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. government-sponsored enterprise securities, commercial paper and corporate notes 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, 2016 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(In thousands)	Cost		Gains		Losses			Fair Value
Included in cash and cash equivalents:
Money market funds	$	5,369	$	—	$	—		$	5,369

Restricted cash:
Certificate of deposit	$	268	$	—	$	—		$	268

Marketable securities:
Government-sponsored enterprise securities (due in one to two years)	$	17,502	$	2	$	(7	)	$	17,497
Commercial paper (due in less than one year)	39,253		66		(9		)	39,310
Corporate notes (due in less than one year)	63,371		7		(33		)	63,345
Corporate notes (due in one to two years)	3,509		3		(4		)	3,508

	$	123,635	$	78	$	(53	)	$	123,660

Cash equivalents, restricted cash and marketable securities by security type at December 31, 2015 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(In thousands)	Cost		Gains		Losses			Fair Value
Included in cash and cash equivalents:
Money market funds	$	4,577	$	—	$	—		$	4,577
Government-sponsored enterprise securities	1,999		—		—			1,999
Commercial paper	7,599		—		—			7,599
Corporate notes	5,002		—		(1		)	5,001

	$	19,177	$	—	$	(1	)	$	19,176

Restricted cash:
Certificate of deposit	$	267	$	—	$	—		$	267

Marketable securities:
Government-sponsored enterprise securities (due in one to two years)	$	10,007	$	—	$	(57	)	$	9,950
Commercial paper (due in less than one year)	27,661		49		(2		)	27,708
Corporate notes (due in less than one year)	64,892		1		(77		)	64,816
Corporate notes (due in one to two years)	22,837		—		(126		)	22,711

	$	125,397	$	50	$	(262	)	$	125,185

Cash equivalents and marketable securities with unrealized losses at September 30, 2016 and December 31, 2015 were as follows:

	Less Than 12 Months					12 Months or Greater					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
(In thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
As of September 30, 2016:
Government-sponsored enterprise securities (due in one to two years)	$	9,996	$	(7	)	$	—	$	—		$	9,996	$	(7	)
Commercial paper (due in less than one year)	9,341		(9		)	—		—			9,341		(9		)
Corporate notes (due in less than one year)	37,609		(21		)	7,579		(12		)	45,188		(33		)
Corporate notes (due in one to two years)	1,503		(4		)	—		—			1,503		(4		)

	$	58,449	$	(41	)	$	7,579	$	(12	)	$	66,028	$	(53	)

As of December 31, 2015:
Government-sponsored enterprise securities (due in one to two years)	$	9,950	$	(57	)	$	—	$	—		$	9,950	$	(57	)
Commercial paper (due in less than one year)	7,834		(2		)	—		—			7,834		(2		)
Corporate notes (due in less than one year)	61,006		(71		)	6,301		(7		)	67,307		(78		)
Corporate notes (due in one to two years)	22,711		(126		)	—		—			22,711		(126		)

	$	101,501	$	(256	)	$	6,301	$	(7	)	$	107,802	$	(263	)

The gross unrealized losses related to government-sponsored enterprise securities, commercial paper and corporate notes as of September 30, 2016 and December 31, 2015 were due to changes in interest rates. We determined that the gross unrealized losses on our cash equivalents and marketable securities as of September 30, 2016 and December 31, 2015 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 bases.

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, 2016 and indicates the fair value category assigned.

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	5,369	$	—	$	—	$	5,369
Government-sponsored enterprise securities(3)	—		17,497		—		17,497
Commercial paper(2)	—		39,310		—		39,310
Corporate notes(2)(3)	—		66,853		—		66,853

Total	$	5,369	$	123,660	$	—	$	129,029

The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of December 31, 2015 and indicates the fair value category assigned.

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	4,577	$	—	$	—	$	4,577
Government-sponsored enterprise securities(1)(3)	—		11,949		—		11,949
Commercial paper(1)(2)	—		35,307		—		35,307
Corporate notes(1)(2)(3)	—		92,528		—		92,528

Total	$	4,577	$	139,784	$	—	$	144,361

(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.