Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
6.
Fair Value Measurements

The Company applies ASC 820, which establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs used in valuation techniques. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for similar assets or liabilities.

Level 3 – Unobservable inputs.

The following tables set forth the Company's fair value hierarchy for its financial assets (cash equivalents and investments) and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010.

Financial assets and liabilities carried at fair value as of December 31, 2011 and 2010 are classified as follows (in thousands):
 
   
Fair Value Measurements at December 31, 2011 Using
        
   
Quoted Prices in
 Active Markets
 for Identical Assets
    
Significant
 Other
 Observable
 Inputs
    
Significant
 Unobservable
 Inputs
        
   
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Assets:
                        
Money market funds (1)
     27,222       -       -       27,222  
Foreign exchange options
     -       1,202       -       1,202  
Total
   $ 27,222     $ 1,202     $ -     $ 28,424  
                                 
Liabilities:
                                
Warrant liabilities
   $ -     $ -     $ 379     $ 379  

   
Fair Value Measurements at December 31, 2010 Using
        
   
Quoted Prices in
 Active Markets
 for Identical
 Assets
    
Significant
Other
 Observable
 Inputs
    
Significant
 Unobservable
 Inputs
        
   
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Assets:
                        
Repurchase agreements (1)
   $ 1,428     $ -     $ -     $ 1,428  
Money market funds (1)
     6,340       -       -       6,340  
Total
   $ 7,768     $ -     $ -     $ 7,768  
                                 
Liabilities:
                                
Warrant liabilities
   $ -     $ -     $ 4,245     $ 4,245  
 
(1) 
Included in cash and cash equivalents

Due to the unique structure of the secured note agreement with Novartis and since there is no liquid market for this note, there is no practical method to estimate fair value of our long-term debt with Novartis. See Note 7: Long-Term Debt and Other Arrangements for additional disclosure of the financing arrangement between the Company and Novartis.
 
The fair value of the foreign exchange options at December 31, 2011 was determined using readily observable market inputs from actively quoted markets obtained from various third party data providers. These inputs, such as spot rate, forward rate and volatility have been derived from readily observable market data, meeting the criteria for Level 2 in the fair value hierarchy.

The fair value of the warrant liabilities at December 31, 2011 and 2010 was determined using the Black-Scholes Model, which requires inputs such as the expected term of the warrants, share price volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop.

The fair value of the warrant liabilities was estimated using the following range of assumptions at December 31, 2011 and 2010:

   
December 31,
2011
    
December 31,
 2010
  
Expected volatility
     102.1 - 103.2 %     93.5 - 94.9 %
Risk-free interest rate
     0.4 %     2.0 %
Expected term
  
2.9 - 3.1 years
    
3.9 - 4.1 years
  


The following table provides a summary of changes in the fair value of the Company's Level 3 financial liabilities for the year ended December 31, 2011 (in thousands):

   
Warrant
 Liabilities
  
Balance at December 31, 2009
   $ 4,760  
Initial fair value of warrants
     4,382  
Reclassification of warrant liability to equity upon exercise of warrants
     (2,615 )
Change in fair value of warrant liabilities included in other income (expense)
     (2,282 )
Balance at December 31, 2010
     4,245  
Change in fair value of warrant liabilities included in other income (expense)
     (3,866 )
Balance at December 31, 2011
   $ 379