Estimated Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Estimated Fair Value of Financial Instruments

Cash Equivalents and Marketable Securities as of:



	(in thousands)
March 31, 2020	Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)		Total
Money Market Funds Note ^(d)	$	502,461	$	—	$	—	$	502,461
Marketable Securities:
U.S. Government Sponsored Agencies	4,325		—		—		4,325
Total	$	506,786	$	—	$	—	$	506,786



	(in thousands)
December 31, 2019	Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)		Total
Money Market Funds Note ^(d)	$	550,788	$	—	$	—	$	550,788
Marketable Securities:
U.S. Government Sponsored Agencies	4,550		—		—		4,550
Total	$	555,338	$	—	$	—	$	555,338

^(a) Level 1 - Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date.

^(b) Level 2 - Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

^(c) Level 3 - Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset.

^(d) The money market funds noted above are included in cash and cash equivalents.

Convertible Senior Notes

The carrying amounts and estimated fair values (Level 2) of debt instruments are as follows (in thousands):



	As of March 31, 2020				As of December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Convertible Senior Notes	$	—	$	—	$	7,106	$	28,900

The fair value of the Convertible Senior Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility, and is determined by prices for the Convertible Senior Notes observed in market trading which are Level 2 inputs. The remaining $7.1 million Convertible Senior Notes at December 31, 2019, converted into 1.4 million shares of common stock on February 14, 2020 (See Note 4 - "Debt").

Liability Related to the Sale of Future Royalties

The Company has determined the fair value of the liability related to the sale of future royalties is based on the Company's current estimates of future royalties expected to be paid to RPI, over the life of the arrangement, which are considered Level 3 (See Note 4 - "Debt"). The liability related to sale of future royalties and the related non-cash interest expense are measured based on the Company's current estimate of the timing and amount of expected future royalties expected to be paid using a discounted cash flow model. The liability is amortized using the effective interest rate method, resulting in recognition of non-cash interest expense over the estimated term of the agreement. Each reporting period, the Company assesses the estimated timing and amount of future expected royalty payments over the estimated term. If there are changes to the estimate, the Company recognizes the impact to the liability’s amortization schedule and the related non-cash interest expense prospectively.

The following table summarizes the significant unobservable inputs in the fair value measurement of the liability related to the sale of future royalties as of March 31, 2020:



	Fair Value (in thousands)	Valuation Technique	Unobservable Input	Range	Weighted Average
Liability related to the sale of future royalties	$274,706	Discounted cash flow	Discount rate	16% - 26%	19%
			Future royalty payments	2020 to 2036

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details