E. FAIR VALUE MEASUREMENTS

The following tables represent the fair value hierarchy as of December 31, 2015 and 2014, for those assets and liabilities that we measure at fair value on a recurring basis (in thousands):


	Fair Value Measurements at December 31, 2015 Using:
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	73,676	$	73,676	$	—	$	—
Corporate debt securities		200,677		—		200,677		—
Commercial paper		34,449		—		34,449		—
Municipal securities		2,500		—		2,500		—
Total Assets	$	311,302	$	73,676	$	237,626	$	—
Liabilities:
Contingent consideration - Lumara Health	$	214,895	$	—	$	—	$	214,895
Contingent consideration - MuGard		7,664		—		—		7,664
Total Liabilities	$	222,559	$	—	$	—	$	222,559


	Fair Value Measurements at December 31, 2014 Using:
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	77,254	$	77,254	$	—	$	—
Corporate debt securities		24,890		—		24,890		—
Total Assets	$	102,144	$	77,254	$	24,890	$	—
Liabilities:
Contingent consideration - Lumara Health	$	206,600	$	—	$	—	$	206,600
Contingent consideration - MuGard		12,102		—		—		12,102
Total Liabilities	$	218,702	$	—	$	—	$	218,702

Investments

Our money market funds 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. Our investments 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 analyses of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analyses, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 2015 or 2014. In addition, there were no transfers or reclassifications of any securities between Level 1 and Level 2 during 2015 or 2014.

Contingent consideration

We accounted for the acquisitions of each of Lumara Health, CBR and the MuGard Rights as business combinations under the acquisition method of accounting. Additional details regarding our acquisitions and license agreements can be found in Note C, “Business Combinations.” There were no contingent consideration obligations related to the CBR acquisition. The fair value measurements of contingent consideration obligations and the related intangible assets arising from business combinations are classified as Level 3 assets under the fair value hierarchy as these assets 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.

The following table presents a reconciliation of contingent consideration obligations related to the acquisition of Lumara Health and the MuGard Rights (in thousands):


Balance as of January 1, 2014	$	14,550
Payments made		(270)
Adjustments to fair value of contingent consideration		(681)
Acquisition date fair value of Lumara Health contingent consideration		205,000
Other adjustments		103
Balance as of December 31, 2014	$	218,702
Payments made		(456)
Adjustments to fair value of contingent consideration		4,271
Other adjustments		42
Balance as of December 31, 2015	$	222,559

The $4.3 million increase in adjustments to the fair value of the contingent consideration liability in 2015 were due primarily to a $8.3 million increase to the Makena contingent consideration related to the time value of money, partially offset by a $4.0 million reduction to the MuGard contingent consideration due to changes in estimated amounts and timing of cash flows related to the royalties we expect to pay to Abeona under the MuGard License Agreement as a result of an update to the total forecasted net sales for MuGard. During 2014, we also revised our forecast of total projected net sales for MuGard and reassessed the fair value of the contingent consideration liability related to the MuGard Rights. As a result, we reduced our contingent consideration liability by $2.3 million for year ended December 31, 2014. This reduction was partially offset by a $1.6 million increase to the Makena contingent consideration liability related to the time value of money. These adjustments were included in selling, general and administrative expenses in our consolidated statements of operations. We have classified $96.4 million of the Makena contingent consideration and $0.6 million of the MuGard contingent consideration as short-term liabilities in our consolidated balance sheet as of December 31, 2015.

The fair value of the contingent milestone payments payable by us to the former stockholders of Lumara Health was determined based on our probability-adjusted discounted cash flows estimated to be realized from the net sales of Makena from December 1, 2014 through December 31, 2019. The cash flows were discounted at a rate of 5%, which we believe is reasonable given the estimated likelihood of the pay-out. As of December 31, 2015, the total undiscounted milestone payment amounts we could pay in connection with the Lumara Health acquisition is $350.0 million over the period from December 1, 2014 to December 31, 2019.

The fair value of the contingent royalty payments payable by us to Abeona was determined based on various market factors, including an analysis of estimated sales using a discount rate of approximately 12%. As of December 31, 2015, we estimate that the undiscounted royalty amounts we could pay under the MuGard License Agreement, based on current projections, may range from $9.0 million to $13.0 million over a ten year period beginning on June 6, 2013, the acquisition date, which is our best estimate of the period over which we expect the majority of the asset’s cash flows to be derived.

We believe the estimated fair values of 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, 2015, the estimated fair value of our 2023 Senior Notes was $437.5 million. As of December 31, 2015 and 2014, the estimated fair value of our 2.5% Convertible Notes was approximately $246.0 million and $332.0 million, respectively, which differed from their carrying values. In addition, the estimated fair value of our 2015 and 2014 term loan facilities was $337.8 million and $342.0 million, which differed from their carry values. See Note R, "Debt" for additional information on our debt obligations.