FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2013

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

5. FAIR VALUE MEASUREMENTS

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. The Company classifies these inputs into the following hierarchy:

Level 1 Inputs—Quoted prices for identical instruments in active markets.

Level 2 Inputs—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs—Unobservable inputs and little, if any, market activity for the assets.

The Company’s available-for-sale securities are measured at fair value on a recurring basis and the Company’s convertible subordinated notes are not measured at fair value on a recurring basis. The estimated fair values were as follows:

	Estimated Fair Value Measurements at Reporting Date Using
Types of Instruments	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Level 1		Level 2		Level 3		Total
Assets at June 30, 2013:
U.S. government securities	$	27,116	$	—	$	—	$	27,116
U.S. government agency securities	113,583		44,346		—		157,929
U.S. corporate notes	91,871		12,200		—		104,071
U.S. commercial paper	4,989		39,978		—		44,967
Money market funds	192,694		—		—		192,694
Total assets measured at estimated fair value	$	430,253	$	96,524	$	—	$	526,777
Liabilities at June 30, 2013:
Convertible subordinated notes due 2015	$	268,596	$	—	$	—	$	268,596
Convertible subordinated notes due 2023	443,920		—		—		443,920
Total convertible subordinated notes	$	712,516	$	—	$	—	$	712,516

	Estimated Fair Value Measurements at Reporting Date Using
Types of Instruments	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2012:
U.S. government securities	$	27,205	$	—	$	—	$	27,205
U.S. government agency securities	56,969		58,497		—		115,466
U.S. corporate notes	40,472		51,094		—		91,566
U.S. commercial paper	—		23,082		—		23,082
Money market funds	78,646		—		—		78,646
Total assets measured at estimated fair value	$	203,292	$	132,673	$	—	$	335,965
Liabilities at December 31, 2012:
Convertible subordinated notes due 2015	$	—	$	194,050	$	—	$	194,050

At June 30, 2013, securities with a total fair value of $11.9 million were measured using Level 1 inputs in comparison to December 31, 2012, at which time the securities had a fair value of $12.0 million and were measured using Level 2 inputs. The transfer to Level 1 from Level 2 was primarily the result of increased trading volume of the securities at and around June 30, 2013, compared to December 31, 2012.

At June 30, 2013, convertible subordinated notes with a total fair value of $268.6 million were measured using Level 1 inputs in comparison to December 31, 2012, at which time the convertible subordinated notes had a fair value of $194.1 million and were measured using Level 2 inputs. The transfer to Level 1 from Level 2 was primarily the result of increased trading volume of the securities at and around June 30, 2013, compared to December 31, 2012.

Due to their short-term maturities, the Company believes that the fair value of its bank deposits, receivables from collaborative arrangements, accounts payable and accrued expenses approximate their carrying value.