Fair value measurements

9 Months Ended

Sep. 30, 2016

3. 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:

	September 30, 2016
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)		$	10	$	-	$	-	$	10
Total assets		$	10	$	-	$	-	$	10

Liabilities:
Contingent consideration		$	-	$	-	$	22,928	$	22,928
Total liabilities		$	-	$	-	$	22,928	$	22,928

	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		$	-	$	-	$	25,155	$	25,155
Total liabilities		$	-	$	-	$	25,155	$	25,155

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

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

For the three months ended September 30, 2016, the contingent consideration obligation associated with the EV-035 series of molecules increased by $0.1 million. For the nine months ended September 30, 2016, the contingent consideration obligation associated with the EV-035 series of molecules decreased by $0.3 million. For the three and nine months ended September 30, 2015, the contingent consideration obligation decreased by $9.9 million and $9.5 million, respectively. 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 the EV-035 series of molecules and the broad spectrum antiviral platform, which are inputs that have no observable market (Level 3), along with the novation of the Defense Threat Reduction Agency ("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 expense and research and development expense. During the nine months ended September 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.

For the three and nine months ended September 30, 2016, the contingent purchase consideration obligations associated with RSDL decreased by $2.3 million and $1.0 million, respectively. For the three and nine months ended September 30, 2015, the contingent consideration obligations associated with RSDL decreased by $1.9 million and $1.8 million, respectively. The fair value of the RSDL contingent consideration obligations decreased 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). 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 nine months ended September 30, 2016.

(in thousands)
Balance at December 31, 2015	$	25,155
Income included in earnings		1,263
Settlements		(964	)
Purchases, sales and issuances		-
Transfers in/(out) of Level 3		-
Balance at September 30, 2016	$	22,928

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 September 30, 2016, the in-process research and development asset for the 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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