Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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 June 30, 2016 and December 31, 2015:

	June 30, 2016
(in thousands)	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	8,476	$	—	$	—
Corporate debt securities		—		2,503		—
Total cash equivalents	$	8,476	$	2,503	$	—
Marketable securities:
Commercial paper	$	—	$	20,979	$	—
Corporate debt securities		—		21,200		—
U.S. government agency securities		—		18,997		—
Total marketable securities	$	—	$	61,176	$	—

	December 31, 2015
(in thousands)	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	704	$	—	$	—
Total cash equivalents	$	704	$	—	$	—

There were no changes in valuation techniques or transfers between the fair value measurement levels during the three or six months ended June 30, 2016 or during the year ended December 31, 2015. There were no liabilities measured at fair value on a recurring basis as of June 30, 2016 or December 31, 2015.

Non-Recurring Fair Value Measurements

Certain assets, including in-process research and development intangible assets, 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 three or six months ended June 30, 2016 or 2015.

Other Fair Value Measurements

The estimated fair value of the Convertible Notes was $70.5 million as of June 30, 2016. 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 $45.0 million as of June 30, 2016 due to the bifurcation of the conversion feature of the Convertible Notes as described more fully in Note 10, “Borrowings.”

As discussed in Note 10, “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 Company estimated the fair value of the 2022 Notes by using publicly-available information related to one of the 2022 Notes borrower’s portfolio of debt investments based on unobservable inputs, which is classified as a Level 3 input. The estimated fair value of the 2022 Notes was $168.3 million as of June 30, 2016. The carrying value of the 2022 Notes was $169.5 million as of June 30, 2016.

As discussed in Note 10, “Borrowings,” Silver Creek issued $1.0 million of convertible promissory notes (the “Silver Creek Notes”) in May 2016. The Company estimated the fair value of the Silver Creek Notes using a probability-weighted valuation based upon the likelihood of Silver Creek Notes being converted to shares of Silver Creek equity, which is classified as a Level 3 input. The estimated fair value of the Silver Creek Notes was $1.0 million as of June 30, 2016. The carrying value of the Silver Creek Notes was also $1.0 million as of June 30, 2016.