Fair Value Measurements

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:


•	Level 1 - quoted prices in active markets for identical investments, which include U.S. treasury securities


•	Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)


•	Level 3 - significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company assets and liabilities that are measured at fair value on a recurring basis according to the fair value levels described above as of September 30, 2013 and December 31, 2012.



	Assets and Liabilities at Fair Value as of September 30, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	19,581	$	—	$	—	$	19,581
Short-term investments	131,078		551		—		131,629
Total cash and cash equivalents and investments	$	150,659	$	551	$	—	$	151,210
Liabilities
Other long-term liabilities	$	—	$	—	$	32,999	$	32,999
Total liabilities	$	—	$	—	$	32,999	$	32,999



	Assets and Liabilities at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	30,423	$	—	$	—	$	30,423
Short-term investments	192,234		551		—		192,785
Total cash and cash equivalents and investments	$	222,657	$	551	$	—	$	223,208
Liabilities
Other long-term liabilities	$	—	$	—	$	29,920	$	29,920
Total liabilities	$	—	$	—	$	29,920	$	29,920

The Company’s Level 3 liabilities are estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. On July 30, 2012, Lexicon issued 13,237,519 shares of common stock to designees of Symphony Icon Holdings LLC (“Holdings”) in satisfaction of the $35 million base payment obligation (see Note 7, Arrangements with Symphony Icon, Inc., for more information). The following table summarizes the change in consolidated balance sheet carrying value associated with Level 3 liabilities for the nine months ended September 30, 2013 and 2012.



	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2012	$	29,920
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	3,079
Balance at September 30, 2013	$	32,999

Balance at December 31, 2011	$	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	10,087
Payment of base payment obligation with common stock	(35,000		)
Balance at September 30, 2012	$	30,120

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon in 2010 and intangible assets associated with the acquisition of Symphony Icon in 2010. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.