Assets and Liabilities Measured at Fair Value

The Company’s financial assets and liabilities are measured at fair value and classified within the fair value hierarchy, which is defined as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3 — Inputs that are unobservable for the asset or liability.

A summary of the fair value of the Company’s recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of September 30, 2018 are identified in the following table:



(in thousands)	Level 2		Total
Assets:
Commercial paper	$	82,655	$	82,655
Asset-backed securities	52,101		52,101
Corporate debt securities	227,399		227,399
Money market funds	3,335		3,335
	$	365,490	$	365,490



	Level 2		Level 3		Total
Liabilities:
Contingent consideration payable	$	—	$	28,100	$	28,100
Deferred compensation plan liability	2,996		—		2,996
	$	2,996	$	28,100	$	31,096

A summary of the fair value of the Company’s recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of December 31, 2017 are identified in the following table:



(in thousands)	Level 2		Total
Assets:
Commercial paper	$	79,803	$	79,803
Asset-backed securities	30,287		30,287
Corporate debt securities	199,012		199,012
Money market funds	2,598		2,598
	$	311,700	$	311,700



	Level 2		Level 3		Total
Liabilities:
Contingent consideration payable	$	—	$	25,400	$	25,400
Deferred compensation plan liability	2,258		—		2,258
	$	2,258	$	25,400	$	27,658

The Company’s Convertible Notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined using broker quotes in a non-active market for valuation. The fair value of the debt at September 30, 2018 was approximately $531.2 million.

The Company’s Senior Secured Term Loan fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. The carrying value of the Senior Secured Term Loan approximates the fair value.

The Company did not have any Level 3 assets as of September 30, 2018 or December 31, 2017.

Cash, Money Market Funds and Marketable Securities

The Company classifies its cash within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in an active market for identical assets at the measurement date. The Company considers its investments in marketable securities as available for sale debt securities and classifies these assets and the money market funds within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2018. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the nine months ended September 30, 2018.

Contingent Consideration Payable

The contingent consideration payable resulted from the acquisition of Callidus Biopharma, Inc. (“Callidus”) in November 2013. The most recent valuation was determined using a probability weighted discounted cash flow valuation approach. Using this approach, expected future cash flows are calculated over the expected life of the agreement, are discounted, and then exercise scenario probabilities are applied. The valuation is performed quarterly. Gains and losses are included in the statement of operations.

The contingent consideration payable for Callidus has been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower than the fair value the Company determined. The Company may be required to record losses in future periods.

The following significant unobservable inputs were used in the valuation of the contingent consideration payable of Callidus for the ATB200 Pompe program:



Contingent Consideration Liability	Fair Value as of September 30, 2018			Valuation Technique	Unobservable Input	Range

					Discount rate	10.0%

Clinical and regulatory milestones	$	27.6	million	Probability weighted discounted cash flow	Probability of achievement of milestones	71.0%-100.0%

					Projected year of payments	2018-2022

Contingent consideration liabilities are remeasured to fair value each reporting period using discount rates, probabilities of payment and projected payment dates. Projected contingent payment amounts related to clinical and regulatory based milestones are discounted back to the current period using a discounted cash flow model. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement. There is no assurance that any of the conditions for the milestone payments will be met.

The following table shows the change in the balance of contingent consideration payable for the three and nine months ended September 30, 2018 and 2017, respectively:



	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2018		2017			2018	2017
Balance, beginning of the period	$	26,800	$	265,350		25,400	269,722
Payment of contingent consideration in cash	—		—			—	(10,000		)
Changes in fair value during the period, included in statement of operations	1,300		(244,250		)	2,700	(238,622		)
Balance, end of the period	$	28,100	$	21,100		28,100	$	21,100

Deferred Compensation Plan - Investment and Liability

The Deferred Compensation Plan (the “Deferral Plan”) provides certain key employees and members of the Board of Directors with an opportunity to defer the receipt of such participant’s base salary, bonus and director’s fees, as applicable. Deferral Plan assets are classified as trading securities and recorded at fair value with changes in the investment’s fair value recognized in the period they occur. The asset investments consist of market exchanged mutual funds. The Company considers its investments in marketable securities as available-for-sale and classifies these assets and related liability within the fair value hierarchy as Level 2, primarily utilizing broker quotes in a non-active market for valuation of these securities.