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 September 30, 2013:



	Fair Value Measurements at
	September 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	$	18,338,897	$	18,338,897	$	—	$	—
Mutual funds	13,104,863		—		13,104,863		—
Investment in affiliated entity	11,084,123		11,084,123		—		—
Common stock warrants	244,900		—		—		244,900
Total Assets	$	42,772,783	$	29,423,020	$	13,104,863	$	244,900
Liabilities:
Common stock warrants	$	14,095,818	$	—	$	—	$	14,095,818
Total Liabilities	$	14,095,818	$	—	$	—	$	14,095,818

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 September 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 September 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 September 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 September 30, 2013 the Company recorded a long-term asset of approximately $245,000 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 September 30, 2013 are presented below:



Risk-free interest rate	0.63%
Expected volatility	85%
Expected life in years	3-3.5
Dividend yield	—

As a result of these calculations, the Company recorded a decrease in fair value of the two warrants of $21,000 and $22,000 for the three and nine months ended September 30, 2013, respectively, and an increase (decrease) in fair value of the two warrants of $11,000 and $(80,000) for the three and nine months ended September 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 nine months ended September 30, 2013:



Balance at January 1, 2013	$	267,200
Decrease in fair value included in change in fair value of common stock warrants	(22,300		)
Balance at September 30, 2013	$	244,900

Level 3 liabilities held as of September 30, 2013 consist of common stock warrant liabilities associated with warrants to purchase the Company's common stock issued in July 2009, January 2011 and March 2013. Level 3 liabilities held as of 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. During the three and nine months ended September 30, 2013, warrants to purchase 20,584,997 shares of common stock were exercised.

As of September 30, 2013 the Company recorded a $14.1 million common stock warrant liability. The Company reassesses the fair value and the related inputs to determine the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing models 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, 2013 are presented below:



Risk-free interest rate	0.13%-1.52%
Expected volatility	88%-119%
Expected life in years	0.75-4.96
Dividend yield	—

Changes in these assumptions as well as in the Company's stock price on the valuation 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 $34.9 million and $39.6 million for the three and nine months ended September 30, 2013, respectively, and an increase in fair value of $1.1 million and $987,000 for the three and nine months ended September 30, 2012, respectively. The significant change in fair value was primarily due to the increase in the Company's stock price during the period. 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. Warrants that were exercised during the period were revalued on the day prior to exercise and then reclassified into stockholders' equity upon exercise.

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, 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	39,557,404
Change in classification from liability to stockholders' equity due to warrant exercises	(34,289,729		)
Balance at September 30, 2013	$	14,095,818