Fair Value Disclosures

6 Months Ended

Jun. 30, 2013

NOTE 10 — FAIR VALUE DISCLOSURES

The Company follows ASC 820-10, “Fair Value Measurements and Disclosures,” which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

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Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

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Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

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Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table presents the Company’s cash equivalents and short-term investments, as well as the hierarchy for its financial instruments measured at fair value on a recurring basis:


			Fair value measurements using:
	Fair Value		Level 1		Level 2		Level 3
June 30, 2013:
Cash equivalents:
Money market funds	$	50,156	$	50,156		—		—
Short-term investments:
U.S. Treasury bills	$	144,956	$	144,956		—		—
December 31, 2012:
Cash equivalents:
Money market funds	$	48,693	$	48,693		—		—
Short-term investments:
U.S. Treasury bills	$	224,939	$	224,939		—		—

At June 30, 2013, the amortized cost and gross unrealized gain for available-for-sale securities, consisting of U.S. Treasury bills maturing in September and December of 2013, were $144.9 million and $0.0 million, respectively. At December 31, 2012, the amortized cost and gross unrealized gain for available-for-sale securities, consisting of U.S. Treasury bills maturing in March and June of 2013, were $224.9 million and $0.0 million, respectively.

In the table below, the Company has presented the fair value of other financial instruments that are not measured at fair value on a recurring basis.


			Fair value measurements using:
	Fair Value		Level 1		Level 2		Level 3
June 30, 2013:
Assets:
Bank deposits (included in “Cash and cash equivalents”)	$	50,831	$	50,831		—		—
Liabilities:
Convertible Notes	$	237,070		—	$	237,070		—
December 31, 2012:
Assets:
Bank deposits (included in “Cash and cash equivalents”)	$	22,608	$	22,608		—		—
Liabilities:
Convertible Notes	$	234,813		—	$	234,813		—

Due to their short-term maturities, the Company believes that the fair value of its bank deposits, receivable from collaboration partner, accounts payable and accrued expenses and other current liabilities approximate their carrying value. The estimated fair value of the Company’s Convertible Notes, including the equity component, was $327.9 million at June 30, 2013 and was determined using recent trading prices of the Convertible Notes. The fair value of the Convertible Notes included in the table above represents only the liability component of the Convertible Notes, because the equity component is included in stockholders’ equity on the consolidated balance sheets.

- 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.

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