Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Tables)

v2.4.1.9
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2015
Fair Value Disclosures [Abstract]  
Summary of the assets and liabilities measured at fair value on recurring basis
The following table provides a summary of the carrying value of assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2015 (in thousands):

Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Current co-promote termination payments receivable (1)
$
88

 
$

 
$

 
$
88

Short-term investments (2)
11,459

 
11,459

 

 

     Total assets
$
11,547

 
$
11,459

 
$

 
$
88

Liabilities:
 
 
 
 
 
 
 
Current contingent liabilities-CyDex (3)
$
3,692

 
$

 
$

 
$
3,692

Current co-promote termination liability (1)
88

 

 

 
88

Long-term contingent liabilities-Metabasis (4)
2,495

 
2,495

 

 

Long-term contingent liabilities-CyDex (3)
5,718

 

 

 
5,718

Liability for amounts owed to former licensees(5)
1,429

 
1,429

 

 

     Total liabilities
$
13,422

 
$
3,924

 
$

 
$
9,498


The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2014 (in thousands):

Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Current co-promote termination payments receivable (1)
$
322

 
$

 
$

 
$
322

Short-term investments (2)
7,133

 
7,133

 

 

     Total assets
$
7,455

 
$
7,133

 
$

 
$
322

Liabilities:
 
 
 
 
 
 
 
Current contingent liabilities-CyDex (3)
$
6,796

 
$

 
$

 
$
6,796

Current co-promote termination liability (1)
322

 

 

 
322

Long-term contingent liabilities-Metabasis (4)
3,652

 
3,652

 

 

Long-term contingent liabilities-CyDex (3)
4,701

 

 

 
4,701

Liability for amounts owed to former licensees (5)
773

 
773

 

 

     Total liabilities
$
16,244

 
$
4,425

 
$

 
$
11,819



(1)
The co-promote termination payments receivable represents a non-interest-bearing receivable for future payments to be made by Pfizer related to product sales and is recorded at its fair value. The receivable and liability will remain equal, and are adjusted each quarter for changes in the fair value of the obligation including any changes in the estimate of future net Avinza product sales. The fair value is determined based on a valuation model using an income approach. For additional information, see Note 4 Avinza Co-Promotion.
(2)
The Company’s short-term investments include investments in equity securities which the Company received as a result of event-based and upfront payments from licensees. The fair value is determined using quoted market prices in active markets for the same securities.
(3)
The fair value of the liabilities for CyDex contingent liabilities were determined based on the income approach using a Monte Carlo analysis. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability of commercialization of products, 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 and CVR holders. Changes in these assumptions can materially affect the fair value estimate.
(4)
The liability for CVRs for Metabasis are determined using quoted market prices in active markets for the underlying CVR.
(5)
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.
CyDex Acquisition
The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:

 
March 31, 2015
 
December 31, 2014
Range of annual revenue subject to revenue sharing (1)
$17.7 million-$21.6 million
 
$17.2 million-$17.3 million
Revenue volatility
25%
 
25%
Average of probability of commercialization
77%
 
81%
Sales beta
0.70
 
0.60
Credit rating
B
 
B
Equity risk premium
6%
 
6%
(1)
Revenue subject to revenue sharing represent management’s estimate of the range of total annual revenue subject to revenue sharing (i.e. annual revenues in excess of $15 million) through December 31, 2016, which is the term of the CVR agreement.

Reconciliation of level 3 financial instruments
A reconciliation of the level 3 financial instruments as of March 31, 2015 is as follows (in thousands):

Assets:
 
Fair value of level 3 financial instrument assets as of December 31, 2014
$
322

Assumed payments made by Pfizer or assignee
(297
)
Fair value adjustments to co-promote termination liability
63

Fair value of level 3 financial instrument assets as of March 31, 2015
$
88

 
 
Liabilities:
 
Fair value of level 3 financial instrument liabilities as of December 31, 2014
$
11,819

Assumed payments made by Pfizer or assignee
(297
)
Payments to CVR and other former license holders
(3,246
)
Fair value adjustments to contingent liabilities
1,159

Fair value adjustments to co-promote termination liability
63

Fair value of level 3 financial instrument liabilities as of March 31, 2015
$
9,498