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Financial Instruments | 6 Months Ended
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Jun. 30, 2014
Investments, All Other Investments [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, co-promote termination payments receivable and the related liability, and contingent liabilities. The fair value of the Company’s investments which were classified as short-term investments as of June 30, 2014 and December 31, 2013 is determined using quoted market prices in active markets. These securities were received by the Company in December 2012 and June 2014 as a result of an event-based payment and an upfront license payment, respectively, under licensees. Additionally, the liability for CVRs for Metabasis are determined using quoted market prices in active markets. 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 are adjusted each reporting period for changes in the fair value of the obligation including any changes in the estimate of future net Avinza product sales. 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 provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014 (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 | $ | 391 |  |  | $ | — |  |  | $ | — |  |  | $ | 391 |
Available-for-sale securities | 7,490 |  |  | 7,490 |  |  | — |  |  | — |
Restricted cash and investments | 1,261 |  |  | — |  |  | 1,261 |  |  | — |
Long-term portion of co-promote termination payments receivable | 413 |  |  | — |  |  | — |  |  | 413 |
Total assets | $ | 9,555 |  |  | $ | 7,490 |  |  | $ | 1,261 |  |  | $ | 804 |
Liabilities: |  |  |  |  |  |  |
Current portion of contingent liabilities-CyDex | $ | 2,877 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,877 |
Current portion of co-promote termination liability | 391 |  |  | — |  |  | — |  |  | 391 |
Long-term portion of contingent liabilities-Metabasis | 4,724 |  |  | 4,724 |  |  | — |  |  | — |
Long-term portion of contingent liabilities-CyDex | 7,498 |  |  | — |  |  | — |  |  | 7,498 |
Liability for short-term investments owed to former licensees | 1,078 |  |  | 1,078 |  |  | — |  |  | — |
Long-term portion of co-promote termination liability | 413 |  |  | — |  |  | — |  |  | 413 |
Total liabilities | $ | 16,981 |  |  | $ | 5,802 |  |  | $ | — |  |  | $ | 11,179 |
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 |
Available-for-sale securities | 4,340 |  |  | 4,340 |  |  | — |  |  | — |
Restricted cash and investments | 1,341 |  |  | — |  |  | 1,341 |  |  | — |
Long-term portion of co-promote termination payments receivable | 7,417 |  |  | — |  |  | — |  |  | 7,417 |
Total assets | $ | 17,427 |  |  | $ | 4,340 |  |  | $ | 1,341 |  |  | $ | 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 short-term 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 represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:
| June 30, 2014 |  | December 31, 2013
Range of annual revenue subject to revenue sharing (1) | $13.1 million-$18.9 million |  | $4.2 million-$19.8 million
Revenue volatility | 25% |  | 25%
Average of probability of commercialization | 79.3% |  | 67.6%
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.
A reconciliation of the level 3 financial instruments as of June 30, 2014 is as follows (in thousands):
Assets: |
Fair value of level 3 financial instrument assets as of December 31, 2013 | $ | 11,746 |
Assumed payments made by Pfizer or assignee | (631 | )
Fair value adjustments to co-promote termination liability | (10,311 | )
Fair value of level 3 financial instrument assets as of June 30, 2014 | $ | 804 |
Liabilities: |
Fair value of level 3 financial instrument liabilities as of December 31, 2013 | $ | 21,057 |
Assumed payments made by Pfizer or assignee | (631 | )
Payments to CVR and other former license holders | (1,668 | )
Fair value adjustments to contingent liabilities | 2,732 |
Fair value adjustments to co-promote termination liability | (10,311 | )
Fair value of level 3 financial instrument liabilities as of June 30, 2014 | $ | 11,179 |

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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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