Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

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.