3. Fair Value Measurements

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. Assets and liabilities recorded at fair value on a recurring basis in the balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value, and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s cash equivalents, which include money market funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s marketable securities consist of available-for-sale securities and are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data.

In certain cases where there is limited activity or less transparency around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of the contingent consideration liability.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	June 30, 2017
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	52,650	$	—	$	—	$	52,650
U.S. government and agency securities		—		116,114		—		116,114
Corporate debt securities		—		71,222		—		71,222
Commercial paper		—		124,235		—		124,235
Total	$	52,650	$	311,571	$	—	$	364,221
Financial Liabilities:
Contingent consideration related to acquisition	$	—	$	—	$	6,044	$	6,044
Total	$	—	$	—	$	6,044	$	6,044

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	54,318	$	—	$	—	$	54,318
U.S. government and agency securities		—		166,800		—		166,800
Corporate debt securities		—		77,880		—		77,880
Commercial paper		—		49,643		—		49,643
Total	$	54,318	$	294,323	$	—	$	348,641
Financial Liabilities:
Contingent consideration related to acquisition	$	—	$	—	$	4,032	$	4,032
Total	$	—	$	—	$	4,032	$	4,032

The acquisition-date fair value of the contingent consideration liability represents the future consideration that is contingent upon the achievement of specified development milestones for a product candidate. The fair value of the contingent consideration is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 inputs such as anticipated timelines and probability of achieving development milestones. Changes in the fair value of the liability for contingent consideration, except for the impact of foreign currency, will be recognized as research and development expense in the condensed consolidated statements of operations until settlement.

The Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2017 and December 31, 2016. There were no transfers between the fair value measurement category levels during any of the periods presented.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

	Contingent Consideration
Balance at December 31, 2016	$	4,032
Net change in fair value upon remeasurement		1,636
Foreign currency impact on contingent consideration		376
Balance at June 30, 2017	$	6,044

The following tables summarize the estimated value of the Company’s cash, cash equivalents and marketable securities and the gross unrealized holding gains and losses (in thousands):

	June 30, 2017
	Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	13,022	$	—	$	—		$	13,022
Money market funds		52,650		—		—			52,650
U.S. government and agency securities		40,735		1		(1	)		40,735
Commercial paper		77,408		—		—			77,408
Total cash and cash equivalents	$	183,815	$	1	$	(1	)	$	183,815
Marketable securities:
U.S. government and agency securities	$	75,457	$	—	$	(78	)	$	75,379
Corporate debt securities		71,284		—		(62	)		71,222
Commercial paper		46,827		—		—			46,827
Total marketable securities	$	193,568	$	—	$	(140	)	$	193,428

	December 31, 2016
	Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	13,265	$	—	$	—		$	13,265
Money market funds		54,318		—		—			54,318
Commercial paper		7,349		—		—			7,349
Total cash and cash equivalents	$	74,932	$	—	$	—		$	74,932
Marketable securities:
U.S. government and agency securities	$	166,854	$	7	$	(61	)	$	166,800
Corporate debt securities		77,967		—		(87	)		77,880
Commercial paper		42,294		—					42,294
Total marketable securities	$	287,115	$	7	$	(148	)	$	286,974

The amortized cost and estimated fair value of the Company’s available-for-sale marketable securities by contractual maturity are summarized below as of June 30, 2017 (in thousands):

	Amortized cost		Estimated Fair Value
Mature in one year or less	$	193,568	$	193,428
Total available-for-sale marketable securities	$	193,568	$	193,428