Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The Company determines the fair value of financial assets and liabilities using three levels of inputs as follows:

Level 1—Inputs which include quoted prices in active markets for identical assets and liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements are as follows as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012 (unaudited)
Description	Level 1		Level 2		Level 3		Total
Money market fund	$	18,088	$	—	$	—	$	18,088
Government-sponsored agencies		—		6,007		—		6,007
Commercial paper		—		32,132		—		32,132
Corporate debt securities		—		71,295		—		71,295
Total assets	$	18,088	$	109,434	$	—	$	127,522

	December 31, 2011
Description	Level 1		Level 2		Level 3		Total
Money market fund	$	41,266	$	—	$	—	$	41,266
Government-sponsored agencies		—		9,044		—		9,044
Commercial paper		—		12,541		—		12,541
Corporate debt securities		—		32,494		—		32,494
Total assets	$	41,266	$	54,079	$	—	$	95,345
Convertible debt from related party	$	—	$	—	$	10,472	$	10,472
Total liabilities	$	—	$	—	$	10,472	$	10,472

When the Company uses observable market prices for identical securities that are traded in less active markets, the Company classifies its marketable debt instruments as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. The Company corroborates non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.

The Company recorded its convertible debt as a liability at fair value, which was estimated at the issuance date using the Probability-Weighted Expected Returns model (PWERM). The PWERM requires inputs such as the expected term of the debt, share price volatility, risk-free interest rate and the likelihood and timing of future equity financing. These assumptions are reviewed each reporting period and changes in the estimated fair value of the convertible note are recognized in interest expense. As of December 31, 2011, the Company estimated the fair value of its convertible debt at approximately $10.5 million. In February 2012, following the completion of the Company’s IPO, all outstanding principal and accrued interest relating to this debt automatically converted into 1,021,490 shares of common stock. The following table shows the change in fair market value of the Company’s liabilities during the nine months ended September 30, 2012 (in thousands):

	Fair Market Value
Convertible debt from related party
Balance as of December 31, 2011	$	10,472
Change in fair market value prior to conversion		794
Balance upon conversion		11,266
Balance as of September 30, 2012	$	—