4. Fair Value Measurements

We record auction rate securities at fair value in the accompanying Consolidated Balance Sheets in accordance with ASC 320 Investments – Debt and Equity Securities. The change in the fair value of these securities is recorded as a component of other comprehensive (loss) income. We also record the contingent consideration liability resulting from the MIP acquisition at fair value in accordance with ASC 820-10-50.

The following tables present our money market funds, included in cash and cash equivalents, and auction rate securities assets and contingent consideration liability measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy:

			Fair Value Measurements at December 31, 2013
	Balance at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	60,364	$	60,364	$	-	$	-
Auction rate securities		2,208		-		-		2,208
Total Assets	$	62,572	$	60,364	$	-	$	2,208

Liability:
Contingent consideration	$	15,700	$	-	$	-	$	15,700
Total Liability	$	15,700	$	-	$	-	$	15,700

			Fair Value Measurements at December 31, 2012
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Money market funds	$	56,224	$	56,224	$	-	$	-
Auction rate securities		3,240		-		-		3,240
Total	$	59,464	$	56,224	$	-	$	3,240

At December 31, 2013, we hold $2,208 in auction rate securities which are classified as Level 3. The fair value of these securities includes $2,208 of U.S. government subsidized securities collateralized by student loan obligations, with maturities greater than 10 years. We will not realize cash in respect of the principal amount of these securities until the issuer calls or restructures the security, the security reaches any scheduled maturity and is paid, or a buyer outside the auction process emerges. As of December 31, 2013, we have received all scheduled interest payments on these securities, which, in the event of auction failure, are reset according to the contractual terms in the governing instruments.

The valuation of auction rate securities we hold is based on Level 3 unobservable inputs which consist of our internal analysis of (i) timing of expected future successful auctions or issuer calls of the securities, (ii) collateralization of underlying assets of the security and (iii) credit quality of the security. Significant increases (decreases) in the redemption period or discount rates would result in a significantly lower (higher) fair value measurement. In re-evaluating the valuation of these securities as of December 31, 2013, the temporary impairment amount, the duration of which is greater than 12 months, decreased from $260 at December 31, 2012, to $192, which is reflected as a part of accumulated other comprehensive loss on our accompanying Consolidated Balance Sheets and based on such re-evaluation, we believe that we have the ability to hold these securities until recovery of fair value. Due to the uncertainty related to the liquidity in the auction rate security market and therefore when individual positions may be liquidated, we have classified these auction rate securities as long-term assets on our accompanying Consolidated Balance Sheets. We continue to monitor markets for our investments and consider the impact, if any, of market conditions on the fair market value of our investments. We do not believe the carrying values of our investments are other than temporarily impaired and therefore expect the positions will eventually be liquidated without significant loss.

The estimated fair value of the contingent consideration liability of $15.7 million represents future potential milestone payments to former MIP stockholders. The Company considers this liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs were the probabilities of achieving regulatory approval of the development projects and subsequent commercial success, and discount rates. Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively. The Company records the contingent consideration liability at fair value with changes in estimated fair values recorded in general and administrative expenses in the Consolidated Statements of Operations.

The following table presents quantitative information pertaining to the fair value measurement of the Level 3 inputs:

	Fair Value as of December 31, 2013		Valuation Technique	Unobservable Input	Range (Weighted Average)

Asset:
Auction Rate Securities	$	2,208	Discounted cash flow model	Redemption period	5 to 15 years (6 years)
				Discount rate		0.25% - 3.00% (1.55%)
Contingent consideration liability:

Azedra commercialization	$	2,300	Probability adjusted discounted cash flow model	Probability of success		40%
				Period of milestone expected achievement		2017
				Discount rate		10%

1404 commercialization	$	2,000	Probability adjusted discounted cash flow model	Probability of success		31%
				Period of milestone expected achievement		2018
				Discount rate		10%

