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Assets and Liabilities Measured at Fair Value

6 Months Ended

Jun. 30, 2020

Assets and Liabilities Measured at Fair Value

The Company's financial assets and liabilities are measured at fair value and classified within the fair value hierarchy, which is defined as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3 — Inputs that are unobservable for the asset or liability.

A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of June 30, 2020 are identified in the following table:


(in thousands)	Level 2		Total
Assets:
Commercial paper	$	59,902	$	59,902
Asset-backed securities	33,182		33,182
Corporate debt securities	51,532		51,532
Money market funds	3,635		3,635
	$	148,251	$	148,251


(in thousands)	Level 2		Level 3		Total
Liabilities:
Contingent consideration payable	$	—	$	24,327	$	24,327
Deferred compensation plan liability	3,312		—		3,312
	$	3,312	$	24,327	$	27,639

A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of December 31, 2019 are identified in the following table:


(in thousands)	Level 2		Total
Assets:
Commercial paper	$	73,710	$	73,710
Asset-backed securities	77,810		77,810
Corporate debt securities	145,991		145,991
U.S. government agency bonds	11,991		11,991
Money market funds	4,768		4,768
	$	314,270	$	314,270


(in thousands)	Level 2		Level 3		Total
Liabilities:
Contingent consideration payable	$	—	$	22,681	$	22,681
Deferred compensation plan liability	4,419		—		4,419
	$	4,419	$	22,681	$	27,100

The Company's Convertible Notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined using broker quotes in a non-active market for valuation. The fair value of the Convertible Notes at June 30, 2020 was $7.3 million.

The Company's Senior Secured Term Loan fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. The carrying value of the Senior Secured Term Loan approximates the fair value.

The Company did not have any Level 3 assets as of June 30, 2020 or December 31, 2019.

Cash, Money Market Funds, and Marketable Securities

The Company classifies its cash within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in an active market for identical assets at the measurement date. The Company considers its investments in marketable securities as available-for-sale and classifies these assets and the money market funds within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities.

Contingent Consideration Payable

The contingent consideration payable resulted from the acquisition of Callidus Biopharma, Inc. ("Callidus") in November 2013. The most recent valuation was determined using a probability weighted discounted cash flow valuation approach. Gains and losses are included in the Consolidated Statements of Operations. The current portion of the contingent consideration payable is included within the accrued expenses and other current liabilities on the Company's Consolidated Balance Sheets.

The contingent consideration payable for Callidus has been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower than the fair value the Company determined.

The following significant unobservable inputs were used in the valuation of the contingent consideration payable of Callidus for the ATB-200 Pompe program:

Contingent Consideration
Liability

Fair Value as of June 30, 2020

Valuation Technique

Unobservable Input

Range

(in thousands)

Discount rate

8.9%

Clinical and regulatory milestones

23,673

Probability weighted discounted cash flow

Probability of achievement of milestones

75% - 78%

Projected year of payments

2021 - 2022

Contingent consideration liabilities are remeasured to fair value each reporting period using discount rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts related to clinical and regulatory based milestones are discounted back to the current period using a discounted cash flow model. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement. There is no assurance that any of the conditions for the milestone payments will be met.

The following table shows the change in the balance of contingent consideration payable for the three and six months ended June 30, 2020 and June 30, 2019, respectively:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Balance, beginning of the period	$	23,612	$	20,767	$	22,681	$	19,700
Changes in fair value during the period, included in the Consolidated Statements of Operations	715		480		1,646		1,863
Adjustment for contingent consideration paid in stock	—		—		—		(316)
Balance, end of the period	$	24,327	$	21,247	$	24,327	$	21,247

- 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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