Fair value measurements

6 Months Ended

Jun. 30, 2016

2. Fair value measurements

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

	June 30, 2016
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)		$	92	$	-	$	-	$	92
Total assets		$	92	$	-	$	-	$	92

Liabilities:
Contingent consideration		$	-	$	-	$	25,563	$	25,563
Total liabilities		$	-	$	-	$	25,563	$	25,563

	December 31, 2015
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)		$	3,323	$	-	$	-	$	3,323
Total assets		$	3,323	$	-	$	-	$	3,323

Liabilities:
Contingent consideration		$	-	$	-	$	25,599	$	25,599
Total liabilities		$	-	$	-	$	25,599	$	25,599

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

During the six months ended June 30, 2016, the Company did not have any transfers between Level 1 and Level 2 assets or liabilities.

The fair value of contingent consideration obligations are based on management's assessment of certain development and regulatory milestones, along with updates in the assumed achievement of potential future net sales for the EV-035 series of molecules and the broad spectrum antiviral platform program, which are inputs that have no observable market (Level 3). For both the three and six months ended June 30, 2016, the contingent consideration obligation decreased by $0.4 million. For the three months ended June 30, 2015, the contingent consideration obligation decreased by $0.4 million. For the six months ended June 30, 2015, the contingent consideration obligation increased by $0.4 million. These changes are primarily due to the estimated timing and probability of success for certain development and regulatory milestones and the estimated timing and volume of potential future sales of EV-035 series of molecules and the broad spectrum antiviral platform, along with the novation of the DTRA contract for the EV-035 series of molecules. These decreases and increases in the contingent consideration were classified in the Company's statement of operations as both selling, general and administrative and research and development expense. During the six months ended June 30, 2015, the Company received novation of the DTRA contract and paid the $4.0 million milestone to Evolva in the second quarter of 2015.

The fair value of the RSDL and HepaGam contingent consideration obligations changed as a result of management's assessment of the assumed and actual achievement of future net sales, which are inputs that have no observable market (Level 3). For the three and six months ended June 30, 2016, the contingent purchase consideration obligations increased by $0.5 million and $1.3 million, respectively. For the three months ended June 30, 2015, the contingent consideration obligation decreased by $0.4 million. For the six months ended June 30, 2015, the contingent consideration obligation increased by $0.4 million. The increases and decreases are primarily due to an adjustment to the actual and expected timing and volume of RSDL and HepaGam B sales. These changes are classified in the Company's statement of operations as cost of product sales and contract manufacturing.

The following table is a reconciliation of the beginning and ending balance of the liabilities, consisting only of contingent consideration, measured at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2016.

(in thousands)
Balance at December 31, 2015	$	25,599
Expense included in earnings		935
Settlements		(971	)
Purchases, sales and issuances		-
Transfers in/(out) of Level 3		-
Balance at June 30, 2016	$	25,563

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. As of June 30, 2016, the in-process research and development asset for EV-035 series of molecules was measured at fair value on a non-recurring basis.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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