Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 13. FAIR VALUE MEASUREMENTS

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:

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

• 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.

• Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Unobservable inputs are used when little or no market data are available. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair value measurements using:
	Fair Value		Level 1		Level 2		Level 3
December 31, 2014:
Cash equivalents:
Money market funds	$	189,031	$	189,031		—		—
Current liabilities:
Contingent consideration	$	10,000		—		—	$	10,000
Long-term liabilities:
Contingent consideration	$	96,000		—		—	$	96,000
December 31, 2013:
Cash equivalents:
Money market funds	$	189,092	$	189,092		—		—

The fair value of contingent consideration related to an acquisition was estimated utilizing a model with key assumptions that included estimated revenues or completion of certain development and sales milestone targets during the earn-out period, volatility, and estimated discount rates corresponding to the periods of expected payments. The estimated fair value of the contingent consideration liability is remeasured at each reporting period based upon increases or decreases in the probability of the contingent payments, as well as the discount rate. Changes in the estimated fair value of contingent consideration are reflected as non-cash adjustments to operating expenses in the consolidated statements of operations. Additional information regarding the acquisition is included in Note 4, “Business Acquisition.”

The following table presents the total balance of the Company’s other financial instruments that are not measured at fair value on a recurring basis.

			Fair value measurements using:
	Total Balance		Level 1		Level 2		Level 3
December 31, 2014:
Assets:
Bank deposits (included in “Cash and cash equivalents”)	$	313,646	$	313,646		—		—
Liabilities:
Convertible Notes	$	359,219		—	$	359,219		—
December 31, 2013:
Assets:
Bank deposits (included in “Cash and cash equivalents”)	$	39,696	$	39,696		—		—
Liabilities:
Convertible Notes	$	277,145		—	$	277,145		—

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 $496.8 million and $383.3 million at December 31, 2014 and 2013, respectively, 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. For purposes of the table above, the fair value of the Convertible Notes was bifurcated between the debt and equity components in a ratio similar to the principal amounts of the Convertible Notes.