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Fair Value Measurements (Tables) | 6 Months Ended
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Jun. 30, 2015
Fair Value Disclosures [Abstract] |
Summary of the assets and liabilities measured at fair value on recurring basis | The following table provides a summary of the carrying value of assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2015 (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: |  |  |  |  |  |  |
Cash equivalents (1) | $ | 88,077 |  |  | $ | — |  |  | $ | 88,077 |  |  | $ | — |
Short-term investments (2) | 73,371 |  |  | 13,262 |  |  | 60,109 |  |  | — |
Note receivable Viking Therapeutics, Inc. (3) | 5,547 |  |  | — |  |  | — |  |  | 5,547 |
Total assets | $ | 166,995 |  |  | $ | 13,262 |  |  | $ | 148,186 |  |  | $ | 5,547 |
Liabilities: |  |  |  |  |  |  |
Current contingent liabilities-CyDex (4) | $ | 4,597 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,597 |
Current contingent liabilities-Metabasis (5) | 3,077 |  |  | — |  |  | 3,077 |  |  | — |
Long-term contingent liabilities-CyDex (4) | 5,773 |  |  | — |  |  | — |  |  | 5,773 |
Long-term contingent liabilities-Metabasis (5) | 5,316 |  |  | — |  |  | 5,316 |  |  | — |
Liability for amounts owed to former licensees(6) | 1,678 |  |  | 1,678 |  |  | — |  |  | — |
Total liabilities | $ | 20,441 |  |  | $ | 1,678 |  |  | $ | 8,393 |  |  | $ | 10,370 |
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, 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: |  |  |  |  |  |  |
Cash equivalents (1) | $ | 69,261 |  |  | $ | — |  |  | $ | 69,261 |  |  | $ | — |
Current co-promote termination payments receivable (7) | 322 |  |  | — |  |  | — |  |  | 322 |
Short-term investments (2) | 7,133 |  |  | 7,133 |  |  | — |  |  | — |
Total assets | $ | 76,716 |  |  | $ | 7,133 |  |  | $ | 69,261 |  |  | $ | 322 |
Liabilities: |  |  |  |  |  |  |
Current contingent liabilities-CyDex (4) | $ | 6,796 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,796 |
Current co-promote termination liability (7) | 322 |  |  | — |  |  | — |  |  | 322 |
Long-term contingent liabilities-Metabasis (5) | 3,652 |  |  | — |  |  | 3,652 |  |  | — |
Long-term contingent liabilities-CyDex (4) | 4,701 |  |  | — |  |  | — |  |  | 4,701 |
Liability for amounts owed to former licensees (6) | 773 |  |  | 773 |  |  | — |  |  | — |
Total liabilities | $ | 16,244 |  |  | $ | 773 |  |  | $ | 3,652 |  |  | $ | 11,819 |
*Adjusted to correct an error in disclosure that was deemed immaterial to the financial statements taken as a whole. Contingent liabilities related to Metabasis were reclassified from Level 1 to Level 2 as market is deemed inactive. Additionally, certain certificates of deposit with maturities less than 90 days were not previously disclosed in the table above.
(1) | Highly liquid investments with maturities less than 90 days from the purchase date are recorded as cash equivalents that are classified as Level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
(2) | Investments in equity securities, which the Company received as a result of event-based and upfront payments from licensees, are classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. Short-term investments in marketable securities with maturities greater than 90 days are classified as level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
(3) | The fair value of the convertible note receivable from Viking was determined using a probability weighted option pricing model using a lattice methodology. The fair value is subjective and is affected by certain significant input to the valuation model such as the estimated volatility of the common stock, which was estimated to be 50% at June 30, 2015. Changes in these assumptions may materially affect the fair value estimate.
(4) | 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.
(5) | The liability for CVRs for Metabasis are determined using quoted market prices in an inactive market for the underlying CVR.
(6) | The liability for amounts owed to former licensees are determined using quoted market prices in active markets for the underlying investment received from a partner, a portion of which is owed to former licensees.
(7) | The co-promote termination payments receivable represents a receivable for future payments to be made by Pfizer related to product sales and is recorded at its fair value. The receivable and liability will remain equal. The fair value is determined based on a valuation model using an income approach.
CyDex Acquisition | The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:
| June 30, 2015 |  | December 31, 2014
Range of annual revenue subject to revenue sharing (1) | $20.2 million-$21.8 million |  | $17.2 million-$17.3 million
Revenue volatility | 30% |  | 25%
Average probability of commercialization | 80% |  | 81%
Sales beta | 0.50 |  | 0.60
Credit rating | B |  | B
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.
Reconciliation of level 3 financial instruments | A reconciliation of the level 3 financial instruments as of June 30, 2015 is as follows (in thousands):
Assets: |
Fair value of level 3 financial instrument assets as of December 31, 2014 | $ | 322 |
Assumed payments made by Pfizer or assignee | (390 | )
Fair value adjustments to co-promote termination liability | 68 |
Viking note receivable | 5,547 |
Fair value of level 3 financial instrument assets as of June 30, 2015 | $ | 5,547 |
Liabilities: |
Fair value of level 3 financial instrument liabilities as of December 31, 2014 | $ | 11,819 |
Assumed payments made by Pfizer or assignee | (390 | )
Payments to CVR and other former license holders | (3,296 | )
Fair value adjustments to contingent liabilities | 2,169 |
Fair value adjustments to co-promote termination liability | 68 |
Fair value of level 3 financial instrument liabilities as of June 30, 2015 | $ | 10,370 |

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- Definition Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19279-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a,b,bb) -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2C -URI http://asc.fasb.org/extlink&oid=36462937&loc=SL7498348-110258 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19190-110258 + Details
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