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Marketable Securities and Fair Value Measurements
 6 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]  
Marketable Securities and Fair Value Measurements
Marketable Securities and Fair Value Measurements
The guidance regarding fair value measurements establishes a three-tier fair value hierarchy which 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 assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2013:
 
 
Fair Value Measurements at
 
June 30, 2013
 
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
$
7,509,566

 
$
7,509,566

 


 
$
—

Mutual funds
13,107,779

 
—

 
13,107,779

 
—

Investment in affiliated entity
7,835,197

 
7,835,197

 
—

 
—

Common stock warrants
265,500

 
—

 
—

 
265,500

Total Assets
$
28,718,042

 
$
15,344,763

 
$
13,107,779

 
$
265,500

Liabilities:
 
 
 
 
 
 
 
Common stock warrants
$
13,453,937

 
$
—

 
$
—

 
$
13,453,937

Total Liabilities
$
13,453,937

 
$
—

 
$
—

 
$
13,453,937


The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012:
 
 
Fair Value Measurements at
 
December 31, 2012
 
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
$
1,686,406

 
$
1,686,406

 
$
—

 
$
—

Mutual funds
7,583,931

 
—

 
7,583,931

 
—

Certificates of deposit
250,000

 
—

 
250,000

 
—

Municipal bonds
200,070

 
—

 
200,070

 
—

Investment in affiliated entity
10,703,332

 
10,703,332

 
—

 
—

Common stock warrants
267,200

 
—

 
—

 
267,200

Total Assets
$
20,690,939

 
$
12,389,738

 
$
8,034,001

 
$
267,200

Liabilities:
 
 
 
 
 
 
 
Common stock warrants
$
2,859,899

 
$
—

 
$
—

 
$
2,859,899

Total Liabilities
$
2,859,899

 
$
—

 
$
—

 
$
2,859,899



Level 1 assets 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 on June 30, 2013 and December 31, 2012, listed on the Korean Stock Exchange. The Company accounts for its investment at fair value on a recurring basis.

Level 2 assets at June 30, 2013 include mutual funds 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 mutual funds 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 June 30, 2013 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.

As of June 30, 2013 the Company recorded a long-term asset of approximately $266,000 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 and knowledge of OncoSec. 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 June 30, 2013 are presented below:

Risk-free interest rate
0.66%
Expected volatility
85%
Expected life in years
3.25-3.75
Dividend yield
—

As a result of these calculations, the Company recorded a decrease in fair value of the two warrants of $1,000 and $2,000 for the three and six months ended June 30, 2013, respectively, and an increase (decrease) in fair value of the two warrants of $216,000 and $(91,000) for the three and six months ended June 30, 2012, 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 a summary of changes in fair value of the Company’s total Level 3 financial assets for the six months ended June 30, 2013:
Balance at January 1, 2013
$
267,200

Decrease in fair value included in change in fair value of common stock warrants
(1,700
)
Balance at June 30, 2013
$
265,500


Level 3 liabilities held as of June 30, 2013 and December 31, 2012 consist of common stock warrant liabilities associated with warrants to purchase the Company's common stock issued in July 2009, January 2011, December 2011 and March 2013. If unexercised, the warrants will expire at various dates between July 2014 and September 2018.
As of June 30, 2013 the Company recorded a $13.5 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 June 30, 2013 are presented below:
 
Risk-free interest rate
0.15%-1.41%
Expected volatility
63%-119%
Expected life in years
1.00-5.21
Dividend yield
—

Changes in these assumptions as well as in the Company's stock price on the reporting date can have a significant impact on the fair value of the common stock warrant liability. As a result of these calculations, the Company recorded an increase in fair value of $3.2 million and $4.6 million for the three and six months ended June 30, 2013, respectively, and a decrease in fair value of $3.4 million and $138,000 for the three and six months ended June 30, 2012, 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 six months ended June 30, 2013:
 
Balance at January 1, 2013
$
2,859,899

       Record fair value of warrants issued in March 2013 financing
5,968,244

Increase in fair value included in change in fair value of common stock warrants
4,625,794

Balance at June 30, 2013
$
13,453,937