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FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2014
FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS | 2. FAIR VALUE MEASUREMENTS We categorize financial instruments recorded at fair value on our condensed balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1 | — | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 | — | Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 | — | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Below is a description of the valuation methodologies used for financial instruments measured at fair value on our condensed balance sheets, including the category for such financial instruments. Cash Equivalents and Marketable Securities Certificates of deposit and money market funds are categorized as Level 1 within the fair value hierarchy as their fair values are based on quoted prices available in active markets. U.S. Treasury securities, U.S. government-sponsored enterprise securities, municipal securities, corporate notes and commercial paper are categorized as Level 2 within the fair value hierarchy as their fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Cash equivalents, restricted cash and marketable securities by security type at September 30, 2014 were as follows:
|  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Estimated |
|  | Cost |  | Gains |  | Losses |  | Fair Value |
|  | (In thousands) |
Included in cash and cash equivalents: |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 5,445 |  | $ | — |  | $ | — |  | $ | 5,445 |
Restricted cash: |  |  |  |  |  |  |  |  |
Certificate of deposit |  | $ | 265 |  | $ | — |  | $ | — |  | $ | 265 |
Marketable securities: |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities (due in less than 1 year) |  | $ | 1,909 |  | $ | 1 |  | $ | (1 | ) | $ | 1,909 |
Government-sponsored enterprise securities (due in 1 to 2 years) |  | 3,751 |  | — |  | (3 | ) | 3,748 |
Commercial paper (due in less than 1 year) |  | 12,981 |  | 18 |  | — |  | 12,999 |
Corporate notes (due in less than 1 year) |  | 103,927 |  | 4 |  | (38 | ) | 103,893 |
Corporate notes (due in 1 to 2 years) |  | 12,070 |  | 1 |  | (18 | ) | 12,053 |
|  | $ | 134,638 |  | $ | 24 |  | $ | (60 | ) | $ | 134,602 |
Cash equivalents, restricted cash and marketable securities by security type at December 31, 2013 were as follows:
|  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Estimated |
|  | Cost |  | Gains |  | Losses |  | Fair Value |
|  | (In thousands) |
Included in cash and cash equivalents: |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 8,079 |  | $ | — |  | $ | — |  | $ | 8,079 |
Corporate notes |  | 2,206 |  | — |  | — |  | 2,206 |
|  | $ | 10,285 |  | $ | — |  | $ | — |  | $ | 10,285 |
Restricted cash: |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 795 |  | $ | — |  | $ | — |  | $ | 795 |
Marketable securities: |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities (due in less than 1 year) |  | $ | 7,369 |  | $ | 1 |  | $ | (1 | ) | $ | 7,369 |
Commercial paper (due in less than 1 year) |  | 5,496 |  | 3 |  | — |  | 5,499 |
Corporate notes (due in less than 1 year) |  | 39,383 |  | 1 |  | (18 | ) | 39,366 |
|  | $ | 52,248 |  | $ | 5 |  | $ | (19 | ) | $ | 52,234 |
Marketable securities with unrealized losses at September 30, 2014 and December 31, 2013 were as follows:
|  | Less Than 12 Months |  | 12 Months or Greater |  | Total |
|  |  |  | Gross |  |  |  | Gross |  |  |  | Gross |
|  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses |
|  | (In thousands) |
As of September 30, 2014: |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities (due in less than 1 year) |  | $ | 401 |  | $ | (1 | ) | $ | — |  | $ | — |  | $ | 401 |  | $ | (1 | )
Government-sponsored enterprise securities (due in 1 to 2 years) |  | 3,748 |  | (3 | ) | — |  | — |  | 3,748 |  | (3 | )
Corporate notes (due in less than 1 year) |  | 77,087 |  | (38 | ) | — |  | — |  | 77,087 |  | (38 | )
Corporate notes (due in 1 to 2 years) |  | 11,222 |  | (18 | ) | — |  | — |  | 11,222 |  | (18 | )
|  | $ | 92,458 |  | $ | (60 | ) | $ | — |  | $ | — |  | $ | 92,458 |  | $ | (60 | )
|  | Less Than 12 Months |  | 12 Months or Greater |  | Total |
|  |  |  | Gross |  |  |  | Gross |  |  |  | Gross |
|  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |  | Estimated |  | Unrealized |
