Fair Value Measurements

The following table presents the Company's hierarchy for assets and liabilities measured at fair value.



	March 31, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Short-term investments⁽¹⁾	$	29,292	$	211,572	$	—	$	240,864	$	1,896	$	179,145	$	—	$	181,041
Note receivable Viking ⁽²⁾	—		—		3,877		3,877		—		—		3,877		3,877
Investment in warrants⁽³⁾	4,594		—		—		4,594		3,846		—		—		3,846
Total assets	$	33,886	$	211,572	$	3,877	$	249,335	$	5,742	$	179,145	$	3,877	$	188,764
Liabilities:
Current portion of contingent liabilities - Crystal ⁽⁷⁾	$	—	$	—	$	3,618	$	3,618	$	—	$	—	$	4,618	4,618
Current contingent liabilities-CyDex⁽⁴⁾	—		—		86		86		—		—		86		86
Long-term portion of contingent liabilities - Crystal ⁽⁷⁾	—		—		3,783		3,783		—		—		3,783		3,783
Long-term contingent liabilities-CyDex ⁽⁴⁾	—		—		1,503		1,503		—		—		1,503		1,503
Long-term contingent liabilities-Metabasis⁽⁵⁾	—		1,089		—		1,089		—		3,971		—		3,971
Liability for amounts owed to former licensees⁽⁶⁾	264		—		—		264		284		—		—		284
Total liabilities	$	264	$	1,089	$	8,990	$	10,343	$	284	$	3,971	$	9,990	$	14,245

(1)

Investments in equity securities, which the Company received from Viking and another licensee as upfront and event-based payments, 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 debt 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.


(2)	The fair value of the convertible note receivable approximates the book value since it will mature in May 21, 2018.

(3)

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. The change of the fair value is recorded in the other income or expenses in the Company's condensed consolidated statement of operations.

(4)

The fair value of the liabilities for CyDex contingent liabilities were determined based on the income approach. To the extent the estimated future income may vary significantly given the long-term nature of the estimate, the Company utilizes a Monte Carlo model. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s 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. Changes in these assumptions can materially affect the fair value estimate.


(5)	The liability for CVRs for Metabasis are determined using quoted prices in a market that is not active for the underlying CVR. At March 31, 2018, the Company has a CVR payable of $3.8 million to the Glucagon CVR holders due on July 2, 2018, which is not included in the fair value disclosure.


(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 fair value of Crystal contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on development or regulatory milestones as defined in the merger agreement with Crystal. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. At March 31, 2018, most of the development and regulatory milestones were estimated to be highly probable of being achieved between 2018 and 2019. Changes in these estimates may materially affect the fair value.

For the three months ended March 31, 2018, there was no change to the fair value of the contingent liabilities associated with CyDex or Crystal. The Company made a $1.0 million payment to the former shareholders of Crystal in the first quarter of 2018.

The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:



	March 31, 2018	December 31, 2017
Revenue volatility	25%	25%
Average probability of commercialization	12.5%	12.5%
Market price of risk	2.9%	2.9%

Other Fair Value Measurements

2019 Convertible Senior Notes

In August 2014, the Company issued $245.0 million aggregate principal amount of its 2019 Convertible Senior Notes. The Company uses a quoted rate in a market that is not active, which is classified as a Level 2 input, to estimate the current fair value of its 2019 Convertible Senior Notes. The estimated fair value of the 2019 Senior Convertible Notes was $536.1 million as of March 31, 2018. The carrying value of the notes does not reflect the market rate. Additionally, at the time of the convertible notes issuance, the Company entered into convertible bond hedges, which is not required to be measured or disclosed at fair value, to offset the impact of potential dilution to the Company's common stock upon the conversion of the notes. See Note 3 Convertible Senior Notes for additional information about the convertible notes and the bond hedges.