11. Financial instruments

Securities classified as available for sale

The Company’s short-term investments and long-term investments consist of available-for-sale securities as follows:


December 31, 2016	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Short-term investments:
U.S. treasury securities	$	70,819	$	—	$	(61	)	$	70,758

Long-term investments:
U.S. treasury securities	$	50,155	$	—	$	(109	)	$	50,046

Contractual maturities:
Due within one year	$	70,819						$	70,758
Due after one year through two years		50,155							50,046

December 31, 2015	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Short-term investments:
U.S. treasury securities	$	33,014	$	—	$	(61	)	$	32,953
U.S. government agency securities		2,003		—		—			2,003

	$	35,017	$	—	$	(61	)	$	34,956

Long-term investments:
U.S. treasury securities	$	38,687	$	—	$	(229	)	$	38,458

Contractual maturities:
Due within one year	$	35,017						$	34,956
Due after one year through two years		38,687							38,458

The aggregate estimated fair value of the Company’s investments with unrealized losses are as follows:


	Period of continuous unrealized loss
	12 months or less					Greater than 12 months
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
December 31, 2016
U.S. treasury securities	$	120,804	$	(170	)		N/A		N/A

December 31, 2015
U.S. treasury securities	$	71,411	$	(290	)		N/A		N/A

Fair value of financial instruments

The fair value of the Company’s financial instruments are determined according to a fair value hierarchy that prioritizes the inputs and assumptions used, and the valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The carrying amounts of certain of the Company’s financial instruments including cash, cash equivalents, receivables, accounts payable and other liabilities, approximate their fair values because of their nature and/or short maturities. The Company holds short and long-term investments that are classified as available-for-sale securities, which are measured at fair value determined on a recurring basis according to the fair value hierarchy.

The following tables present the fair value of our financial instruments that are measured at fair value on a recurring basis:


	QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UN-OBSERVABLE INPUTS (LEVEL 3)			TOTAL
BALANCES—December 31, 2016
Short-term investments—U.S. treasury securities	$	70,758	$	—	$	—		$	70,758
Long-term investments—U.S. treasury securities		50,046		—		—			50,046

	$	120,804	$	—	$	—		$	120,804

BALANCES—December 31, 2015
Short-term investments—U.S. treasury securities	$	32,953	$	—	$	—		$	32,953
Short-term investments—U.S. government agency securities		2,003		—		—			2,003
Long-term investments—U.S. treasury securities		38,458		—		—			38,458
Bank loan warrant derivative liabilities		—		—		(124	)		(124	)

	$	73,414	$	—	$	(124	)	$	73,290

Level 1 instruments, which include investments that are valued based on quoted market prices in active markets, consisted of U.S. treasury and U.S. government agency securities.

Level 2 instruments include investments for which all significant inputs are observable. The Company had no Level 2 investments at December 31, 2016 and December 31, 2015.

Level 3 instruments consisted of the Company’s warrants which are accounted for as derivative liabilities. The Company used Level 3 inputs for the valuation methodology of the derivative liabilities. The estimated fair values were computed using a Black-Scholes option pricing model which incorporates a number of assumptions and judgments to estimate the fair value of these derivative liabilities including the fair value per share of the underlying stock, remaining contractual term of the warrants, risk-free interest rate, expected dividend yield, credit spread, and expected volatility of the underlying stock. The derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in change in fair value of derivative liability:

Fair value of significant unobservable inputs (Level 3):


	BANK LOAN WARRANT DERIVATIVE LIABILITIES
BALANCES—December 31, 2014	$	72
Change in fair value of derivative liability		52

BALANCES—December 31, 2015		124
Change in fair value of derivative liability		(81	)
Exercise of warrants		(43	)

BALANCES—December 31, 2016	$	—

There were no transfers between Levels 1, 2, and 3 during the years ended December 31, 2016 and December 31, 2015.

At December 31, 2016, the Company had short-term investments consisting of available-for-sale securities of $70,758 and long-term investments consisting of available-for-sale securities of $50,046. Total gains for securities were $605, $96 and $12 for the years ending December 31, 2016, 2015 and 2014, respectively. The Company’s long-term investments had contractual maturities of less than 24 months.