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses |
As of December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities (due in less than 1 year) |  | $ | 3,947 |  | $ | (1 | ) | $ | — |  | $ | — |  | $ | 3,947 |  | $ | (1 | )
Corporate notes (due in less than 1 year) |  | 37,060 |  | (18 | ) | — |  | — |  | 37,060 |  | (18 | )
|  | $ | 41,007 |  | $ | (19 | ) | $ | — |  | $ | — |  | $ | 41,007 |  | $ | (19 | )
The gross unrealized losses related to government-sponsored enterprise securities and corporate notes as of September 30, 2014 and December 31, 2013 were due to changes in interest rates. We determined that the gross unrealized losses on our marketable securities as of September 30, 2014 and December 31, 2013 were temporary in nature. We review our investments quarterly to identify and evaluate whether any investments have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the amortized cost basis and whether we intend to sell the security or whether it is more likely than not that we would be required to sell the security before recovery of the amortized cost basis. We currently do not intend to sell these securities before recovery of their amortized cost basis. Derivatives Non-employee options are normally traded less actively, have trade activity that is one way, and/or are traded in less-developed markets and are therefore valued based upon models with significant unobservable market parameters, resulting in Level 3 categorization. Options held by non-employees whose performance obligations are complete are classified as derivative liabilities on our condensed balance sheets. Upon the exercise of these options, the instruments are marked to fair value and reclassified from derivative liabilities to stockholders’ equity. We have not reclassified any derivative liabilities to stockholders’ equity for any non-employee option exercises during the nine months ended September 30, 2014. As of September 30, 2014 and December 31, 2013, the following non-employee options to purchase common stock were considered derivatives and classified as current liabilities:
|  |  |  |  |  |  |  | September 30, 2014 |  | December 31, 2013 |
Issuance |  | Exercise |  | Exercisable |  | Expiration |  | Number |  | Fair Value |  | Number |  | Fair Value |
Date |  | Price |  | Date |  | Date |  | of Shares |  | (In thousands) |  | of Shares |  | (In thousands) |
March 2005 |  | $ | 6.39 |  | January 2007 |  | March 2015 |  | 284,600 |  | $ | 1 |  | 284,600 |  | $ | 367 |
The fair value of derivatives has been calculated at each reporting date using the Black Scholes option-pricing model with the following assumptions:
|  | September 30, 2014 |  | December 31, 2013 |
Dividend yield |  | 0% |  | 0% |
Expected volatility |  | 0.635 |  | 0.844 |
Risk-free interest rate |  | 0.03% |  | 0.13% |
Expected term |  | 0.5 yr |  | 1 yr |
Dividend yield is based on historical cash dividend payments. The expected volatility is based on historical volatilities of our stock since trading volume of Geron options is limited. The risk-free interest rate is based on the U.S. Zero Coupon Treasury Strip Yields for the expected term of the derivatives in effect on the reporting date. The expected term of derivatives is equal to the remaining contractual term of the instruments. Fair Value on a Recurring Basis The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of September 30, 2014 and indicates the fair value category assigned.
|  | Fair Value Measurements at Reporting Date Using |
|  | Quoted Prices in |  | Significant |  |  |  |  |
|  | Active Markets |  | Other |  | Significant |  |  |
|  | for Identical |  | Observable |  | Unobservable |  |  |
|  | Assets / Liabilities |  | Inputs |  | Inputs |  |  |
(In thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets |  |  |  |  |  |  |  |  |
Money market funds (1) |  | $ | 5,445 |  | $ | — |  | $ | — |  | $ | 5,445 |
Government-sponsored enterprise securities (2)(3) |  | — |  | 5,657 |  | — |  | 5,657 |
Commercial paper (2) |  | — |  | 12,999 |  | — |  | 12,999 |
Corporate notes (2)(3) |  | — |  | 115,946 |  | — |  | 115,946 |
Total |  | $ | 5,445 |  | $ | 134,602 |  | $ | — |  | $ | 140,047 |
Liabilities |  |  |  |  |  |  |  |  |
Derivatives (4) |  | $ | — |  | $ | — |  | $ | 1 |  | $ | 1 |
The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of December 31, 2013 and indicates the fair value category assigned.
