Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

4. Fair Value Measurements

The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on the Company’s Consolidated Balance Sheets are categorized as follows:

Level1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level2—Include other inputs that are directly or indirectly observable in the marketplace.

Level3—Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following table provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of June30, 2013 and December31, 2012:

	Carrying Value		FairValueMeasurementatJune30,2013
			Level1		Level2			Level3
		(In thousands)
		(Unaudited)
Cash and cash equivalents	$	102,732	$	102,732		$	—		$	—
Cash held in escrow		—		—			—			—
Restricted marketable securities		6		6			—			—
Ownership interest in common stock of NuPathe		15,791		15,791			—			—
Ownership interest in warrants and options of NuPathe		3,572		—			—			3,572
Available-for-sale securities		18		18			—			—
Warrant participations		417		—			—			417
Marketable securities—held-to-maturity:
Commercial paper	$	19,237	$	19,237		$	—		$	—
U.S. Treasury Bills		18,180		18,180			—			—
Government agency bonds		22,166		22,166			—			—
Certificates of deposit		17,794		17,794			—			—
Total marketable securities…………………………………………………	$	77,377	$	77,377		$	—		$	—

	Carrying Value		Fair Value Measurement atDecember 31, 2012
			Level 1		Level 2			Level 3
		(In thousands)
		(Unaudited)
Cash and cash equivalents	$	66,029	$	66,029		$	—		$	—
Cash held in escrow		6,434		6,434			—			—
Restricted marketable securities		10		10			—			—
Ownership interest in common stock of NuPathe		8,897		8,897			—			—
Ownership interest in preferred stock, warrants and options of NuPathe		12,075		—			—			12,075
Available-for-sale securities		58		58			—			—
Warrant participations		423		—			—			423
Marketable securities—held-to-maturity:
Commercial paper	$	50,932	$	50,932		$	—		$	—
U.S. Treasury Bills		21,352		21,352			—			—
Government agency bonds		45,909		45,909			—			—
Certificates of deposit		21,823		21,823			—			—
Total marketable securities…………………………………………………	$	140,016	$	140,016		$	—		$	—

As of June30, 2013, $70.2 million of marketable securities had contractual maturities which were less than one year and $7.2 million of marketable securities had contractual maturities greater than one year. Held-to-maturity securities are carried at amortized cost, which, due to the short-term maturity of these instruments, approximates fair value using quoted prices in active markets for identical assets or liabilities defined as Level 1 inputs under the fair value hierarchy.

The Company recorded an impairment charge of $9.9 million related to PixelOptics in the three months ended June 30, 2013 measured as the amount by which PixelOptics’ carrying value exceeded its estimated fair value.  The fair market value of the Company’s equity ownership in PixelOptics was determined to be $3.3 million based on Level 3 inputs as defined above.  The inputs and valuation techniques used included primarily an evaluation of discounted cash flows for PixelOptics.

The Company’s Penn Mezzanine warrant participations are carried at fair value. The value of the Company’s holdings in warrant participations is measured by reference to Level 3 inputs. The inputs and valuation techniques used include discounted cash flows and valuation of comparable public companies.  The Company recorded an impairment charge of $0.3 million related to its Penn Mezzanine debt and equity participations in the three months ended June 30, 2013 measured as the amount by which the carrying value of the Company’s participation in the debt, equity and warrant interests acquired by Penn Mezzanine exceeded their estimated fair values.

The Company’s ownership interests in NuPathe are accounted for at fair value. In February 2013, the Company converted its 2,500 shares of preferred stock units, acquired in October 2012, into 2.5million shares of common stock in NuPathe. The preferred stock units had been valued using Level 3 inputs. The fair value of the Company’s ownership interest in NuPathe’s common stock was measured using quoted market prices for NuPathe’s common stock as traded on the NASDAQ Capital Market, which is considered a Level 1 input under the valuation hierarchy. The fair value of the Company’s ownership interest in NuPathe’s warrants and options was measured using a Black-Scholes option pricing model, which is based on Level 3 inputs as defined above.