FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2019

The following tables present information about our assets and liabilities that we measure at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value as of December 31, 2019 and 2018 (in thousands):



	Fair Value Measurements at December 31, 2019 Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	13,732	$	13,732	$	—	$	—
Corporate debt securities	54,492		—		54,492		—
U.S. treasury and government agency securities	2,750		—		2,750		—
Certificates of deposit	1,500		—		1,500		—
Total Assets	$	72,474	$	13,732	$	58,742	$	—
Liabilities:
Contingent consideration	17		—		—		17
Total Liabilities	$	17	$	—	$	—	$	17



	Fair Value Measurements at December 31, 2018 Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	71,568	$	71,568	$	—	$	—
Corporate debt securities	113,097		—		113,097		—
U.S. treasury and government agency securities	10,323		—		10,323		—
Commercial paper	3,995		—		3,995		—
Certificates of deposit	13,500		—		13,500		—
Total Assets	$	212,483	$	71,568	$	140,915	$	—
Liabilities:
Contingent consideration	359		—		—		359
Total Liabilities	$	359	$	—	$	—	$	359

Cash equivalents

Our cash equivalents are classified as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets and do not have any restrictions on redemption. As of December 31, 2019 and 2018, cash equivalents were comprised of funds in money market accounts.

Marketable securities

Our marketable securities are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing services, which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based upon other significant observable market transactions. At the end of each reporting period, we perform quantitative and qualitative analysis of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analysis, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 2019 or 2018. In addition, there were no transfers or reclassifications of any securities between Level 1 and Level 2 during 2019 or 2018.

Contingent consideration

In accordance with GAAP, for asset acquisitions, we record contingent consideration for obligations we consider to be probable and estimable and these liabilities are not adjusted to fair value. As of December 31, 2019 and December 31, 2018, no contingent consideration was recorded in accrued expenses.

We recorded contingent consideration related to the November 2014 acquisition of Lumara Health Inc. (“Lumara Health”) for our Makena product and related to our June 2013 license agreement for MuGard^® Mucoadhesive Oral Wound Rinse (the “MuGard License Agreement”) with Abeona Therapeutics, Inc. (“Abeona”), under which we acquired the U.S. commercial rights for the management of oral mucositis and stomatitis (the “MuGard Rights”).

The fair value measurements of contingent consideration obligations and the related intangible assets arising from business combinations are classified as Level 3 under the fair value hierarchy as they have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

During 2018, we reduced the fair value of our contingent consideration liability by approximately $49.6 million, primarily based on actual Makena net sales to date and our expectations for future performance, which indicated that achievement of future milestones is not probable. This adjustment was based on our estimates, which are reliant on a number of external factors as well as the exercise of judgment.

We believe the estimated fair values of the contingent payments associated with Lumara Health and the MuGard Rights are based on reasonable assumptions, however, our actual results may vary significantly from the estimated results.

Debt

We estimate the fair value of our debt obligations by using quoted market prices obtained from third-party pricing services, which is classified as a Level 2 input. As of December 31, 2019, the estimated fair value of the 2022 Convertible Notes was $274.8 million, which differed from its carrying value. As of December 31, 2018, the estimated fair value of the 2022 Convertible Notes and the 2019 Convertible Notes was $294.8 million and $20.9 million, respectively, which differed from their carrying values. See Note R, “Debt,” for additional information on our debt obligations.

Nonrecurring Fair Value Measurements

During the year ended December 31, 2019, we measured the Makena base technology, Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets at fair value based on indicators of impairment identified for the Makena, Intrarosa and Vyleesi products. The aggregate fair values of our intangible assets at December 31, 2019 was $23.6 million and we recorded total impairment charges of $232.3 million in our consolidated statements of operations for the year ended December 31, 2019. The fair value measurement related to the Makena base technology intangible asset was recorded during the second quarter of 2019. The Makena auto-injector developed technology intangible asset was measured at fair value as of October 29, 2019 and the Intrarosa developed technology and Vyleesi developed technology intangible assets were measured at fair value as of December 31, 2019. See Note I, “Goodwill and Intangible Assets, Net” for additional information regarding our intangible asset impairment assessments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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