Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value of Financial Instruments

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

• Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

• 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.

Cash equivalents and marketable securities classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers and internal assumptions of the independent pricing services. The Company corroborates the reasonableness of non-binding quotes received from the independent pricing services by comparing them to quotes of identical or similar instruments from other pricing sources. During the years ended December 31, 2012, 2011 and 2010, the Company did not record impairment charges related to its cash equivalents and marketable securities, and the Company did not have any transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy.

The following table presents the Company’s financial instruments that were measured at fair value on a recurring basis as of December 31, 2012 by level within the fair value hierarchy (in thousands):

	December 31, 2012
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	25,781	$	2,829	$	—	$	28,610
Marketable securities—available-for-sale		1,997		116,190		—		118,187
Total	$	27,778	$	119,019	$	—	$	146,797
Financial Liability								—
Warrant liability	$	—	$	—	$	835	$	835

The change in the value of the warrant liability is summarized below (in thousands):

Fair value at December 31, 2011	$	—
Fair value of warrant on measurement date		7,705
Change in fair value recorded as a gain from change in fair value of warrant liability		(2,284	)
Reclassification to additional paid-in capital upon vesting of warrants		(4,586	)
Fair value at December 31, 2012	$	835

The valuation of the warrant liability above is discussed in Note 7.

The following table presents the Company’s financial instruments that were measured at fair value on a recurring basis as of December 31, 2011 by level within the fair value hierarchy (in thousands):

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	17,160	$	6,145	$	—	$	23,305
Marketable securities—available-for-sale		7,023		207,921		—		214,944
Total	$	24,183	$	214,066	$	—	$	238,249

The change in the value of the warrant liability is summarized below (in thousands):

Fair value at December 31, 2010	$	2,961
Change in fair value recorded as a loss from change in fair value of warrant liability		3,637
Conversion of preferred stock warrants to common stock or common stock warrants		(6,598	)
Fair value at December 31, 2011	$	—

The Company has estimated the fair value of its secured and unsecured debt obligations based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other factors. As of December 31, 2012 and 2011, the carrying values of the Company’s secured and unsecured debt obligations approximated their fair values.

The Company had no transactions measured at fair value on a nonrecurring basis as of December 31, 2012 and 2011.