Fair value measurements

9 Months Ended

Sep. 30, 2013

Fair value measurements [Abstract]

Fair value measurements

3.Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, include: 

Level 1 — Observable inputs for identical assets or liabilities such as quoted prices in active markets;

Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 — Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.

The following table represents the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:

	At September 30, 2013
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)	$	32,723	$	-	$	-	$	32,723
Total assets	$	32,723	$	-	$	-	$	32,723
Liabilities:
Contingent purchase consideration	$	-	$	-	$	16,581	$	16,581
Total liabilities	$	-	$	-	$	16,581	$	16,581

	At December 31, 2012
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)	$	42,720	$	-	$	-	$	42,720
Total assets	$	42,720	$	-	$	-	$	42,720

(1)Included in cash and cash equivalents in accompanying consolidated balance sheets.

During the periods ended September 30, 2013 and December 31, 2012, the Company did not have any transfers between Level 1 and Level 2 assets or liabilities.

As of September 30, 2013 and 2012, the Company had no assets or liabilities measured at fair value using significant unobservable inputs (Level 3) except for contingent value right ("CVR") and contingent purchase consideration obligations.

The fair value of the CVR obligations is based on management's assessment of certain development and collaboration milestones, which are inputs that have no observable market (Level 3). The obligation is measured using a discounted cash flow model. During the nine months ended September 30, 2012, the Company recorded a decrease in the CVR obligations of $3.0 million due to Pfizer ceasing development of programs related to the CVR milestones and made a $1.7 million CVR payment under the Company's agreement with Abbott. The adjustment to fair value is classified in the Company's statement of operations as research and development expense within the Company's Biosciences segment.

The fair value of contingent purchase consideration obligations are based on management's assessment of changes as a result of adjustments to the discount rates and updates in the assumed and actual achievement of net sales for RSDL, which are inputs that have no observable market (Level 3). For the three and nine months ended September 30, 2013, the contingent purchase consideration increased by $349,000 primarily due to an adjustment to the discount rate and the timing of RSDL sales.  The adjustment to fair value is classified in the Company's statement of operations as cost of product sales within the Company's Biodefense segment.

The following table is a reconciliation of the beginning and ending balance of the liabilities measured at fair value using significant unobservable inputs (Level 3) during the year ended September 30, 2013 and December 31, 2012:

(in thousands)
Balance at January 1, 2012	$	4,753
Expense (income) included in earnings		(3,005	)
Expense (income) included in comprehensive income (loss)		-
Settlements		(1,748	)
Purchases, sales, issuances and settlements		-
Transfers in/(out) of Level 3		-
Balance at December 31, 2012	$	-
Expense included in earnings		349
Expense (income) included in comprehensive income (loss)		-
Settlements		-
Purchases, sales and issuances		16,232
Transfers in/(out) of Level 3		-
Balance at September 30, 2013	$	16,581

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis, as described above, from those measured at fair value on a nonrecurring basis. For the nine months ended September 30, 2013, no assets or liabilities were measured at fair value on a nonrecurring basis. For the year ended December 31, 2012, the Company's SBI-087 in-process research and development ("IPR&D") asset, which was categorized as a Level 3 fair value measurement, was the only asset or liability measured at fair value on a nonrecurring basis (see Note 5).