Marketable Securities and Fair Value Measurements

9 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Marketable Securities and Fair Value Measurements

Note 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The Company’s marketable securities are classified as available-for-sale securities and, accordingly, are recorded at fair value. The difference between amortized cost and fair value is included in stockholders’ equity.

The Company’s marketable securities at December 31, 2015 and March 31, 2015 are invested in the following:

	Amortized		Gross Unrealized		Gross Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(in $000's)
December 31, 2015:
US Treasury mutual fund securities	$	19,488	$	—	$	—		$	19,488
Short-term government-backed securities		123,499		16		(35	)		123,480
	$	142,987	$	16	$	(35	)	$	142,968

	Amortized		Gross Unrealized		Gross Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(in $000's)
March 31, 2015:
US Treasury mutual fund securities	$	19,487	$	—	$	—		$	19,487
Short-term government-backed securities		90,070		9		(9	)		90,070
Long-term government-backed securities		13,999		2		(5	)		13,996
	$	123,556	$	11	$	(14	)	$	123,553

Fair Value Hierarchy

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Level 1 primarily consists of financial instruments whose values are based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 is comprised of unobservable inputs that are supported by little or no market activity. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flows, or similar techniques, and at least one significant model assumption or input is unobservable.

The following table presents the Company’s financial instruments recorded at fair value in the condensed consolidated balance sheets, classified according to the three categories described above:

	Level 1		Level 2		Level 3		Total
December 31, 2015:	(in $000's)
Assets
U.S. Treasury mutual fund securities	$	—	$	19,488	$	—	$	19,488
Short-term government-backed securities		—		123,480		—		123,480
Liabilities
Contingent consideration		—		—		7,392		7,392

	Level 1		Level 2		Level 3		Total
March 31, 2015:	(in $000's)
Assets
U.S. Treasury mutual fund securities	$	—	$	19,487	$	—	$	19,487
Short-term government-backed securities		—		90,070		—		90,070
Long-term government-backed securities		—		13,996		—		13,996
Liabilities
Contingent consideration		—		—		6,510		6,510

The Company’s investments in U.S. Treasury mutual fund securities, short-term government-backed securities and long-term government-backed securities are reported as Level 2 financial assets as they are not exchange-traded instruments.

The Company’s financial liabilities consisted of contingent consideration potentially payable to former ECP shareholders related to the acquisition of ECP in July 2014. This liability is reported as Level 3 as the estimated fair value of the contingent consideration related to the acquisition of the ECP requires significant management judgment or estimation and is calculated using the income approach, using various revenue and cost assumptions and applying a probability to each outcome.

The following table summarizes the change in fair value, as determined by Level 3 inputs, of the contingent consideration for the nine months ended December 31, 2015:

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
		2015		2014		2015		2014
	(in $000's)				(in $000's)
Level 3 liabilities, beginning balance	$	6,817	$	5,797	$	6,510	$	—
Additions		—		—		—		6,000
Payments		—		—		—		—
Change in fair value		575		568		882		365
Level 3 liabilities, ending balance	$	7,392	$	6,365	$	7,392	$	6,365

The change in fair value of the contingent consideration was due to an increase in fair value caused by the effect of the passage of time on the fair value measurement of milestones related to the ECP acquisition and continued progress on the development of the underlying technology. Adjustments associated with the change in fair value of contingent consideration are included in research and development expenses on the Company’s condensed consolidated statements of operations.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements as of December 31, 2015 classified as Level 3:

	Fair Value at				Weighted Average
	December 31, 2015			Significant	(range, if
	(in $000's)		Valuation Methodology	Unobservable Input	applicable)
Contingent consideration	$	7,392	Probability weighted income approach	Milestone dates	2018 to 2021
				Discount rate	8% to 12%
				Probability of occurrence	Probability adjusted level of 40% for the base case scenario and 5% to 30% for various upside and downside scenarios

Other Investments

The Company periodically makes investments in private medical device companies that focus on heart failure and heart pump technologies.  In July 2015, the Company invested $0.8 million for its participation in a preferred stock offering of a private medical technology company. The aggregate carrying amount of the Company’s other investments was $4.4 million and $3.6 million at each of December 31, 2015 and March 31, 2015, respectively, and is classified within other assets in the unaudited condensed consolidated balance sheets. These investments are accounted for using the cost method and are measured at fair value only if there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of these investments.