Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Financial Instruments Measured at Fair Value on Recurring Basis by Level within Fair Value Hierarchy

The following tables present the Company’s financial instruments that were measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 by level within the fair value hierarchy (in thousands):



	September 30, 2014
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	20,701	$	6,353	$	—	$	27,054
Marketable securities	1,803		188,073		—		189,876
Total	$	22,504	$	194,426	$	—	$	216,930
Financial Liabilities
Derivative liabilities	$	—	$	—	$	1,660	$	1,660



	December 31, 2013
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	15,683	$	5,869	$	—	$	21,552
Marketable securities	—		112,544		—		112,544
Total	$	15,683	$	118,413	$	—	$	134,096
Financial Liability
Derivative liability	$	—	$	—	$	5,914	$	5,914
Warrant liability	—		—		688		688
Total	$	—	$	—	$	6,602	$	6,602

Summary of Level 3 Inputs to Monte Carlo

The following tables set forth the Level 3 inputs to the Monte Carlo simulation models that were used to determine the fair values of the embedded derivatives for the Notes:



Constant Inputs	2018 Notes		2019 Notes
Conversion rate	121.1240		75.7576
Conversion price	$	8.26	$	13.20
Maturity date of the Notes	February 1, 2018		October 1, 2019
Maturity date of early payment feature	November 1, 2016		January 1, 2018



Variable Inputs	September 30, 2014			April 1, 2014			December 31, 2013
	Notes			2019 Notes			2018 Notes
Stock price	$	7.46		$	11.79		$	10.89
Risk-free interest rate	N/A			N/A			1.31		%
Estimated credit spread	890 basis points			960 basis points			N/A
Estimated stock volatility	55		%	53		%	50		%

Estimated fair value of the embedded derivatives

Changes in certain inputs into the model can have a significant impact on changes in the estimated fair values of the embedded derivatives. The following table sets forth the estimated fair values of the embedded derivatives (in thousands):



	September 30, 2014		April 1, 2014		December 31, 2013
2018 Notes	$	815	N/A		$	5,914
2019 Notes	$	845	$	3,903	N/A

Change in Value of Warrant and Derivative Liability Unobservable Inputs Financial Instrument Reconciliation

The following table presents the change in fair values of the Company’s Level 3 financial instruments that were measured on a recurring basis using significant unobservable inputs as of September 30, 2014 (in thousands):




Fair value at December 31, 2013	$	6,602
Fair value of derivative liability for 2019 Notes recorded on measurement date	3,903
Change in fair value of derivative liabilities of the Notes recorded as a gain	(7,154		)
Adjustment to fair value of derivative liability related to early conversion of the 2018 Notes	(1,003		)
Change in fair value of warrant liability recorded as a gain	(688		)
Fair value at September 30, 2014	$	1,660

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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