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Marketable Securities and Fair Value Measurements
 9 Months Ended
Sep. 30, 2012
Marketable Securities and Fair Value Measurements [Abstract]  
Marketable Securities and Fair Value Measurements

6. Marketable Securities and Fair Value Measurements

The guidance regarding fair value measurements establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2012:

                                 
    Fair Value Measurements at
September 30, 2012		  
    Total     Using Quoted Prices
in Active Markets
for Identical Assets
(Level 1)		     Using Significant
Other Observable
Inputs (Level 2)		     Using Significant
Unobservable
Inputs (Level 3)		  

Assets:

                                

Money market funds

   $ 2,141,745     $ 2,141,745     $ —       $ —    

Mutual funds

     6,101,043       —         6,101,043       —    

Certificates of deposit

     2,749,668       —         2,749,668       —    

Municipal bonds

     1,704,255       —         1,704,255       —    

Investment in affiliated entity

     8,253,717       8,253,717       —         —    

Investment in common stock warrants

     520,600       —         —         520,600  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Assets

   $ 21,471,028     $ 10,395,462     $ 10,554,966     $ 520,600  
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                                

Common stock warrants

   $ 6,162,948     $ —       $ —       $ 6,162,948  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Liabilities

   $ 6,162,948     $ —       $ —       $ 6,162,948  
   

 

 

    

 

 

    

 

 

    

 

 

  

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011:

 

                                 
    Fair Value Measurements at
December 31, 2011		  
    Total     Using Quoted Prices
in Active Markets
for Identical Assets
(Level 1)		     Using Significant
Other Unobservable
Inputs (Level 2)		     Using Significant
Unobservable
Inputs (Level 3)		  

Assets:

                                

Money market funds

   $ 16,330,885     $ 16,330,885     $ —       $ —    

Mutual funds

     6,037,115       —         6,037,115       —    

Certificates of deposit

     5,768,304       —         5,768,304       —    

Municipal bonds

     1,058,001       —         1,058,001       —    

Investment in affiliated entity

     9,071,513       9,071,513       —         —    

Investment in common stock warrants

     100,000       —         —         100,000  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Assets

   $ 38,365,818     $ 25,402,398     $ 12,863,420     $ 100,000  
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                                

Common stock warrants

   $ 5,176,319     $ —       $ —       $ 5,176,319  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Liabilities

   $ 5,176,319     $ —       $ —       $ 5,176,319  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

Level 1 assets at September 30, 2012 and December 31, 2011 include money market funds held by the Company that are valued at quoted market prices, as well as the Company’s investment in VGX Int’l, for which the fair value is based on the market value of 8,220,775 common shares, listed on the Korean Stock Exchange. Due to the volatility of VGX Int’l common stock, we have elected to account for our investment at fair value on a recurring basis which will better reflect the valuation of our investment.

Level 2 assets at September 30, 2012 and December 31, 2011 include mutual funds, certificates of deposit and municipal bonds held by the Company that are initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing market observable data. We obtain the fair value of our Level 2 assets from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. Our professional pricing service gathers quoted market prices and observable inputs for all of our mutual funds, certificates of deposit and municipal bonds from a variety of industry data providers. The valuation techniques used to measure the fair value of our Level 2 financial instruments were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We validate the quoted market prices provided by our primary pricing service by comparing their assessment of the fair values of our investment portfolio balance against the fair values of our investment portfolio balance obtained from an independent source, which may include our investment managers.

Level 3 assets at September 30, 2012 and December 31, 2011 include two warrants received by the Company to purchase shares of common stock of OncoSec Medical Incorporated (“OncoSec”), in connection with the first and second amendments to the Asset Purchase Agreement between the Company and OncoSec signed in September 2011 and March 2012, respectively. The first warrant to purchase 1,000,000 shares of common stock of OncoSec has a contractual life of five years with an exercise price of $1.20 per share. The second warrant to purchase 3,000,000 shares of common stock of OncoSec has a contractual life of five years with an exercise price of $1.00 per share

There have been no transfers of assets or liabilities between the fair value measurement classifications.

As of September 30, 2012 the Company recorded a long-term asset of $521,000 associated with the warrants received to purchase common stock of OncoSec. The Company valued the warrants received in March 2012 as of the issuance date using the Black Scholes pricing model and recorded a $501,000 gain on sale of assets within the condensed consolidated statement of operations. Inputs used in the pricing model include estimates of OncoSec stock price volatility, expected warrant life and risk-free interest rate. The Company develops its estimates based on publicly available historical data. The Company reassesses the fair value of the warrants at each reporting date. The assumptions used to estimate the fair values of the OncoSec common stock warrants at September 30, 2012 are presented below:

 

         

Risk-free interest rate

     0.37 % 

Expected volatility

     125 % 

Expected life in years

     4.0-4.5  

Dividend yield

     —    

As a result of these calculations, the Company recorded an increase (decrease) in fair value of the two warrants of $11,000 and ($80,000), respectively, for the three and nine months ended September 30, 2012. The change in fair value is reflected in the Company’s condensed consolidated statement of operations as a component of change in fair value of common stock warrants.

The following table presents a summary of changes in fair value of the Company’s total Level 3 financial assets for the nine months ended September 30, 2012:

 

         

Balance at January 1, 2012

   $ 100,000  

Common stock warrant recorded at fair value upon acquisition in March 2012

     501,000  

Decrease in fair value included in change in fair value of common stock warrants

     (80,400 ) 
   

 

 

  

Balance at September 30, 2012

   $ 520,600  
   

 

 

  

 

Level 3 liabilities held as of September 30, 2012 and December 31, 2011 consist of common stock warrant liabilities associated with warrants to purchase the Company’s common stock issued in July 2009, January 2011 and December 2011. If unexercised, the warrants will expire at various dates between July 2014 and December 2016.

As of September 30, 2012 the Company recorded a $6.2 million common stock warrant liability. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The Company develops its estimates based on historical data. The range of assumptions used to estimate the fair values of common stock warrants at September 30, 2012 are presented below:

 

     

Risk-free interest rate

   0.18%-0.37%

Expected volatility

   63%-127%

Expected life in years

   1.75-4.19

Dividend yield

   —

As a result of these calculations, the Company recorded an increase in fair value of $1.1 million and $987,000 for the three and nine months ended September 30, 2012, respectively, and a decrease in fair value of $347,000 and $7.6 million for the three and nine months ended September 30, 2011, respectively. The change in fair value is reflected in the Company’s condensed consolidated statement of operations as a component of change in fair value of common stock warrants.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the nine months ended September 30, 2012:

 

         

Balance at January 1, 2012

   $ 5,176,319  

Increase in fair value included in change in fair value of common stock warrants

     986,629  
   

 

 

  

Balance at September 30, 2012

   $ 6,162,948