Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Table Text Block]

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In October 2011, in connection with the Company's acquisition of Amorcyte, contingent consideration obligations were recognized relating to earn out payments equal to 10% of the net sales of the lead product candidate NBS10 (in the event of and following the date of first commercial sale of NBS10), provided that in the event NeoStem sublicenses NBS10, the applicable earn out payment will be equal to 30% of any sublicensing fees, and provided further that NeoStem will be entitled to recover direct out-of-pocket clinical development costs not previously paid or reimbursed and any costs, expenses, liabilities and settlement amounts arising out of claims of patent infringement or otherwise challenging Amorcyte’s right to use intellectual property, by reducing any earn out payments due by 50% until such costs have been recouped in full (the “Earn Out Payments”). The contingent consideration fair value increased from $9.5 million as of December 31, 2013 to $10.1 million as of September 30, 2014. The change in estimated fair value is based on the impact of the time progression through the Preserve AMI Phase 2 clinical trial from December 31, 2013 to September 30, 2014, and has been recorded in other expenses in our consolidated statement of operations.

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In May 2014, in connection with the Company's acquisition of CSC, contingent consideration obligations were recognized relating to milestone payments of up to $90.0 million, based on the achievement of certain milestones associated with the future development of the acquired programs. The contingent consideration fair value recognized in the acquisition in May 2014 was $11.9 million. The contingent consideration fair value increased to $12.4 million as of September 30, 2014. The change in estimated fair value is based on changes in assumptions regarding the timing of certain milestone achievements, as well as the time progression to reach those milestones as of September 30, 2014, and has been recorded in other expenses in our consolidated statement of operations.

The fair value of contingent consideration obligations is based on discounted cash flow models using a probability-weighted income approach. The measurements are based upon unobservable inputs supported by little or no market activity based on our own assumptions and experience. The Company bases the timing to complete the development and approval programs on the current development stage of the product and the inherent difficulties and uncertainties in developing a product candidate, such as obtaining U.S. Food and Drug Administration (FDA) and other regulatory approvals. In determining the probability of regulatory approval and commercial success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense we record in any given period.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2014, and December 31, 2013 (in thousands):



	September 30, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Marketable securities - available for sale	$	—	$	665.1	$	—	$	665.1	$	—	$	—	$	—	$	—
	$	—	$	665.1	$	—	$	665.1	$	—	$	—	$	—	$	—

Liabilities:
Warrant derivative liabilities	$	—	$	—	$	—	$	—	$	—	$	—	$	23.2	$	23.2
Contingent consideration	—		—		22,430.0		22,430.0		—		—		9,450.0		9,450.0
	$	—	$	—	$	22,430.0	$	22,430.0	$	—	$	—	$	9,473.2	$	9,473.2

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

For those financial instruments with significant Level 3 inputs, the following table summarizes the activity for the nine months ended September 30, 2014 by type of instrument (in thousands):



	Nine Months Ended
	September 30, 2014
	Warrants			Contingent Consideration		Total
Beginning liability balance	$	23.2		$	9,450.0	$	9,473.2

Amount issued in acquisition	—			11,890.0		11,890.0
Change in fair value recorded in earnings	—			1,090.0		1,090.0
Expiration	(23.2		)	—		(23.2		)

Ending liability balance	$	—		$	22,430.0	$	22,430.0

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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