6.	Fair Value Measurements

We record auction rate securities at fair value in the accompanying Consolidated Balance Sheets in accordance with ASC 320 Investments – Debt and Equity Securities. The change in the fair value of these investments is recorded as a component of accumulated other comprehensive loss (see Note 2. Summary of Significant Accounting Policies - Fair Value Measurements in the notes to consolidated financial statements included in our 2012 Annual Report on Form 10-K). We also record the contingent consideration liability resulting from the MIP acquisition, as referenced in Note 3, at fair value in accordance with ASC 820-10-50.

The following tables present our money market funds and auction rate securities assets and contingent consideration liability measured at fair value on a recurring basis as of the dates indicated, classified by valuation hierarchy:

			Fair Value Measurements at September 30, 2013
	Balance at September 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	70,355	$	70,355	$	-	$	-
Auction rate securities		2,208		-		-		2,208
Total Assets	$	72,563	$	70,355	$	-	$	2,208

Liability:
Contingent consideration	$	15,900	$	-	$	-	$	15,900
Total Liability	$	15,900	$	-	$	-	$	15,900

			Fair Value Measurements at December 31, 2012
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	56,224	$	56,224	$	-	$	-
Auction rate securities		3,240		-		-		3,240
Total Assets	$	59,464	$	56,224	$	-	$	3,240

At September 30, 2013 we held $2,208 in auction rate securities which are classified as Level 3. The fair value of these securities includes $2,208 of U.S. government subsidized securities collateralized by student loan obligations, with maturities greater than 10 years. We will not realize cash in respect of the principal amount of these securities until the issuer calls or restructures the security, the security reaches any scheduled maturity and is paid, or a buyer outside the auction process emerges. As of September 30, 2013, we have received all scheduled interest payments on these securities, which, in the event of auction failure, are reset according to contractual terms in the governing instruments.

The valuation of auction rate securities we hold is based on Level 3 unobservable inputs which consist of our internal analysis of (i) timing of expected future successful auctions or issuer calls of the securities, (ii) collateralization of underlying assets of the security and (iii) credit quality of the security. Significant increases (decreases) in the redemption period or discount rates would result in a significantly lower (higher) fair value measurement. In re-evaluating the valuation of these securities as of September 30, 2013, the temporary impairment amount, the duration of which is greater than 12 months, decreased from $260 at December 31, 2012, to $192, which is reflected as part of accumulated other comprehensive loss on our accompanying Consolidated Balance Sheets and based on such re-evaluation, we believe that we have the ability to hold these securities until recovery of fair value. Due to the uncertainty related to the liquidity in the auction rate security market and therefore when individual positions may be liquidated, we have classified these auction rate securities as long-term assets on our accompanying Consolidated Balance Sheets. We continue to monitor markets for our investments and consider the impact, if any, of market conditions on the fair market value of our investments. We do not believe the carrying values of our investments are other than temporarily impaired and therefore expect the positions will eventually be liquidated without significant loss.

The estimated fair value of the contingent consideration liability of $15.9 million represents future potential milestone payments to former MIP stockholders. The Company considers this liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. The estimated fair value was determined based on probability adjusted discounted cash flow and Monte Carlo simulation models that included significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs were the probabilities of achieving regulatory approval of the development projects and subsequent commercial success, and discount rates. Significant changes in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant changes in the probabilities as to the periods in which milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively. The Company reviews the fair value of the contingent consideration liability quarterly or whenever events or circumstances occur that indicate there has been a change in fair value; changes in estimated fair values are recorded in the general and administrative expenses in the Consolidated Statements of Operations.

The following table presents quantitative information pertaining to the fair value measurement of the Level 3 inputs:

	Fair Value as of September 30, 2013		Valuation Technique	Unobservable Input	Range (Weighted Average)
Asset:
Auction Rate Securities	$	2,208	Discounted cash flow model	Redemption period	5 to 15 years (6 years)
				Discount rate	0.375% - 2.031% (1.23%)
Contingent consideration liability:
Azedra commercialization	$	2,300	Probability adjusted discounted cash flow model	Probability of success	40%
				Period of milestone expected achievement	2016
				Discount rate	10%

MIP – 1404 commercialization	$	2,000	Probability adjusted discounted cash flow model	Probability of success	31%
				Period of milestone expected achievement	2017
				Discount rate	10%

Small molecule therapeutics (MIP 1095, -1555, -1558) commercialization	$	500	Probability adjusted discounted cash flow model	Probability of success	19%
				Period of milestone expected achievement	2020
				Discount rate	10%

Net sales targets	$	11,100	Monte-Carlo simulation	Probability of success	19% - 40% (32.9%)
				Period of milestone expected achievement	2018 - 2022
				Discount rate	12.5%

	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Asset:
Auction Rate Securities	$	3,240	Discounted cash flow model	Redemption period	4 to 15 years (5.9 years)
				Discount rate	0.125% - 2.102% (0.71%)

For those financial instruments with significant Level 3 inputs (all of which are auction rate securities), the following table summarizes the activities for the periods indicated:

	Asset – Auction Rate Securities Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Three Months Ended September 30,
	2013		2012

Balance at beginning of period	$	2,208	$	3,240
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Total gains (losses)
Included in net loss		-		-
Included in other comprehensive loss		-		-
Settlements at par		-		-
Balance at end of period	$	2,208	$	3,240
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period	$	-	$	-

	Asset – Auction Rate Securities Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Nine Months Ended September 30,
	2013			2012

Balance at beginning of period	$	3,240		$	3,332
Transfers into Level 3		-			-
Transfers out of Level 3		-			-
Total gains (losses)
Included in net loss		-			-
Included in other comprehensive loss		68			8
Settlements at par		(1,100	)		(100	)
Balance at end of period	$	2,208		$	3,240
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period	$	-		$	-

	Liability – Contingent Consideration Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Three Months Ended September 30,
	2013		2012

Balance at beginning of period	$	15,900	$	-
Fair value of contingent consideration – acquisition of Molecular Insight		-		-
Fair value adjustment to contingent consideration included in net loss		-		-
Balance at end of period	$	15,900	$	-
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	-	$	-

	Liability – Contingent Consideration Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Nine Months Ended September 30,
	2013		2012

Balance at beginning of period	$	-	$	-
Fair value of contingent consideration – acquisition of Molecular Insight		15,900		-
Fair value adjustment to contingent consideration included in net loss		-		-
Balance at end of period	$	15,900	$	-
Changes in unrealized gains or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	-	$	-