Fair value measurements

9 Months Ended

Sep. 30, 2011

Fair value measurements [Abstract]

Fair value measurements

2.     Fair value measurements  

The Company measures and records cash equivalents and investment securities considered available-for-sale at fair value in the accompanying financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value include: 

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

Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 —Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and      assumptions that reflect those that a market participant would use.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:

	At September 30, 2011
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)		$	85,893	$	-	$	-	$	85,893
U.S. Treasury securities (2)			-		3,499		-		3,499
Total assets		$	85,893	$	3,499	$	-	$	89,392
Liabilities:
Contingent value rights		$	-	$	-	$	15,857	$	15,857
Total liabilities		$	-	$	-	$	15,857	$	15,857
	At December 31, 2010
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)		$	102,360	$	-	$	-	$	102,360
U.S. Treasury securities (2)			-		2,029		-		2,029
Total assets		$	102,360	$	2,029	$	-	$	104,389
Liabilities:
Contingent value rights		$	-	$	-	$	14,532	$	14,532
Total liabilities		$	-	$	-	$	14,532	$	14,532

(1)                    Included in cash and cash equivalents in accompanying consolidated balance sheets.

(2)                    Included in investments in accompanying consolidated balance sheets.

The fair value of U.S. Treasury securities (Level 2) is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

The fair value of the Contingent Value Right (“CVR”) obligations is based on management’s assessment of certain development and collaboration milestones, which are inputs that have no observable market (Level 3).  The obligation is measured using a discounted cash flow model. For the three and nine months ended September 30, 2011, the changes in the fair value of the CVR obligations resulted from an adjustment to the discount rates along with an update to the probability and estimated timing of achievement for certain development milestones.  For the three months ended September 30, 2011, the Company recorded a reduction of $84,000 in the value for the CVRs. For the nine months ended September 30, 2011, the Company recorded a charge of $1.3 million to increase the CVRs to fair value. These adjustments to fair value are classified in the Company’s statement of operations as research and development expense within the Company’s biosciences segment.

The following table is a reconciliation of the beginning and ending balance of the liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2011. There were no Level 3 assets or liabilities at September 30, 2010.

(in thousands)
Balance at January 1, 2010	$	-
Fair value of CVRs issued		14,532
Expense (income) included in earnings		-
Purchases, sales, issuances and settlements		-
Transfers in/(out) of Level 3		-
Balance at December 31, 2010	$	14,532
Expense (income) included in earnings		1,325
Purchases, sales, issuances and settlements		-
Transfers in/(out) of Level 3		-
Balance at September 30, 2011	$	15,857

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis, as documented above, from those measured at fair value on a nonrecurring basis.  As of September 30, 2011 and December 31, 2010, the Company had no assets or liabilities that were measured at fair value on a nonrecurring basis.

The carrying amounts of the Company’s short-term financial instruments, which include cash, accounts receivable and accounts payable, approximate their fair values due to their short maturities. The fair value of the Company’s long-term indebtedness is estimated based on the quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Both the carrying value and fair value of long-term indebtedness at September 30, 2011 was $53.8 million.  The carrying value and fair value of long-term indebtedness was $48.3 million and $48.1 million, respectively, at September 30, 2010.