MIP-1095 commercialization	$	500	Probability adjusted discounted cash flow model	Probability of success		19%
				Period of milestone expected achievement		2021
				Discount rate		10%

Net sales targets	$	10,900	Monte-Carlo simulation	Probability of success		19% - 40% (32.8%)
				Period of milestone expected achievement		2018 - 2022
				Discount rate		12.5%

	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)

Asset:
Auction Rate Securities	$	3,240	Discounted cash flow model	Redemption period	4 to 15 years (5.9 years)
				Discount rate		0.125% - 2.102% (0.71%)

For those financial instruments with significant Level 3 inputs, the following table summarizes the activities for the periods indicated:

	Asset – Auction Rate Securities Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Description	2013			2012
Balance at beginning of period	$	3,240		$	3,332
Transfers into Level 3		-			-
Total realized/unrealized gains (losses)
Included in net income (loss)		-			-
Included in comprehensive income (loss)		68			8
Settlements		(1,100	)		(100	)
Balance at end of period	$	2,208		$	3,240
Total amount of unrealized gains (losses) for the period included in other comprehensive loss attributable to the change in fair market value of related assets still held at the reporting date	$	-		$	-

	Liability – Contingent Consideration Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Description	2013			2012
Balance at beginning of period	$	-		$	-
Fair value of contingent consideration – acquisition of Molecular Insight		15,900			-
Fair value adjustment to contingent consideration included in net loss		(200	)		-
Balance at end of period	$	15,700		$	-
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	(200	)	$	-

The following tables summarize the amortized cost basis, the aggregate fair value and gross unrealized holding gains and losses at December 31, 2013 and 2012:

	Amortized		Fair		Unrealized Holding
2013:	Cost Basis		Value		Gains		(Losses)			Net
Maturities greater than ten years:
Auction rate securities	$	2,400	$	2,208	$	-	$	(192	)	$	(192	)
	$	2,400	$	2,208	$	-	$	(192	)	$	(192	)

	Amortized		Fair		Unrealized Holding
2012:	Cost Basis		Value		Gains		(Losses)			Net
Maturities greater than ten years:
Auction rate securities	$	2,500	$	2,300	$	-	$	(200	)	$	(200	)
Investments without stated maturity dates:
Auction rate securities		1,000		940		-		(60	)		(60	)
	$	3,500	$	3,240	$	-	$	(260	)	$	(260	)

We compute the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium.

The following table shows the gross unrealized losses and fair value of our auction rate securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2013 and 2012.

2013:	Less than 12 Months				12 Months or Greater					Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Auction rate securities	$	-	$	-	$	2,208	$	(192	)	$	2,208	$	(192	)
Total	$	-	$	-	$	2,208	$	(192	)	$	2,208	$	(192	)

2012:	Less than 12 Months				12 Months or Greater					Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Auction rate securities	$	-	$	-	$	3,240	$	(260	)	$	3,240	$	(260	)
Total	$	-	$	-	$	3,240	$	(260	)	$	3,240	$	(260	)

Other-than-temporary impairment analysis on auction rate securities. The unrealized losses on our auction rate securities resulted from an internal analysis of timing of expected future successful auctions, collateralization of underlying assets of the security and credit quality of the security. At December 31, 2013 there was one and at December 31, 2012, there were two securities with a gross unrealized loss position of $192 and $260 ($2,208 and $3,240 of the total fair value), respectively.

The severity of the unrealized losses for auction rate securities at December 31, 2013 and 2012 was 8 percent below amortized cost, and the weighted average duration of the unrealized losses for these securities was 70 and 58 months, respectively.

We have evaluated our individual auction rate securities holdings for other-than-temporary impairment and determined that the unrealized losses as of December 31, 2013 and 2012 are attributable to uncertainty in the liquidity of the auction rate security market. Because we do not intend to sell these securities, and believe it is not more likely than not that we would be required to sell these securities before recovery of principal, we do not consider these securities to be other-than-temporarily impaired at December 31, 2013 and 2012.