Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2014

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 4 – Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability 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 fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

· Level 1 – Quoted prices in active markets for identical assets and liabilities.

· Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices 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 assets or liabilities.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair Value on a Recurring Basis

The tables below categorize assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013:

	Fair Value		Fair value measurement using
	March 31, 2014		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	75,942	$	75,942	$	–	$	–
Certificate of Deposit		325		325		–		–
Total Assets	$	76,267	$	76,267	$	–	$	–
Liabilities:
Common stock warrant liability	$	4,672	$	–	$	–	$	4,672

	Fair Value		Fair value measurement using
	December 31, 2013		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	86,283	$	86,283	$	–	$	–
Certificate of Deposit		325		325		–		–
Total Assets	$	86,608	$	86,608	$	–	$	–
Liabilities:
Common stock warrant liability	$	5,425	$	–	$	–	$	5,425

The table below summarizes the activity of Level 3 inputs measured on a recurring basis for the three months ended March 31, 2014 and 2013:

(in thousands)	Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2013	$	5,425
Exercise of warrants		(375	)
Change in fair value of common stock warrant liability		(378	)
Balance at March 31, 2014	$	4,672

(in thousands)	Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2012	$	6,305
Change in fair value of common stock warrant liability		(162	)
Balance at March 31, 2013	$	6,143

The significant unobservable inputs used in the fair value measurement of the common stock warrants measured on a recurring basis are the historical volatility of our common stock market price, expected term of the applicable warrants, and the risk-free interest rate based on the U.S. Treasury yield curve in effect at the measurement date.  In addition to the significant unobservable inputs noted above, certain fair value measurements also take into account an assumption of the likelihood and timing of the occurrence of an event that would result in an adjustment to the exercise price in accordance with the anti-dilutive pricing provisions in the warrant.  Any significant increases or decreases in the unobservable inputs, with the exception of the risk-free interest rate, may result in significantly higher or lower fair value measurements.

Significant Unobservable Input Assumptions of Level 3 Valuations	March 31, 2014			December 31, 2013
Historical Volatility		60%-62	%		62% -76	%
Expected Term (in years)		0.1 – 1.9			0.4 – 2.1
Risk-free interest rate		0.03% - 0.41	%		0.08% - 0.44	%

Fair Value of Long-Term Debt

At March 31, 2014, the estimated fair value of the Deerfield Loan was $23.7 million compared to a carrying value, net of discounts, of $18.8 million.  At December 31, 2013, the estimated fair value of the Deerfield Loan was $23.6 million compared to a carrying value, net of discounts, of $18.4 million.  The estimated fair value of the Deerfield Loan was based on discounting the future contractual cash flows to the present value.  This analysis utilizes certain Level 3 unobservable inputs, including current cost of capital.  Considerable judgment is required to interpret market data and to develop estimates of fair value.  The estimates presented are not necessarily indicative of amounts we could realize in a current market exchange.  The use of alternative market assumptions and estimation methodologies could have a material effect on these estimates of fair value.