Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Note H - Fair Value Measurements

We measure our contingent purchase price considerations at fair value.

The fair values of our contingent purchase price considerations, $3.7 million, are based on significant inputs not observable in the market, which require them to be reported as Level 3 liabilities within the fair value hierarchy. The valuation of these liabilities use assumptions we believe would be made by a market participant and are mainly based on estimates from a Monte Carlo simulation of our market capitalization and share price, as well as other factors impacting the probability of triggering the milestone payments. Market capitalization and share price were evolved using a geometric Brownian motion, calculated daily for the life of the contingent purchase price considerations.

The significant unobservable inputs include the anticipated timelines to achieve the contingent purchase milestones and our estimated credit spread, the weighted average values of which (weighted based on the value of each contingent liability), are shown in the table below.

	September 30, 2021			December 31, 2020
Period of time to achieve milestones (in years)		2.3			1.3
Credit spread		4.9	%		5.5	%

Liabilities measured at fair value are summarized below (in thousands):

Description	September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent purchase price considerations	$	3,739	$	—	$	—	$	3,739
Total	$	3,739	$	—	$	—	$	3,739

Description	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent purchase price consideration	$	10,208	$	—	$	—	$	10,208
Total	$	10,208	$	—	$	—	$	10,208

The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of September 30, 2021 (in thousands):

Balance, December 31, 2020	$	10,208
Change in fair value of contingent purchase price considerations during the period		13,531
Achievement of 4-AB contingent milestones		(20,000	)
Balance, September 30, 2021	$	3,739

In June 2021, the second contingent milestone was achieved pursuant to the terms of the Share Exchange Agreement dated January 10, 2014, by and among us, 4-Antibody AG (“4-AB”), the former shareholders of 4-AB and Vischer AG, as Representative (the "Share Exchange Agreement"), triggering a $10.0 million payment. In July 2021, the third contingent milestone was achieved pursuant to the terms of the Share Exchange Agreement, triggering an additional $10.0 million payment. As of September 30, 2021, both aforementioned milestones have been paid.

The fair value of our outstanding debt balance at September 30, 2021 and December 31, 2020 was $13.4 million and $19.9 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology that was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date. The principal amount of our outstanding debt balance at September 30, 2021 and December 31, 2020 was $13.5 million and $20.0 million, respectively.

- 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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