changes in valuation techniques or inputs occurred during the six months ended June 30, 2013. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the six months ended June 30, 2013.