Fair Value Measurements

9 Months Ended

Sep. 30, 2013

10. Fair Value Measurements

The fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

Level 1 — unadjusted quoted prices in active markets for identical securities;

Level 2 — unadjusted quoted prices in markets that are not active,

Level 3 — significant unobservable inputs, including our own assumptions in determining fair value

The following table summarizes the financial assets that we measured at fair value as of September 30, 2013 and December 31, 2012.


	September 30, 2013
	Level 1		Level 2		Level 3		Total
Available for sale securities	$	24,310	$	—	$	—	$	24,310
Contingent Royalty	$	—	$	—	$	16,000,000	$	16,000,000


	December 31, 2012
	Level 1		Level 2		Level 3		Total
Available for sale securities	$	838,309	$	—	$	—	$	838,309
Contingent Royalty	$	—	$	—	$	16,000,000	$	16,000,000

As of September 30, 2013, the Company’s Level 1 short-term investments consist of 39,209 shares of FluoroPharma Medical, Inc. common stock which are traded on the OTX Bulletin Board (“OTCBB”) under the symbol FPMI.

As of December 31, 2012, the Company’s Level 1 short-term investments consisted of 285,000 shares of Navidea Biopharmaceuticals, Inc. common stock which are traded on the NYSE under the symbol NAVB and 39,209 shares of FluoroPharma Medical, Inc. common stock which are traded on the OTX Bulletin Board (“OTCBB”) under the symbol FPMI.

A contingent royalty liability which resulted from the election by certain purchasers of the Company’s Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) to convert a total of $16,000,000 in debt obligation into a right to receive future royalties on net sales of the Company’s Molecular Imaging Products. The Company obtained a third party fair value valuation for its contingent royalty liability as of December 31, 2012. The fair value measurement is based on significant inputs not observable in the market, which require it to be reported as a Level 3 asset within the fair value hierarchy. The valuation uses assumptions that the Company believes would be made by a market participant. In particular, the valuation analysis employed the Income Approach based on the sum of the economic income that an asset is anticipated to produce in the future. In this case that asset is the potential royalty income to be paid to the Company by Navidea as a result of the license agreement for Altropane. The Discounted Cash Flow method of the Income Approach was chosen as the method best suited to valuing the contingent royalty liability. Changes in the fair value of the contingent royalty liability will be reflected in the consolidated statements of comprehensive income in the period they become known. The actual calculated fair value of the liability was $16.6 million, however, as described in Note 6 above, the accounting guidance does not provide for an increase in the liability in a troubled debt restructuring. The Company reviewed the previously prepared projections and assumptions used in the December 31, 2012 valuation estimate as of September 30, 2013 and determined that no changes from the assumptions used to compute the December 31, 2012 fair value had occurred that would have a material impact on the resulting fair value computation.

- 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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