Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

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 December 31, 2013 and December 31, 2012 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 December 31, 2013
Assets
Cash equivalents (1)	$	69,120	—	—	$	69,120
Liabilities
Common stock warrant liabilities (2)	$	—	—	31,341	$	31,341
Embedded derivative liability (3)	$	—	—	233	$	233
At December 31, 2012
Assets
Cash equivalents (1)	$	37,605	—	—	$	37,605
Liabilities
Common stock warrant liability (2)	$	—	—	9,493	$	9,493
Embedded derivative liability (3)	$	—	—	992	$	992

(1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheet.

(2) Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 8) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 7), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities 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 Company's historical volatility, supplemented with 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 common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management's projections regarding the probability of the occurrence of an extraordinary event and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement.

(3) Embedded derivatives are 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 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 of the liability. Management's revenue projections used in the December 31, 2013 valuation model significantly increased from prior periods as they included an increase in projected Zohydro ER revenues based on the October 2013 Zohydro ER NDA approval date. This significant increase in management's revenue projections led to a significant decrease in the fair value of embedded derivative liability as of December 31, 2013.

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 unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012 (in thousands):

	Common Stock Warrant Liabilities			Embedded Derivative Liabilities
Balance at December 31, 2011	$	345		$	845
Issuance	20,959			—
Changes in fair value	(11,811		)	147
Balance at December 31, 2012	9,493			992
Exercises	(79		)	—
Changes in fair value	21,927			(759		)
Balance at December 31, 2013	$	31,341		$	233

Property and Equipment Useful Lives

Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets, as follows:

Computer equipment and software	3 years
Furniture and fixtures	3-7 years
Manufacturing equipment and tooling	3-15 years
Leasehold improvements	Shorter of estimated useful life or lease term

Property and Equipment, Net (in thousands)

	December 31,
	2013			2012
Machinery, equipment and tooling	$	12,479		$	12,325
Construction in progress	6,222			5,068
Computer equipment and software	951			961
Leasehold improvements	783			783
Furniture and fixtures	628			685
Property and equipment, at cost	21,063			19,822
Less accumulated depreciation	(8,052		)	(6,261		)
	$	13,011		$	13,561

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):

	Year Ended December 31,
	2013			2012			2011
Numerator
Net loss	$	(80,856	)	$	(47,386	)	$	(83,903	)
Denominator
Weighted average common shares outstanding	108,568			80,558			42,715
Weighted average shares subject to repurchase	—			—			(3		)
Weighted average shares outstanding, basic and diluted	108,568			80,558			42,712
Basic and diluted net loss per share	$	(0.74	)	$	(0.59	)	$	(1.96	)

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):

	Year Ended December 31,
	2013	2012	2011
Common stock options and restricted stock units	11,027	47	184
Common stock warrants	15,681	—	—
	26,708	47	184