Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2018 and December 31, 2017 were 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
June 30, 2018
Assets
Cash equivalents⁽¹⁾	$	252,894	$	—	$	—	$	252,894
Liabilities
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	543	$	543
Contingent consideration liabilities⁽³⁾	$	—	$	—	$	74,400	$	74,400

December 31, 2017
Assets
Cash equivalents⁽¹⁾	$	289,782	$	—	$	—	$	289,782
Liabilities
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	512	$	512
Contingent consideration liabilities⁽³⁾	$	—	$	—	$	76,900	$	76,900


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

(2)

Represents the fair value of common stock warrants outstanding that may require cash settlement under certain circumstances. The Company estimated the fair value of the warrant liabilities using the Black-Scholes valuation model. As of December 31, 2017 and June 30, 2018, common stock warrant liabilities relate to warrants issued in July 2011 in connection with a debt financing arrangement. The warrants entitle the holder to purchase up to 28,125 shares of common stock at an exercise price of $72.00 per share. The warrants will expire in July 2021.

(3)

In connection with a prior acquisition, the Company may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approval or sales-based milestone events. The Company estimated the fair value of the contingent consideration liabilities on the acquisition date using a probability-weighted income approach, which reflects the probability and timing of future payments. This fair value measurement is based on significant Level 3 inputs such as the anticipated timelines and probability of achieving development, regulatory approval or sales-based milestone events and projected revenues. The resulting probability-weighted cash flows are discounted at risk-adjusted rates. Subsequent to the acquisition date, at each reporting period prior to settlement, the Company revalues these liabilities by performing a review of the assumptions listed above and record increases or decreases in the fair value of these contingent consideration liabilities. In the absence of any significant changes in key assumptions, the quarterly determination of fair values of these contingent consideration liabilities would primarily reflect the passage of time and risk-adjusted interest rates. Significant judgment is used in determining Level 3 inputs and fair value measurements as of the acquisition date and for each subsequent reporting period. Updates to assumptions could have a significant impact on the Company’s results of operations in any given period and actual results may differ from estimates. For example, significant increases in the probability of achieving a milestone or projected revenues would result in a significantly higher fair value measurement while significant decreases in the estimated probability of achieving a milestone or projected revenues would result in a significantly lower fair value measurement. Significant increases in the discount rate or in the anticipated timelines would result in a significantly lower fair value measurement while significant decreases in the discount rate or anticipated timelines would result in a significantly higher fair value measurement. The potential contingent consideration payments required upon achievement of development, regulatory approval and sales-based milestones related to the Company’s acquisition of ZX008 range from zero if none of the milestones are achieved to a maximum of $95.0 million (undiscounted).

As of June 30, 2018, the Company has classified $18.5 million of the total fair value of its contingent consideration liability based upon the Company’s reasonable expectation as to the timing of when the milestone payments associated with the acceptance of the Company’s regulatory submissions for ZX008 by the FDA and EMA will be made.

There were no transfers between levels during the periods presented.

Assets Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2018 and December 31, 2017 were 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
June 30, 2018
Assets
Cash equivalents⁽¹⁾	$	252,894	$	—	$	—	$	252,894
Liabilities
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	543	$	543
Contingent consideration liabilities⁽³⁾	$	—	$	—	$	74,400	$	74,400

December 31, 2017
Assets
Cash equivalents⁽¹⁾	$	289,782	$	—	$	—	$	289,782
Liabilities
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	512	$	512
Contingent consideration liabilities⁽³⁾	$	—	$	—	$	76,900	$	76,900


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

(2)

(3)

There were no transfers between levels during the periods presented.

Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2018 and 2017 (in thousands):



	March 31, 2018		Change in Fair Value			June 30, 2018		March 31, 2017		Change in Fair Value			June 30, 2017
Contingent consideration liabilities	$	76,900	$	(2,500	)	$	74,400	$	53,400	$	500		$	53,900
Common stock warrant liabilities	495		48			543		222		(153		)	69



	December 31, 2017		Change in Fair Value			June 30, 2018		December 31, 2016		Change in Fair Value			June 30, 2017
Contingent consideration liabilities	$	76,900	$	(2,500	)	$	74,400	$	52,800	$	1,100		$	53,900
Common stock warrant liabilities	512		31			543		809		(740		)	69