Fair Value Measurements

9 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

5. Fair Value Measurements

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

• Level 2 – Inputs are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities with insufficient volume or infrequent transaction (less active markets).

• Level 3 – Inputs are unobservable estimates that are supported by little or no market activity and require the Company to develop its own assumptions about how market participants would price the assets or liabilities.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities. At March 31, 2012 and June 30, 2011, substantially all of the Company's interest-bearing cash equivalent balances were concentrated in one institutional money market fund that has investments consisting primarily of certificates of deposit, commercial paper, time deposits, U.S. government agencies, treasury bills and treasury repurchase agreements. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

The Company's cash equivalents and marketable securities are classified within Level 1 or Level 2 on the basis of valuations using quoted market prices or alternative pricing sources and models utilizing market observable inputs, respectively. Certain of the Company's corporate debt securities were valued based on quoted prices for the specific securities in an active market and were therefore classified as Level 1. The remaining marketable securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services' pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security, and have been classified as Level 2. The Company's derivative liabilities are classified as Level 3 and valued using the Black-Scholes model.

The following table summarizes the Company's assets and liabilities carried at fair value measured on a recurring basis at March 31, 2012 and June 30, 2011 by valuation hierarchy:

	March 31, 2012
	Total Carrying Value at March 31, 2012		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable  inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents	$	6,091	$	6,091	$	—	$	—
Marketable securities
Corporate bonds		5,691		3,925		1,766		—
U.S. Government obligations		750		—		750		—
Commercial paper		2,697		—		2,697		—
Certificates of deposit		949		—		949		—
	$	16,178	$	10,016	$	6,162	$	—
Liabilities:
Derivative liabilities	$	—	$	—	$	—	$	—

	June 30, 2011
	Total Carrying Value at June 30, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents	$	8,678	$	8,678	$	—	$	—
Marketable securities
Corporate bonds		7,312		5,792		1,520		—
U.S. Government obligations		1,205		—		1,205		—
Commercial paper		2,699		—		2,699		—
	$	19,894	$	14,470	$	5,424	$	—
Liabilities:
Derivative liabilities	$	170	$	—	$	—	$	170

The Company's derivative liabilities were classified as Level 3 and valued using the Black-Scholes model. At March 31, 2012 and June 30, 2011, the fair values were derived by applying the following assumptions:

	March 31, 2012		June 30, 2011
Expected term (in years)		0.30		1.05
Stock volatility		90%		95%
Risk-free interest rate		0.08%		0.19%
Expected dividends		0%		0%

The reconciliation of the Company's liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2012		2011		2012		2011
	(In thousands)
Balance at beginning of period	$	—	$	514	$	170	$	1,310
Change in fair value of derivative -other income		—		334		170		1,130
Balance at end of period	$	—	$	180	$	—	$	180

At December 31, 2011, the Company recorded a $14.8 million intangible asset impairment charge related to its Durasert and BioSilicon technologies (see Note 3). These fair value measurements were determined using a combination of market-based and income-based valuation methodologies, which incorporate unobservable inputs, thereby classifying the fair value as a level 3 measurement within the fair value hierarchy. The primary input used in the market-based approach was a 15% control premium that the Company estimated would be used by a market participant in valuing these assets. The primary inputs used in the income-based approach included after-tax weighted average cost of capital rates ranging from 10% to 20% that the Company estimated would be used by a market participant.

The following table summarizes the Company's assets carried at fair value measured on a nonrecurring basis at December 31, 2011 and the losses recorded for the six month period then ended:

	December 31, 2011
	Total Carrying Value at December 31, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total Losses
	(In thousands)
Finite-lived intangible assets	$	4,596	$	—	$	—	$	4,596	$	14,830

There was no fair value measurement on a non-recurring basis at March 31, 2012.