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Fair Value Measurements (Tables) | 6 Months Ended
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Jun. 30, 2016
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, 2016 (in thousands). There were no transfers between Level 1 and Level 2 securities during the six months ended June 30, 2016:
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: |  |  |  |  |  |  |
Short-term investments (2) | $ | 44,908 |  |  | $ | 4,829 |  |  | $ | 40,079 |  |  | $ | — |
Note receivable Viking (3) | 3,207 |  |  | — |  |  | — |  |  | 3,207 |
Investment in warrants (4) | 532 |  |  | 532 |  |  | — |  |  | — |
Total assets | $ | 48,647 |  |  | $ | 5,361 |  |  | $ | 40,079 |  |  | $ | 3,207 |
Liabilities: |  |  |  |  |  |  |
Current contingent liabilities-CyDex (5) | $ | 5,337 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,337 |
Long-term contingent liabilities-CyDex (5) | 1,634 |  |  | — |  |  | — |  |  | 1,634 |
Long-term contingent liabilities-Metabasis (6) | 2,504 |  |  | — |  |  | 2,504 |  |  | — |
Liability for amounts owed to former licensees(7) | 611 |  |  | 611 |  |  | — |  |  | — |
Total liabilities | $ | 10,086 |  |  | $ | 611 |  |  | $ | 2,504 |  |  | $ | 6,971 |
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, 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) | $ | 3,015 |  |  | $ | — |  |  | $ | 3,015 |  |  | $ | — |
Short-term investments (2) | 92,775 |  |  | 6,786 |  |  | 85,989 |  |  | — |
Viking note receivable (3) | 4,782 |  |  | — |  |  | — |  |  | 4,782 |
Total assets | $ | 100,572 |  |  | $ | 6,786 |  |  | $ | 89,004 |  |  | $ | 4,782 |
Liabilities: |  |  |  |  |  |  |
Current contingent liabilities-CyDex (5) | $ | 7,812 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,812 |
Current contingent liabilities-Metabasis (6) | 2,602 |  |  | — |  |  | 2,602 |  |  | — |
Long-term contingent liabilities-Metabasis (6) | 1,355 |  |  | — |  |  | 1,355 |  |  | — |
Long-term contingent liabilities-CyDex (5) | 1,678 |  |  | — |  |  | — |  |  | 1,678 |
Liability for amounts owed to former licensees (7) | 794 |  |  | 794 |  |  | — |  |  | — |
Total liabilities | $ | 14,241 |  |  | $ | 794 |  |  | $ | 3,957 |  |  | $ | 9,490 |
(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 75% at June 30, 2016. Changes in these assumptions may materially affect the fair value estimate.
(4) | Investment in warrants, which the Company received as a result of Viking’s partial repayment of the Viking note receivable and the Company’s purchase of Viking common stock and warrants in April 2016, are classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities.
(5) | 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.
(6) | The liability for CVRs for Metabasis are determined using quoted market prices in an inactive market for the underlying CVR.
(7) | 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.
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, 2016 |  | December 31, 2015
Range of annual revenue subject to revenue sharing (1) | $24.2 million |  | $22.5 million
Revenue volatility | 25% |  | 25%
Average probability of commercialization | 82% |  | 73%
Sales beta | 0.30 |  | 0.40
Credit rating | BB |  | BB
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, 2016 is as follows (in thousands):
Assets: |
Fair value of level 3 financial instrument assets as of December 31, 2015 | $ | 4,782 |
Viking note receivable fair market value adjustment | (215 | )
Cash payment received as partial repayment of note receivable | (300 | )
Fair market value of stock received as partial repayment of note receivable | (1,060 | )
Fair value of level 3 financial instrument assets as of June 30, 2016 | $ | 3,207 |
Liabilities: |
Fair value of level 3 financial instrument liabilities as of December 31, 2015 | $ | 9,490 |
Payments to CVR and other former license holders | (2,992 | )
Fair value adjustments to contingent liabilities | 473 |
Fair value of level 3 financial instrument liabilities as of June 30, 2016 | $ | 6,971 |

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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=66048111&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 (bb) -URI http://asc.fasb.org/extlink&oid=66048111&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 2 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 5: 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=66048111&loc=SL7498348-110258 Reference 6: 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=66048111&loc=d3e19190-110258 + Details
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- Definition Tabular disclosure of quantitative information about the inputs used in the fair value measurement of liabilities. This disclosure may include, but is not limited to, the fair value of the liability, valuation technique used to measure fair value, the inputs used to measure fair value, the ranges of the inputs, and the weighted averages of the inputs. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (bbb) -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 + Details
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