4. Fair Value of Financial Instruments

Cash, accounts payable and accrued liabilities are carried at cost, which approximates fair value given their short-term nature. Marketable securities and cash equivalents are carried at fair value.

The fair value of financial instruments reflects the amounts that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable, and the third is considered unobservable, as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than those included in Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities 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 measures the fair value of financial assets and liabilities using the highest level of inputs that are reasonably available as of the measurement date. The following tables summarize the fair value of financial assets and liabilities (investments) that are measured at fair value and the classification by level of input within the fair value hierarchy:

	Fair Value Measurements as of June 30, 2014
(in thousands)	Level 1		Level 2		Level 3		Total
Investments:
Money market funds	$	8,840	$	—	$	—	$	8,840
Federal agency securities	—		15,094		—		15,094
Commercial paper	—		10,249		—		10,249
Corporate debt securities	—		24,391		—		24,391
Total investments	$	8,840	$	49,734	$	—	$	58,574

	Fair Value Measurements as of December 31, 2013
(in thousands)	Level 1		Level 2		Level 3		Total
Investments:
Money market funds	$	53,511	$	—	$	—	$	53,511
Federal agency securities	—		12,301		—		12,301
Commercial paper	—		8,249		—		8,249
Corporate debt securities	—		1,961		—		1,961
Total investments	$	53,511	$	22,511	$	—	$	76,022

The Company’s Level 2 investments include U.S. government-backed securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining maturity of the Company’s Level 2 investments as of June 30, 2014 is less than ten months and all of these investments are rated A3/A-/A- or P1/A1/F1, or higher by Moody’s, S&P and Fitch.

The estimated fair value of the notes payable as of June 30, 2014, as measured using Level 3 inputs, approximates the carrying amount as presented on the condensed consolidated balance sheet.