FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2015

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 2014 and June 30, 2015, the carrying values of financial instruments such as cash and cash equivalents, trade receivables and payables, other receivables and accrued liabilities and the current portion of long-term debt approximated their market values, based on the short-term maturities of these instruments.

The company calculates fair values for its marketable securities based on quoted market prices for identical assets and liabilities which represent Level 1 of the ASC 820-10 fair value hierarchy.

At December 31, 2014 and June 30, 2015 the fair values of long-term debt and long-term receivables were comparable with their respective carrying values.

The following table presents information about the Company securities based on quoted market prices for identical assets and liabilities for June 30, 2015 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

											six months ended June, 30 2015						six months ended June,30 2014
	Net Carrying
	Value as of		Net Carrying								Operational Gain
	December 31,		Value as of								(losses) recognized in		Financial Gain (losses)				Operational Gain (losses)		Financial Gain (losses)
(in thousands of US Dollars)	2014		June 30, 2015		Fair Value Measured and Recorded Using						earnings		recognized in earnings		Total		recognized in earnings		recognized in earnings		Total
					Level 1		Level 2		Level 3
Assets
Cash and cash equivalent		39,760		55,236		55,236		-		-		-		-		-		-		-		-
Marketable securities		53,074		60,884		60,884		-		-		-		659		659		-		-		-
Total								-		-		-		659		659

											six months ended June, 30 2015						six months ended June,30 2014
											Operational Gain		Financial Gain (losses)				Operational Gain (losses)		Financial Gain (losses)
	Net Carrying		Net Carrying								(losses) recognized in		recognized in earnings				recognized in earnings		recognized in earnings
	Value as of		Value as of								earnings "Fair Value		"Interest expense on				"Fair Value		"Interest expense on debt
	December 31,		June 30,								remeasurement of		debt related to the				remeasurement of		related to the royalty
(in thousands of US Dollars)	2014		2015		Fair Value Measured and Recorded Using						Acquisition liabilities"		royalty agreement "		Total		Acquisition liabilities"		agreement "		Total
					Level 1		Level 2		Level 3
Liabilities
Acquisition liability contingent consideration (a)		70,112		89,077		-		-		89,077		(25,083)		-		(25,083)		(8,862)				(8,862)
Acquisition liability note (b).		-		-		-		-		-						-		(3,013)				(3,013)
Acquisition liability warrant consideration (c)		34,542		46,713		-		-		46,713		(12,171)		-		(12,171)		(18,371)		-		(18,371)

Deerfield Royalty Agreement (d)		6,837		8,256						8,256				(2,021)		(2,021)				(836)		(836)
Broadfin Royalty Agreement (d)		3,259		3,936						3,936				(964)		(964)		-		(399)		(399)
Total		114,750		147,982						147,982		(37,254)		(2,985)		(40,239)		(30,246)		(1,235)		(31,481)

The fair values of the financial instruments in connection with the acquisition of Éclat (see note 10 Long-Term Debt) are estimated as follows:

(a) Acquisition liability contingent consideration: the fair value is estimated using a discounted cash flow model based on probability adjusted projected annual gross profit of each of the products which formed the project portfolio at the time of acquisition of Éclat Pharmaceuticals (Note 10 Long Term Debt).

The fair value of the contingent consideration will change over time in accordance with the changes in market conditions and business plan projections as it relates to market size, market share, product pricing, competitive landscape, and gross profit margins expected for each of the products.

(b) Acquisition liability Note: the Company uses a probability-weighted discounted cash flow model (see note 10 Long Term Debt). The note was repaid on March 24, 2014.

(c) Acquisition liability warrant consideration: the Company uses a Black-Scholes option pricing model. The fair value of the warrant consideration will change over time depending on the volatility and share price at balance sheet date (see note 10 Long Term Debt).

(d) Broadfin and Deerfield Royalty Agreement: the fair value is estimated using a discounted cash flow model based on probability adjusted projected annual net sales of each of the products which may be approved and sold by Éclat Pharmaceuticals (Note 10 Long Term Debt). The discount rate used is 20%.

The following tables provide a reconciliation of fair value for which the Company used Level 3 inputs:

(in thousands of US Dollars)	Acquisition
	Liabilities
Liability recorded upon acquisition	$	(50,927)
Operational gain (loss) recognized in earnings for fiscal year 2012 & 2013		(9,142)
Payment deferred consideration (Hycet) & interest on acquisition liability note.		1,176
Net carrying value at January 1, 2014.		(58,893)
Operational gain (loss) recognized in earnings for fiscal year 2014...		(60,503)
Reimbursment of acquisition liability note.		12,000
Payment of interest on acquisition liability note..		1,389
Payment of deferred consideration.		1,354

Net carrying value at January 1, 2015.		(104,653)
Fair value remeasurement recognized in earnings for six months to June 30, 2015		(37,254)
Payment of deferred consideration.		6,117
Net carrying value at June 30, 2015	$	(135,791)

(in thousands of US Dollars)	Deerfield Royalty		Broadfin Royalty
	Agreement		Agreement
Liability recorded upon execution of Agreeement	$	(2,600)	$	(2,187)
Interest expense recognized in earnings for 2013		(1,990)
Interest expense recognized in earnings for 2014		(2,386)		(1,139)
Payment of Royalty 2014		140		67
Net carrying value at Jan 1, 2015		(6,837)		(3,259)
Interest expense recognized in earnings for 6 months to June 30, 2015		(2,021)		(964)
Payment of Royalty		601		287
Net carrying value at June 30, 2015	$	(8,257)	$	(3,936)

The acquisition liabilities, consisting of the warrants and deferred consideration, and Royalty agreement all of which are classified as long-term debt, are measured at fair value and the income or expense may change significantly as assumptions regarding the valuations and probability of successful development and approval of products in development vary.

- 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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