Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. Fair Value Measurements

Cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their relative short-term nature. The Company’s financial liabilities reflected at fair value in the consolidated financial statements include contingent consideration and warrant liability. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations for assets and liabilities include certain unobservable inputs in the assumptions and projections used in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation methodologies used for the Company’s financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below.

	As of December 31, 2017				Fair Value Measurements
	Carrying		Fair		As of December 31, 2017
	Amount		Value		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration:
Asuragen	$	1,581	$	1,581	$	-	$	-	$	1,581
Other long-term liabilities:
Warrant liability		473		473		-		-		473
	$	2,054	$	2,054	$	-	$	-	$	2,054

	As of December 31, 2016				Fair Value Measurements
	Carrying		Fair		As of December 31, 2016
	Amount		Value		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration:
Asuragen	$	1,545	$	1,545	$	-	$	-	$	1,545
RedPath		5,969		5,969		-		-		5,969
	$	7,514	$	7,514	$	-	$	-	$	7,514

In connection with the acquisition of certain assets from Asuragen and the acquisition of RedPath, the Company recorded contingent consideration related to contingent payments and other revenue-based payments. The Company determined the fair value of the contingent consideration based on a probability-weighted income approach derived from revenue estimates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. On March 22, 2017, the Company entered into a Termination Agreement with the RedPath Equityholder Representative. Under the terms of the Termination Agreement, the RedPath Equityholder Representative agreed to terminate all royalty and milestone rights under the contingent consideration agreement. As a result, the Company reversed approximately $6.0 million in Redpath contingent consideration liabilities in the first quarter of 2017, of which $5.8 million was a reversal within operating expenses in the Condensed Consolidated Statement of Operations with the balance consisting of the issuance of warrants. There was an $11.9 million net reduction in the fair value of the contingent consideration during the period ended December 31, 2016.

On March 23, 2017, in connection with the Company entering into the Exchange Agreement, related to the RedPath Note (See Note 3, Liquidity and Note 18, Long-Term Debt) with the Investor, an embedded conversion option derivative liability was recorded due to a certain embedded conversion feature. The embedded conversion option is considered a liability and valued using the Black-Scholes Option-Pricing Model, the inputs for which include exercise price of the conversion feature, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the Exchange Agreement. Any changes to the estimated fair value of this liability were recorded in Interest Expense. Between March 23, 2017 and April 18, 2017, the Investor had fully converted all outstanding debt, and as a result there are no liabilities remaining subsequent to April 18, 2017.

On June 21, 2017, the Company closed on an Offering (See Note 3, Liquidity), issuing both Pre-Funded Warrants and Underwriters Warrants to purchase 2,600,000 shares and 575,000 shares of the Company’s common stock, respectively. Both the Pre-Funded and Underwriters Warrants include a cash settlement feature in the event of certain circumstances. Accordingly, both the Pre-Funded and Underwriters Warrants are classified as liabilities and were fair valued using the Black Scholes Option-Pricing Model, the inputs for which include exercise price of the respective warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the Exchange Agreement. Changes to the fair value of the warrant liabilities were recorded in Other (expense) income, net. The Pre-Funded Warrants were fully exercised in 2017 and therefore the Company has no remaining liability associated with those warrants.

										Cancellation			Adjustment
										of Obligation/			to Fair Value/
	December 31, 2016		Initial Liability		Payments (1)			Accretion		Conversions Exercises			Mark to Market		December 31, 2017
Contingent consideration:
Asuragen	$	1,545			$	(260	)	$	122	$	-		$	174	$	1,581
Redpath		5,969				-			-		(5,969	)		-		-
Embedded conversion option		-		208		-			-		(269	)		61		-
Pre-Funded Warrants		-		2,247		-			-		(2,337	)		90		-
Underwriters Warrants		-		422		-			-		-			51		473
	$	7,514	$	2,877	$	(260	)	$	122	$	(8,575	)	$	376	$	2,054

(1) Royalty payments of $235,000 are reflected within Cash Flows from Operations. The remaining $25,000 represents a milestone payment related to financing the Asuragen acquisition and is reflected in Cash Flows from Financing Activities.

Certain of the Company’s non-financial assets, such as other intangible assets and goodwill are measured at fair value on a nonrecurring basis when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.