Fair Value Measurement - Note 3

9 Months Ended

Sep. 30, 2014

Fair Value Measurement Disclosure

Fair Value Measurement

(3) Fair Value Measurement

The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3- Inputs are unobservable and reflect the Company's assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Summary of Assets Recorded at Fair Value

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets (only marketable investment securities) that are required to be measured at fair value as of September 30, 2014 and December 31, 2013 (in thousands):

As of September 30, 2014:		Level 1		Level 2		Level 3		Total
Certificate of deposits	$	-	$	11,430	$	-	$	11,430
Corporate debt		-		95,751		-		95,751
Government agency debt		-		8,797		-		8,797
Money market funds		13,033		-		-		13,033
Total assets at fair value	$	13,033	$	115,978	$	-	$	129,011

As of December 31, 2013:		Level 1		Level 2		Level 3		Total
Certificate of deposits	$	-	$	13,020	$	-	$	13,020
Corporate		-		91,887		-		91,887
Government agencies		-		27,131		-		27,131
Money market funds		23,043		-		-		23,043
Total assets at fair value	$	23,043	$	132,038	$	-	$	155,081

As of September 30, 2014 and December 31, 2013, the fair values of the Company's Level 2 securities were $116.0 million and $132.0 million, respectively. These securities are certificates of deposit, commercial paper, corporate or government agency debt issued by domestic companies or agencies with an original maturity of less than 18 months. These securities are currently rated A-1 or higher. The Company's cash equivalents are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third-party pricing providers or other market observable data. Data used in the analysis include reportable trades, broker/dealer quotes, bids and offers, benchmark yields and credit spreads. The Company validates the prices provided by its third-party pricing providers by reviewing their pricing methods, analyzing pricing inputs and confirming that the securities have traded in normally functioning markets. The Company did not adjust or override any fair value measurements provided by its pricing providers as of September 30, 2014 or December 31, 2013.

As of September 30, 2014 and December 31, 2013, the Company did not have any investments in Level 3 securities.

There were no transfers of assets or liabilities between Level 1 and Level 2 during the three or nine months ended September 30, 2014 and 2013.

The carrying amounts reflected in the condensed consolidated balance sheets for certain short-term financial instruments including accounts receivable, accounts payable, accrued expenses, and other liabilities approximate fair value due to their short-term nature, except that the estimated fair value and carrying value of a royalty liability to the Brigham and Women's Hospital related to sales of cinacalcet HCl using a discounted cash flow model is approximately $3.6 million and $4.6 million, respectively, at September 30, 2014 and $4.3 million and $5.6 million, respectively, at December 31, 2013.

Summary of Liabilities Recorded at Carrying Value

The fair and carrying value of our debt instruments are detailed as follows (in thousands):

		As of September 30, 2014				As of December 31, 2013
		Fair		Carrying		Fair		Carrying
		Value		Value		Value		Value
5.75% Convertible Notes*	$	-	$	-	$	92,338	$	16,545
Sensipar Notes		33,525		33,501		54,097		54,395
rhPTH 1-84-Secured Debt		54,838		42,790		50,058		42,790
Regpara-Secured Debt		30,872		30,986		37,348		35,202
Total	$	119,235	$	107,277	$	233,841	$	148,932
* See Note 6

The fair values of the Company's convertible notes were estimated using the (i) terms of the convertible notes; (ii) rights, preferences, privileges, and restrictions of the underlying security; (iii) time until any restriction(s) are released; (iv) fundamental financial and other characteristics of the Company; (v) trading characteristics of the underlying security (exchange, volume, price, and volatility); and (vi) precedent sale transactions. The fair values of the Company's non-recourse Sensipar notes, recombinant human parathyroid hormone [1-84] ("rhPTH 1-84")-secured debt and Regpara-secured debt were estimated using a discounted cash flow model. Within the hierarchy of fair value measurements, these are Level 3 fair values.