3.Fair value of financial instruments and marketable securities

The Company follows the fair value measurement rules, which provides guidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.

Level 2—Inputs 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 as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Cash equivalents and investments are reflected in the accompanying financial statements at fair value. The carrying amount of grant and collaboration receivables, accounts payable and accrued expenses, and debt approximates fair value due to the short-term nature of those instruments.

Fair value of certain marketable securities is based upon market prices using quoted prices in active markets for identical assets quoted on the last day of the period. In establishing the estimated fair value of the remaining investments, the Company used the fair value as determined by its investment advisors using observable inputs other than quoted prices.

The Company reviews its investments on a periodic basis for other-than-temporary impairments. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the fair value of the investment.

The following represents the fair value using the hierarchy described above for the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Total		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Marketable securities	$	237,235	$	—	$	237,235	$	—
Warrant liability	$	1	$	—	$	—	$	1
Stock appreciation rights liability	$	140	$	—	$	—	$	140

	December 31, 2015
	Total		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Marketable securities	$	280,903	$	—	$	280,903	$	—
Warrant Liability	$	48	$	—	$	—	$	48
Stock appreciation rights liability	$	—	$	—	$	—	$	—

No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the periods ended June 30, 2016 and December 31, 2015.

The following is a summary of marketable securities accounted for as available-for-sale securities at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Commercial paper	$	11,969	$	21	$	—		$	11,990
Corporate debt securities	210,640		274		(26		)	210,888
Government obligations	14,353		4		—			14,357

	$	236,962	$	299	$	(26	)	$	237,235

	December 31, 2015
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Commercial paper	$	26,877	$	80	$	—		$	26,957
Corporate debt securities	226,959		—		(640		)	226,319
Government obligations	27,656		3		(32		)	27,627

	$	281,492	$	83	$	(672	)	$	280,903

At June 30, 2016 and December 31, 2015, the Company held securities with an unrealized loss position that were not considered to be other-than-temporarily impaired as the Company has the ability to hold such investments until recovery of their fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ equity. As of June 30, 2016 and December 31, 2015, the Company did not have any realized gains/losses from the sale of marketable securities.

Marketable securities on the balance sheet at June 30, 2016 and December 31, 2015 mature as follows:

	June 30, 2016
	Less Than 12 Months		More Than 12 Months
Commercial paper	$	11,990	$	—
Corporate debt securities	159,714		51,174
Government obligations	14,357		—

Total Marketable securities	$	186,061	$	51,174

	December 31, 2015
	Less Than 12 Months		More Than 12 Months
Commercial paper	$	26,957	$	—
Corporate debt securities	140,831		85,488
Government obligations	18,994		8,633

Total Marketable securities	$	186,782	$	94,121

The Company classifies all of its securities as current as they are all available for sale and are available for current operations.

Level 3 valuation

The warrant liability is classified in Other long-term liabilities on the Company’s consolidated balance sheets. The warrant liability is marked-to-market each reporting period with the change in fair value recorded as a gain or loss within Other expense, net, on the Company’s consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument. The fair value of the warrant liability is determined at each reporting period by utilizing the Black-Scholes option pricing model.

The stock appreciation rights (SARs) liability is classified in Other long-term liabilities on the Company’s consolidated balance sheets. The SARs liability is marked-to-market each reporting period with the change in fair value recorded as compensation expense on the Company’s consolidated statements of operations until the SARS vest. The fair value of the SARs liability is determined at each reporting period by utilizing the Black-Scholes option pricing model.

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability and SARs liability for the period ended June 30, 2016:

	Level 3 liabilities
	Warrants			SARs
Beginning balance as of December 31, 2015	$	48		$	—
Change in fair value	(47		)	140

Ending balance as of June 30, 2016	$	1		$	140

Fair value of the warrant liability is estimated using an option-pricing model, which includes variables such as the expected volatility based on guideline public companies, the stock fair value, and the estimated time to a liquidity event. The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of June 30, 2016 include (i) volatility (75%—77%), (ii) risk free interest rate (0.45%—0.71%), (iii) strike price ($128.00-$2,520.00), (iv) fair value of common stock ($7.02), and (v) expected life (0.96—3.23 years). The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of December 31, 2015 include (i) volatility (62%-70%), (ii) risk free interest rate (0.86%—1.54%), (iii) strike price ($128.00—$2,520.00), (iv) fair value of common stock ($32.40), and (v) expected life (1.50—3.70 years).

Fair value of the SARs liability is estimated using an option-pricing model, which includes variables such as the expected volatility based on guideline public companies, the stock fair value, and the estimated time to a liquidity event. The significant assumptions used in preparing the option pricing model for valuing the Company’s SARs as of June 30, 2016 include (i) volatility (70%), (ii) risk free interest rate (0.36%—0.86%), (iii) strike price ($6.76-$30.86), (iv) fair value of common stock ($7.02), and (v) expected life (0.52—3.52 years).