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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011 are as follows (in thousands):


		Fair Value Measurements at Reporting Date Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
At June 30, 2012
Assets
Money market fund shares⁽¹⁾		$	12,281				0				0			$	12,281

Liabilities
Common stock warrant liability⁽²⁾		$	0				0				387			$	387
Embedded derivative liabilities⁽³⁾		$	0				0				477			$	477

At December 31, 2011
Assets
Money market fund shares⁽¹⁾		$	49,752				0				0			$	49,752

Liabilities
Common stock warrant liability⁽²⁾		$	0				0				345			$	345
Embedded derivative liabilities⁽³⁾		$	0				0				845			$	845

(1)	Money market fund shares are included as a component of cash and cash equivalents on the consolidated balance sheets.

(2)

Common stock warrants measured at fair value using the Black-Scholes option pricing valuation model are included as a component of accrued expenses on the consolidated balance sheets. The assumptions used in the Black-Scholes option pricing valuation model were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the warrant liability is the expected volatility based upon the historical volatility of comparable companies. Significant increases in the volatility of comparable companies would result in a higher fair value measurement.

(3)

Embedded derivative liabilities measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management’s revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving revenue interest payments over the term of the financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement.

Reconciliation of liabilities measured at fair value using significant observable inputs (Level 3)

The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the six months ended June 30, 2012 (in thousands):


		Common Stock Warrant Liability				Embedded Derivative Liabilities
Balance at December 31, 2011		$	345			$	845
Changes in fair value			42				(368	)

Balance at June 30, 2012		$	387			$	477

Basic and diluted net loss per share

The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):


		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Numerator
Net loss		$	(17,169	)		$	(19,177	)		$	(27,461	)		$	(38,161	)
Denominator
Weighted average common shares outstanding			65,449				34,022				65,409				34,021
Weighted average shares subject to repurchase			0				(4	)			0				(6	)

Weighted average shares outstanding, basic and diluted			65,449				34,018				65,409				34,015

Basic and diluted net loss per share		$	(0.26	)		$	(0.56	)		$	(0.42	)		$	(1.12	)

Schedule of calculation of diluted net loss per share

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands, of common equivalent shares):


		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Common stock warrants			508				283				508				283
Common stock subject to repurchase			0				2				0				2
Common stock options and restricted stock units			9,478				3,389				9,478				3,389

			9,986				3,674				9,986				3,674

Tabular disclosure of assets, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

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Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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