3. Investments and Fair Value of Financial Instruments

Marketable Investments

The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of December 31, 2017 and 2016 were as follows (in thousands):



	December 31, 2017
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	19,941	$	—	$	(8	)	$	19,933
U.S. treasury	6,402		—		(28		)	6,374
U.S. agency securities and government sponsored securities	4,787		—		(18		)	4,769
U.S. states and municipalities	12,510		—		(23		)	12,487
Corporate bonds	120,648		23		(280		)	120,391
Total	$	164,288	$	23	$	(357	)	$	163,954



	December 31, 2016
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	4,237	$	1	$	—		$	4,238
U.S. treasury	4,996		—		—			4,996
U.S. agency securities and government sponsored securities	8,803		3		(12		)	8,794
U.S. states and municipalities	27,429		1		(75		)	27,355
Corporate bonds	69,009		36		(120		)	68,925
Non-U.S. government debt securities	1,209		—		—			1,209
Total	$	115,683	$	41	$	(207	)	$	115,517

The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than and more than twelve months as of December 31, 2017 and 2016 (in thousands):



	December 31, 2017
	Less than 12 months					More than 12 months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Commercial paper	$	19,933	$	(8	)	$	—	$	—		$	19,933	$	(8	)
U.S. treasury	6,374		(28		)	—		—			6,374		(28		)
U.S. agency securities and government sponsored securities	2,778		(9		)	1,991		(9		)	4,769		(18		)
U.S. states and municipalities	10,092		(23		)	—		—			10,092		(23		)
Corporate bonds	93,284		(188		)	10,201		(92		)	103,485		(280		)
Total	$	132,461	$	(256	)	$	12,192	$	(101	)	$	144,653	$	(357	)



	December 31, 2016
	Less than 12 months
	Fair Value		Gross Unrealized Losses
U.S. agency securities	$	3,291	$	(12	)
U.S. states and municipalities	22,286		(75		)
Corporate bonds	29,748		(120		)
Total	$	55,325	$	(207	)

As of December 31, 2016 there were no securities that had been in a loss position for more than twelve months.

The contractual maturities of the Company’s marketable investments as of December 31, 2017 and 2016 were as follows (in thousands):



	December 31,
	2017		2016
Marketable Investments	Fair Value		Fair Value
Due in one year	$	104,272	$	71,051
Due in one to five years	59,682		44,466
Total	$	163,954	$	115,517

Non-Marketable Equity Investments

In May 2017, the Company and Sixense Enterprises, Inc. formed a privately-held company, MVI Health Inc. (MVI), with each party holding 50% of the issued and outstanding equity of MVI. The Company accounted for its investment under the equity method and is not required to consolidate MVI under the voting model. As of December 31, 2017, the Company determined that MVI was not a variable interest entity (VIE). The Company will reassess in subsequent periods whether MVI becomes a VIE due to changes in facts and circumstances, including changes to the sufficiency of the equity investment at risk, management and governance structure or capital structure. The Company held no non-marketable equity investments in 2016 or 2015.

As of December 31, 2017, the investment in MVI is presented in long-term investments on the consolidated balance sheet and is comprised as follows:



	December 31, 2017
Non-Marketable Equity Investments
Cost	$	5,289
Equity in losses	(1,430		)
Carrying value of non-marketable equity investment	$	3,859

The Company reflected its 50% share of investee losses for the year ended December 31, 2017, as a component of equity in losses of unconsolidated investees in the consolidated statements of operations and comprehensive income. As of December 31, 2017, the unconsolidated balance sheet of MVI primarily consists of $2.9 million cash remaining from the initial investment. The unconsolidated statement of operations for MVI primarily consists of $2.9 million of expenses incurred for the year ended December 31, 2017.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The following tables set forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy (in thousands):



	As of December 31, 2017
	Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash equivalents:
Commercial paper	$	—	$	9,185	$	—	$	9,185
Money market funds	2,264		—		—		2,264
Marketable investments:
Commercial paper	—		19,933		—		19,933
U.S. treasury	6,374		—		—		6,374
U.S. agency securities	—		4,769		—		4,769
U.S. states and municipalities	—		12,487		—		12,487
Corporate bonds	—		120,391		—		120,391
Total	$	8,638	$	166,765	$	—	$	175,403
Financial Liabilities:
Contingent consideration obligations⁽¹⁾	—		—		17,392		17,392
Total	$	—	$	—	$	17,392	$	17,392

⁽¹⁾More information on the contingent consideration obligations and the changes in fair value are presented further below.



	As of December 31, 2016
	Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash equivalents:
Money market funds	$	873	$	—	$	—	$	873
Marketable investments:
Commercial paper	—		4,238		—		4,238
U.S. treasury	4,996		—		—		4,996
U.S. agency securities	—		8,794		—		8,794
U.S. states and municipalities	—		27,355		—		27,355
Corporate bonds	—		68,925		—		68,925
Non-U.S. government debt securities	—		1,209		—		1,209
Total	$	5,869	$	110,521	$	—	$	116,390

The following table summarizes the changes in fair value of the contingent consideration obligation for the year ended December 31, 2017 (in thousands):



	Fair Value of Contingent Consideration
	Crossmed		Technology Licensing Agreement		Total
Balance at December 31, 2016	$	—	$	—	$	—
Additions to contingent consideration obligations	4,343		12,717		17,060
Changes in fair value	109		—		109
Balance at Foreign currency remeasurement	223		—		223
Balance at December 31, 2017	$	4,675	$	12,717	$	17,392

During the year ended December 31, 2017, the Company acquired Crossmed and recorded contingent consideration in the amount of $4.3 million. Also during the year ended December 31, 2017, the Company entered into an exclusive technology license agreement and recorded contingent consideration in the amount of $12.7 million. These contingent consideration liabilities are classified as Level 3 measurements for which fair value is derived from significant unobservable inputs, such as projected revenue and estimates in the timing and likelihood of achieving revenue-based milestones. During the year ended December 31, 2017, changes in fair value of the contingent consideration obligations of $0.1 million were recorded in sales, general and administrative expense in the consolidated statements of operations and comprehensive income. For more information with respect to the fair value of contingent consideration, refer to Note “5. Business Combination” and Note “6. Intangible Assets,” respectively.

During year ended December 31, 2017 and 2016, the Company did not record impairment charges related to its marketable investments and the Company did not hold any Level 3 marketable investments as of December 31, 2017 or December 31, 2016. During the year ended December 31, 2017 and 2016, the Company did not have any transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy. Additionally, the Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2017 or December 31, 2016.