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Financial Instruments | 12 Months Ended
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Dec. 31, 2014
Fair Value Disclosures [Abstract] |
Financial Instruments | Financial Instruments The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income, equity securities, and contingent liabilities. The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2013 (in thousands):
Fair Value Measurements at Reporting Date Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Current portion of co-promote termination payments receivable | $ | 4,329 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,329 |
Short-term investments | 4,340 |  |  | 4,340 |  |  | — |  |  | — |
Long-term portion of co-promote termination payments receivable | 7,417 |  |  | — |  |  | — |  |  | 7,417 |
Total assets | $ | 16,086 |  |  | $ | 4,340 |  |  | $ | — |  |  | $ | 11,746 |
Liabilities: |  |  |  |  |  |  |
Current portion of contingent liabilities - CyDex | $ | 1,712 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,712 |
Current portion of co-promote termination liability | 4,329 |  |  | — |  |  | — |  |  | 4,329 |
Long-term portion of contingent liabilities - Metabasis | 4,196 |  |  | 4,196 |  |  | — |  |  | — |
Long-term portion of contingent liabilities - CyDex | 7,599 |  |  | — |  |  | — |  |  | 7,599 |
Liability for restricted investments owed to former licensees | 651 |  |  | 651 |  |  | — |  |  | — |
Long-term portion of co-promote termination liability | 7,417 |  |  | — |  |  | — |  |  | 7,417 |
Total liabilities | $ | 25,904 |  |  | $ | 4,847 |  |  | $ | — |  |  | $ | 21,057 |
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012 (in thousands):
Fair Value Measurements at Reporting Date Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Current portion of co-promote termination payments receivable | $ | 4,327 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,327 |
Available-for-sale securities | 1,426 |  |  | — |  |  | — |  |  | 1,426 |
Long-term portion of co-promote termination payments receivable | 8,207 |  |  | — |  |  | — |  |  | 8,207 |
Total assets | $ | 13,960 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,960 |
Liabilities: |  |  |  |  |  |  |
Current portion of contingent liabilities - CyDex | $ | 356 |  |  | $ | — |  |  | $ | — |  |  | $ | 356 |
Current portion of co-promote termination liability | 4,327 |  |  | — |  |  | — |  |  | 4,327 |
Long-term portion of contingent liabilities - CyDex | 10,543 |  |  | — |  |  | — |  |  | 10,543 |
Liability for restricted investments owed to former licensees | 214 |  |  | — |  |  | — |  |  | 214 |
Long-term portion of co-promote termination liability | 8,207 |  |  | — |  |  | — |  |  | 8,207 |
Total liabilities | $ | 23,647 |  |  | $ | — |  |  | $ | — |  |  | $ | 23,647 |
The fair value of the Company’s investments which were classifed as short-term investments for the year ended December 31, 2013 is determined using quoted market prices in active markets. These investments were classified as level 3 for the year ended December 31, 2012 due to a discount based on trading restrictions. These restrictions were removed during the year ended December 31, 2013 and the Company transferred the available-for-sale investments and corresponding liability for amounts owed to former licensees from level 3 to level 1. The liability for CVRs for Metabasis are determined using quoted market prices in active markets. The fair value of the liabilities for CyDex contingent liabilities were determined based on the income approach using a Monte Carlo analysis. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability of commercialization of products, estimates of timing and probability of achievement of certain revenue thresholds and developmental and regulatory milestones which may be achieved and affect amounts owed to former license holders and CVR holders. Changes in these assumptions can materially affect the fair value estimate. The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:
|  | December 31,
|  | 2013 |  | 2012
Range of annual revenue subject to revenue sharing (1) |  | $4.2 million-$19.8 million |  | $3.6 million-$28.3 million
Revenue volatility |  | 25% |  | 25%
Average of probability of commercialization |  | 67.6% |  | 68.4%
Sales beta |  | 0.60 |  | 0.60
Credit rating |  | BBB |  | BBB
Equity risk premium |  | 6% |  | 6%
(1) | Revenue subject to revenue sharing represent management’s estimate of the range of total annual revenue subject to revenue sharing (i.e. annual revenues in excess of $15 million) through December 31, 2016, which is the term of the CVR agreement.
There are no remaining CVR obligations under the agreement with the former Neurogen shareholders. The co-promote termination payments receivable represents a non-interest bearing receivable for future payments to be made by Pfizer and is recorded at its fair value. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding future Avinza product sales. The receivable and liability will remain equal and adjusted each quarter for changes in the fair value of the obligation including any changes in the estimate of future net Avinza product sales. A reconciliation of the level 3 financial instruments as of December 31, 2013 is as follows (in thousands):
Assets: |
Fair value of level 3 financial instruments as of December 31, 2012 | $ | 13,960 |
Assumed payments made by Pfizer or assignee | (3,310 | )
Fair value adjustments recorded as unrealized gain on available-for-sale securities | 2,914 |
Fair value adjustments to co-promote termination liability | 2,522 |
Transfer of available-for-sale investments from level 3 to level 1 | (4,340 | )
Fair value of level 3 financial instrument assets as of December 31, 2013 | $ | 11,746 |
Liabilities |
Fair value of level 3 financial instruments as of December 31, 2012 | $ | 23,647 |
Assumed payments made by Pfizer or assignee | (3,310 | )
Fair value adjustments for amounts owed related to restricted investments and recorded as other expense | 437 |
Payments to CVR and other former license holders | (989 | )
Fair value adjustments to contingent liabilities | (599 | )
Fair value adjustments to co-promote termination liability | 2,522 |
Transfer of liability for restricted investments owed to former licensees from level 3 to level 1 | (651 | )
Fair value of level 3 financial instruments as of December 31, 2013 | $ | 21,057 |

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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