Fair value measurements

12 Months Ended

Dec. 31, 2015

4. Fair value measurements

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2015 and 2014 (in thousands):

Description	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2015
Assets:
Cash and cash equivalents	$	164,269	$	158,269	$	6,000	$	—
Marketable securities:
U.S. government agency securities and treasuries		687,147		—		687,147		—
Certificates of deposit		14,347		—		14,347		—
Total assets	$	865,763	$	158,269	$	707,494	$	—
Liabilities:
Contingent consideration	$	8,665	$	—	$	—	$	8,665
Total liabilities	$	8,665	$	—	$	—	$	8,665
December 31, 2014
Assets:
Cash and cash equivalents	$	347,845	$	347,845	$	—	$	—
Marketable securities:
U.S. government agency securities		131,536		—		131,536		—
Certificates of deposit		12,622		—		12,622		—
Total assets	$	492,003	$	347,845	$	144,158	$	—
Liabilities:
Contingent consideration	$	6,796	$	—	$	—	$	6,796
Total liabilities	$	6,796	$	—	$	—	$	6,796

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. As of December 31, 2015, cash and cash equivalents comprise funds in cash, money market accounts, U.S. Treasury securities and federally insured deposits. As of December 31, 2014, cash and cash equivalents comprise funds in cash and money market accounts.

Marketable securities

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At December 31, 2015 and 2014, the balance in the Company’s accumulated other comprehensive loss was composed solely of activity related to the Company’s available-for-sale marketable securities. There were no realized gains or losses recognized on the maturity of available-for-sale securities during the years ended December 31, 2015 or 2014, and as a result, the Company did not reclassify any amount out of accumulated other comprehensive income (loss) for the same periods.

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2015 and 2014 was $638.1 million and $134.4 million, respectively. As of December 31, 2015 and 2014, there were no securities held by the Company in an unrealized loss position for more than twelve months. The Company has the intent and ability to hold such securities until recovery. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of December 31, 2015 and 2014.

Contingent consideration

In connection with the acquisition of Pregenen, the Company recorded contingent consideration pertaining to the amounts potentially payable to Pregenen’s former equityholders pursuant to the Stock Purchase Agreement by and among the Company, Pregenen and Pregenen’s former equityholders. Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the consolidated statements of operations and comprehensive loss.

Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the 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 could result in materially different fair value estimates.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of preclinical, clinical and commercial milestones, the period in which these milestones are expected to be achieved ranging from 2016 to 2026 and discount rates ranging from 9.5% to 13.5%. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in these other inputs would result in a significantly lower or higher fair value measurement, respectively.

The table below provides a roll-forward of fair value of the Company’s contingent consideration obligations which include Level 3 inputs (in thousands):

	Year ended December 31,
	2015			2014
Beginning balance	$	6,796		$	—
Additions		—			6,550
Changes in fair value		2,869			246
Payments		(1,000	)		—
Ending balance	$	8,665		$	6,796

As of December 31, 2015 and 2014, $3.6 million and $0.5 million, respectively, of the fair value of the Company’s total contingent consideration obligations was reflected as components of accrued expenses and other current liabilities within the consolidated balance sheets, with the remaining balances of $5.1 million and $6.3 million, respectively, reflected as a non-current liability. A $1.0 million milestone under the Stock Purchase Agreement was achieved and paid to the former equityholders of Pregenen during 2015. Please refer to Note 8, “Commitments and contingencies,” for further information.

- 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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