Investments and Fair Value Measurement

Investments

The Company classifies its marketable securities as available-for-sale and records its investments at fair value. Available-for-sale securities are carried at estimated fair value based on quoted market prices or observable market inputs of almost identical assets, with the unrealized holding gains and losses included in accumulated other comprehensive income. Marketable securities which have maturities beyond

one

year as of the end of the reporting period are classified as

non-current.

The table below summarizes the Company

’s cash, cash equivalents and investments (in thousands):

	As of December 31 , 201 7
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents:
Cash	$	29,765	$	—	$	—	$	29,765
U.S. government agency securities		23,137		—		—		23,137
Total cash and cash equivalents		52,902		—		—		52,902

Marketable securities :
U.S. government agency securities	$	7,567	$	—	$	—	$	7,567
Total marketable securities		7,567		—		—		7,567

Total cash, cash equivalents and investments	$	60,469	$	—	$	—	$	60,469

	As of December 31 , 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents:
Cash	$	49,833	$	—	$	—	$	49,833
U.S. government agency securities		30,474		3		—		30,477
Total cash and cash equivalents		80,307		3		—		80,310
Total cash, cash equivalents and investments	$	80,307	$	3	$	—	$	80,310

None

of the available-for-sale securities held by the Company had material unrealized losses and there were

realized losses for the years ended

December

31,

2017

and

2016.

There were

other-than-temporary impairments for these securities as of

December

31,

2017

2016.

gross realized gains or losses were recognized on the available-for-sale securities and, accordingly, there were

amounts reclassified out of accumulated other comprehensive income to earnings during the years ended

December 31, 2017

and

2016.

As of

December

31,

2017

and

2016,

the contractual maturity of all investments held was less than

one

year.

Fair Value Measurement

The Company

’s financial instruments consist of Level II assets and Level III liabilities. For Level II instruments, the Company estimates fair value by utilizing

third

party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. Such Level II instruments typically include U.S. treasury and U.S. government agency obligations. As of

December

31,

2017

and

December

31,

2016,

the Company held, in addition to Level II assets, a contingent put option liability associated with the Company’s Amended and Restated Loan and Security Agreement, or the Original Loan Agreement, with Hercules Technology II, L.P. and Hercules Capital, Inc., formerly known as Hercules Technology Growth Capital, Inc., collectively referred to as the Lenders, which amended and restated the Loan and Security Agreement dated as of

June 29, 2011,

which was classified as a Level III liability. On

March 2, 2017,

the Company entered into an Amended and Restated Loan and Security Agreement, or the Amended Loan Agreement with Hercules Capital Funding Trust

2014

and Hercules Technology II, L.P., together, Hercules. The Amended Loan Agreement amends and restates the Original Loan Agreement. See Note

“Long-Term Debt” for further description. The Company’s estimate of fair value of the contingent put option liability was determined by using a risk-neutral valuation model, wherein the fair value of the underlying debt facility is estimated both with and without the presence of the default provisions, holding all other assumptions constant. The resulting difference between the

two

estimated fair values is the estimated fair value of the default provisions, or the contingent put option. Changes to the estimated fair value of these liabilities are recorded in interest income and other income (expense), net in the Consolidated Statements of Comprehensive Loss. The fair value of the underlying debt facility is estimated by calculating the expected cash flows in consideration of an estimated probability of default and expected recovery rate in default, and discounting such cash flows back to the reporting date using a risk-free rate. As of

December

31,

2016,

the Company also held a Level III liability associated with warrants, or PIPE warrants, issued in connection with the Company’s private placement equity offering, completed in

June 2012.

For a detailed description, see Note

“Stockholders’ Equity”. The PIPE warrants were considered a liability and were valued using the Black-Scholes option-pricing model, the inputs for which included exercise price of the PIPE warrants, market price of the underlying common shares, expected term, volatility based on a group of the Company’s peers and the risk-free rate corresponding to the expected term of the PIPE warrants. Changes to any of these inputs could have a significant impact to the estimated fair value of the PIPE warrants.

The following table sets forth the fair value of the Company

’s financial assets and liabilities by level within the fair value hierarchy (in thousands):

	As of December 31 , 201 7
	Fair Value		Level I		Level II		Level III
Assets
U.S. government agency obligations	$	30,704	$	—	$	30,704	$	—
Total assets measured at fair value	$	30,704	$	—	$	30,704	$	—

Liabilities
Contingent put option liability	$	207	$	—	$	—	$	207
Total liabilities measured at fair value	$	207	$	—	$	—	$	207

	As of December 31 , 2016
	Fair Value		Level I		Level II		Level III
Assets
U.S. government agency obligations	$	30,477	$	—	$	30,477	$	—
Total assets measured at fair value	$	30,477	$	—	$	30,477	$	—

Liabilities
PIPE warrants	$	288		—		—	$	288
Contingent put option liability		124		—		—		124
Total liabilities measured at fair value	$	412	$	—	$	—	$	412

The following table sets forth a summary of the changes in the fair value of the Company

’s Level III financial liabilities for the years ended

December

31,

2017

and

2016

(in thousands):

	Year Ended December 31, 201 7
Fair value —beginning of period	$	412
Expiration of fair value of PIPE warrants		(288	)
Change in fair value of contingent put option associated with Original Loan Agreement		83
Fair value —end of period	$	207

	Year Ended December 31, 201 6
Fair value —beginning of period	$	1,179
Change in fair value of PIPE warrants		(625	)
Change in fair value of contingent put option associated with Original Loan Agreement		(142	)
Fair value —end of period	$	412