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MARKETABLE SECURITIES
 12 Months Ended
Dec. 31, 2013
MARKETABLE SECURITIES  
MARKETABLE SECURITIES

NOTE 3. MARKETABLE SECURITIES

        Securities classified as cash and cash equivalents and available-for-sale marketable securities as of December 31, 2013 and 2012 are summarized below (in thousands). Estimated fair value is based on quoted market prices for these investments.

December 31, 2013
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value  

Cash and cash equivalents:

                          

Cash

   $ 26,728   $ —   $ —   $ 26,728  

Money market funds

     217,946     —     —     217,946  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash and cash equivalents

   $ 244,674   $ —   $ —   $ 244,674  

Available-for-sale securities:

                          

Total maturing within 1 year and included in marketable securities:

                          

Corporate debt securities

   $ 12,440   $ 8   $ (2 ) $ 12,446  

Government agency debt securities

     14,814     3     —     14,817  

Total maturing between 1 and 2 years and included in marketable securities:

                          

Corporate debt securities

     4,075     5     —     4,080  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total available-for-sale securities

   $ 31,329   $ 16   $ (2 ) $ 31,343  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash, cash equivalents and marketable securities

   $ 276,003   $ 16   $ (2 ) $ 276,017  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   


 

December 31, 2012
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value  

Cash and cash equivalents:

                          

Cash

   $ 11,769   $ —   $ —   $ 11,769  

Money market funds

     11,268     —     —     11,268  

U.S. corporate debt securities

     6,039     —     —     6,039  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash and cash equivalents

   $ 29,076   $ —   $ —   $ 29,076  

Available-for-sale securities:

                          

Total maturing within 1 year and included in marketable securities:

                          

Corporate debt securities

   $ 21,662   $ 31   $ —   $ 21,693  

U.S. government agency debt securities

     14,027     8     —     14,035  

U.S. Treasury securities

     2,008     1     —     2,009  

Total maturing between 1 and 2 years and included in marketable securities:

                          

Corporate debt securities

     7,858     7     (2 )   7,863  

U.S. government agency debt securities

     3,208     8     —     3,216  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total available-for-sale securities

   $ 48,763   $ 55   $ (2 ) $ 48,816  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total cash, cash equivalents and marketable securities

   $ 77,839   $ 55   $ (2 ) $ 77,892  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        The Company considers all highly liquid investments with a maturity at date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash equivalents and marketable securities with U.S. Treasury and government agency securities, and high quality securities of U.S. and international financial and commercial institutions and, to date, has not experienced material losses on any of its balances. All marketable securities are classified as available-for-sale since these instruments are readily marketable. These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in accumulated other comprehensive gain (loss) within shareholders' equity. The Company uses the specific identification method to determine the amount of realized gains or losses on sales of marketable securities. Realized gains or losses have been insignificant and are included in "interest and other income" in the consolidated statement of operations.

        At December 31, 2013, the Company had 7 securities in an unrealized loss position. The following table shows the gross unrealized losses and fair value of the Company's investments 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 (in thousands):

 
   Less Than 12 Months   12 Months or Greater   Total  
 
   Fair Value   Gross
Unrealized
Losses		   Fair Value   Gross
Unrealized
Losses		   Fair Value   Gross
Unrealized
Losses		  

Corporate debt securities

   $ 3,438   $ (2 ) $ —   $ —   $ 3,438   $ (2 )
                           
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total available-for-sale

   $ 3,438   $ (2 ) $ —   $ —   $ 3,438   $ (2 )
                           
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                           

        The gross unrealized losses above were caused by interest rate increases. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the securities held by the Company. Based on the Company's review of these securities, including the assessment of the duration and severity of the unrealized losses and the Company's ability and intent to hold the investments until maturity, there were no other-than-temporary impairments for these securities at December 31, 2013.

        Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) 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.

  • •
    Level 1: Quoted prices in active markets for identical assets or 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.

        The following table represents the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 (in thousands):

 
   Level 1   Level 2   Level 3   Total  

Money market funds

   $ 217,946   $ —   $ —   $ 217,946  

Corporate debt securities

     —     16,526     —     16,526  

Government agency debt securities

     —     14,817     —     14,817  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 217,946   $ 31,343   $ —   $ 249,289  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities:

                          

Contingent consideration—Zipsor

   $ —   $ —   $ 1,638   $ 1,638  

Contingent consideration—Lazanda

     —     —     8,616     8,616  

Contingent consideration—CAMBIA

     —     —     1,010     1,010  

Unfavorable contract assumed

     —     —     3,540     3,540  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

   $ —   $ —   $ 14,804   $ 14,804  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        The fair value measurement of the contingent consideration obligations arises from the Zipsor, CAMBIA and Lazanda acquisitions and relates to the potential future milestone payments and royalties under the respective agreements which are determined using Level 3 inputs. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones and royalties being achieved. At each reporting date, the Company will re-measure the contingent consideration obligation arising from both acquisitions to its estimated fair value. Changes in the fair value of the contingent consideration obligations are recorded as a component of operating income in our consolidated statement of operations. Changes in fair value included within interest and other expense in the accompanying condensed statement of operations was $0.9 and $0.1 million for the years ended December 31, 2013 and 2012.

        The liability for the unfavorable contract assumed represents an obligation for the Company to make certain payments to a vendor upon the achievement of certain milestones by such vendor. This contract was entered into by Nautilus as part of a legal settlement unrelated to the CAMBIA acquisition. The liability of $3.5 million recorded above represents the fair value of the amounts by which the contract terms are unfavorable compared to the current market pricing and a probability weighted assessment of the likelihood that the stipulated milestones will be achieved by the third party within a specified time frame. The contract may be terminated if the third party fails to achieve these milestones in which case the fair value of the liability as of the date of the termination will be reversed on the balance sheet and reflected in the statement of operations as a credit within interest and other income. The Company will determine the fair value of this liability at each reporting period and record any changes within the consolidated statement of operations.

        The table below provides a summary of the changes in fair value of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2013 (in thousands):

 
   Balance at
December 31,
2012		   Acquisitions
2013		   Changes
in
Fair Value		   Balance at
December 31,
2013		  

Liabilities:

                          

Contingent consideration obligations—Zipsor

   $ 1,342   $ —   $ 296   $ 1,638  

Contingent consideration obligations—Lazanda

     —     8,004     612     8,616  

Contingent consideration obligations—CAMBIA

     —     1,010     —     1,010  

Unfavorable contract assumed

     —     3,540     —     3,540  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 1,342   $ 12,554   $ 908   $ 14,804  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        The following table represents the Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2012 (in thousands):

 
   Level 1   Level 2   Level 3   Total  

Money market funds

   $ 11,268   $ —   $ —   $ 11,268  

Corporate debt securities

     6,039     29,556     —     35,595  

Government agency debt securities

     —     17,251     —     17,251  

U.S. Treasury securities

     —     2,009     —     2,009  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 17,307   $ 48,816   $ —   $ 66,123  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities:

                          

Contingent consideration—Zipsor

   $ —   $ —   $ 1,342   $ 1,342  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

   $ —   $ —   $ 1,342   $ 1,342  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​