|  | Fair Value Measurements at Reporting Date Using |
|  | Quoted Prices in |  | Significant |  |  |  |  |
|  | Active Markets |  | Other |  | Significant |  |  |
|  | for Identical |  | Observable |  | Unobservable |  |  |
|  | Assets / Liabilities |  | Inputs |  | Inputs |  |  |
(In thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets |  |  |  |  |  |  |  |  |
Money market funds (1) |  | $ | 8,079 |  | $ | — |  | $ | — |  | $ | 8,079 |
Government-sponsored enterprise securities (2) |  | — |  | 7,369 |  | — |  | 7,369 |
Commercial paper (2) |  | — |  | 5,499 |  | — |  | 5,499 |
Corporate notes (1)(2) |  | — |  | 41,572 |  | — |  | 41,572 |
Total |  | $ | 8,079 |  | $ | 54,440 |  | $ | — |  | $ | 62,519 |
Liabilities |  |  |  |  |  |  |  |  |
Derivatives (4) |  | $ | — |  | $ | — |  | $ | 367 |  | $ | 367 |
| (1) |  | Included in cash and cash equivalents on our condensed balance sheets.
| (2) |  | Included in current portion of marketable securities on our condensed balance sheets.
| (3) |  | Included in noncurrent portion of marketable securities on our condensed balance sheets.
| (4) |  | Included in fair value of derivatives on our condensed balance sheets.
Changes in Level 3 Recurring Fair Value Measurements The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2014, including the change in fair value, for financial instruments in the Level 3 category. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable components, observable components (that is, components that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the methodology.
|  |  |  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|  |  |  | Three Months Ended September 30, 2014 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Change in |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized Gain |
|  |  |  | Total |  |  |  |  |  |  |  |  |  | Related to |
|  |  |  | Unrealized |  |  |  |  |  | Transfers |  |  |  | Financial |
|  | Fair Value at |  | Gain |  | Purchases |  |  |  | In and/or |  | Fair Value at |  | Instruments |
|  | June 30, |  | Included in |  | and |  | Sales and |  | Out of |  | September 30, |  | Held at |
(In thousands) |  | 2014 |  | Earnings (1) |  | Issuances |  | Settlements |  | Level 3 |  | 2014 |  | September 30, 2014 (1) |
Derivative liabilities |  | $ | 290 |  | $ | (289 | ) | $ | — |  | $ | — |  | $ | — |  | $ | 1 |  | $ | (289 | )
|  |  |  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|  |  |  | Nine Months Ended September 30, 2014 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Change in |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized Gain |
|  |  |  | Total |  |  |  |  |  |  |  |  |  | Related to |
|  |  |  | Unrealized |  |  |  |  |  | Transfers |  |  |  | Financial |
|  | Fair Value at |  | Gain |  | Purchases |  |  |  | In and/or |  | Fair Value at |  | Instruments |
|  | December 31, |  | Included in |  | and |  | Sales and |  | Out of |  | September 30, |  | Held at |
(In thousands) |  | 2013 |  | Earnings (1) |  | Issuances |  | Settlements |  | Level 3 |  | 2014 |  | September 30, 2014 (1) |
Derivative liabilities |  | $ | 367 |  | $ | (366 | ) | $ | — |  | $ | — |  | $ | — |  | $ | 1 |  | $ | (366 | )
| (1) |  | Reported as unrealized gain on derivatives on our condensed statements of operations.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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