Fair Value Measurements |
Fair Value Measurements The Company determines the fair value of certain financial assets and liabilities using three levels of inputs as follows: | | • | Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities; |
| | • | Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
| | • | Level 3 — Valuations based on unobservable inputs to the valuation methodology and including data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances. |
The following table summarizes, for assets and liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy: | | | | | | | | | | | | | | | | | | September 30, 2019 | (in thousands) | Fair Value | | Level 1 | | Level 2 | | Level 3 | Assets | | | | | | | | Money market funds | $ | 40,153 |
| | $ | 40,153 |
| | $ | — |
| | $ | — |
| U.S. treasury securities | 75,353 |
| | 75,353 |
| | — |
| | — |
| U.S. government agency obligations | 32,882 |
| | — |
| | 32,882 |
| | — |
| Commercial paper | 43,873 |
| | — |
| | 43,873 |
| | — |
| Overnight repurchase agreements | 14,501 |
| | — |
| | 14,501 |
| | — |
| Total assets measured at fair value | $ | 206,762 |
| | $ | 115,506 |
| | $ | 91,256 |
| | $ | — |
| | | | | | | | | Liabilities | | | | | | | | Derivative liability associated with the Medicis settlement | $ | 2,892 |
| | $ | — |
| | $ | — |
| | $ | 2,892 |
| Total liabilities measured at fair value | $ | 2,892 |
| | $ | — |
| | $ | — |
| | $ | 2,892 |
|
| | | | | | | | | | | | | | | | | | December 31, 2018 | (in thousands) | Fair Value | | Level 1 | | Level 2 | | Level 3 | Assets | | | | | | | | Money market funds | $ | 38,354 |
| | $ | 38,354 |
| | $ | — |
| | $ | — |
| U.S. treasury securities | 80,844 |
| | 80,844 |
| | — |
| | — |
| U.S. government agency obligations | 52,578 |
| | — |
| | 52,578 |
| | — |
| Total assets measured at fair value | $ | 171,776 |
| | $ | 119,198 |
| | $ | 52,578 |
| | $ | — |
| | | | | | | | | Liabilities | | | | | | | | Derivative liability associated with the Medicis settlement | $ | 2,753 |
| | $ | — |
| | $ | — |
| | $ | 2,753 |
| Total liabilities measured at fair value | $ | 2,753 |
| | $ | — |
| | $ | — |
| | $ | 2,753 |
|
The Company classifies U.S. government agency obligations, commercial paper, and overnight repurchase agreements within Level 2 because it uses alternative pricing sources and models utilizing market observable inputs to determine their fair values. The following table summarizes the change in the fair value of the Company’s Level 3 financial instrument: | | | | | (in thousands) | Derivative Liability Associated with the Medicis Settlement | Fair value as of December 31, 2018 | $ | 2,753 |
| Change in fair value | 139 |
| Fair value as of September 30, 2019 | $ | 2,892 |
|
The fair value of the derivative liability associated with the Medicis settlement was determined by estimating the timing and probability of the related regulatory approval and multiplying the payment amount by this probability percentage and a discount factor based primarily on the estimated timing of the payment and a credit risk adjustment (Note 3). Generally, increases or decreases in these unobservable inputs would result in a directionally similar impact to the fair value measurement of this derivative instrument. The significant unobservable inputs used in the fair value measurement of the product approval payment derivative are the expected timing and probability of the payments at the valuation date and the credit risk adjustment.
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