Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

6. Fair Value of Financial Instruments

The carrying values of cash, restricted cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, and other short-term assets and liabilities approximate their respective fair values due to the short-term maturities of these assets and liabilities.

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. As a basis for considering such assumptions, GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used to develop the assumptions and for measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Recurring Fair Value Measurements

The following tables show assets measured at fair value on a recurring basis as of December 31, 2015 and 2014 and the input categories associated with those assets:


As of December 31, 2015 (in thousands)	Level 1		Level 2		Level 3
Assets:
Cash equivalents – money market funds	$	704	$	—	$	—
Marketable securities – commercial paper		—		—		—
Marketable securities – corporate debt securities		—		—		—

As of December 31, 2014 (in thousands)	Level 1		Level 2		Level 3
Assets:
Cash equivalents – money market funds	$	33,199	$	—	$	—
Marketable securities – commercial paper		—		6,491		—
Marketable securities – corporate debt securities		—		81,849		—

There have been no impairments of the above assets measured and carried at fair value during the years ended December 31, 2015 or 2014. In addition, there were no changes in valuation techniques or transfers between the fair value measurement levels during the years ended December 31, 2015 or 2014.

There were no liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014.

Non-Recurring Fair Value Measurements

Certain assets, including IPR&D, may be measured at fair value on a non-recurring basis in periods subsequent to initial recognition. No non-recurring fair value measurements were required during the years ended December 31, 2015 or 2014.

Other Fair Value Measurements

The estimated fair value of the $125.0 million aggregate principal amount of the Convertible Notes was $184.6 million as of December 31, 2015. The Company estimated the fair value of the Convertible Notes by using a quoted market rate in an inactive market, which is classified as a Level 2 input. The carrying value of the Convertible Notes is $88.5 million as of December 31, 2015 due to the bifurcation of the conversion feature of the Convertible Notes as described more fully in Note 11, “Borrowings.”

As discussed in Note 11, “Borrowings,” in December 2015, the Company closed a private placement of $175.0 million aggregate principal amount of 11.50% senior secured notes due 2022 (the “2022 Notes”). The carrying value of the 2022 Notes was $169.2 million as of December 31, 2015. The fair value of the 2022 Notes approximated their face value of $175.0 million as of December 31, 2015.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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