Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurement

The Company records cash equivalents, short-term investments, contingent consideration and warrant liability at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2021 consisted of the following:

	Fair Value Measurement at December 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - money market funds	$	65,634,137	$	65,634,137	$	—	$	—
Total		65,634,137		65,634,137		—		—
Liabilities:
Contingent consideration liability (see Note 8)		6,090,000		—		—		6,090,000
Total	$	6,090,000	$	—	$	—	$	6,090,000

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2020 consisted of the following:

	Fair Value Measurement at December 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - money market funds	$	90,389,473	$	90,389,473	$	—	$	—
Short-term investments		100,005,558		—		100,005,558		—
Total		190,395,031		90,389,473		100,005,558		—
Liabilities:
Contingent consideration liability (see Note 8)		5,390,000		—		—		5,390,000
Warrant liability		10,000		—		—		10,000
Total	$	5,400,000	$	—	$	—	$	5,400,000

There was no warrant liability at December 31, 2021. The warranty liability is included in Other long-term liabilities in the consolidated balance sheet at December 31, 2020. The warrant liability was valued using the Monte Carlo simulation valuation model with Level 3 inputs.

Short-term investments have been initially valued at the transaction price and subsequently valued at the end of each reporting period utilizing third party pricing services or other market observable data (Level 2). The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. There were no short-term investments at December 31, 2021.

Short-term investments with quoted prices at December 31, 2020 as shown below:

	December 31, 2020
			Unrealized Gain
	Amortized Cost		(Loss)		Market Value
United States treasury securities	$	20,052,757	$	1,843	$	20,054,600
Commercial paper and corporate debt securities		47,521,344		(5,440)		47,515,904
Asset backed securities		7,414,619		(757)		7,413,862
Certificate of deposit		25,021,192		—		25,021,192
Total	$	100,009,912	$	(4,354)	$	100,005,558

The fair value of contingent payments classified as a liability is based on the regulatory milestones described in Note 8 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The assumptions used to estimate the fair value of contingent payments that were classified as a liability at December 31, 2021 include the following significant unobservable inputs:

Unobservable input	Value or Range	Weighted-Average
Expected volatility	80.1%	80.1%
Risk-free interest rate	0.26%	0.26%
Cost of capital	30%	30%
Discount for lack of marketability	8%‑13%	11%
Probability of payment	88%	88%
Projected year of payment	2022	2022

The assumptions used to estimate the fair value of contingent payments that were classified as a liability at December 31, 2020 include the following significant unobservable inputs:

Unobservable input	Value or Range	Weighted-Average
Expected volatility	114.9%	114.9%
Risk-free interest rate	0.11%	0.11%
Cost of capital	30%	30%
Discount for lack of marketability	9%‑15%	12%
Probability of payment	63%	63%
Projected year of payment	2022	2022

If applicable, the Company will recognize transfers into and out of Level 3 within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. There were no transfers into and out of Level 3 of the fair value hierarchy during the years ended December 31, 2021 or 2020.

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. Assets recorded at fair value on a non-recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired. During the year ended December 31, 2021, the Company recorded non-cash impairment charges to property and equipment, net on a non-recurring basis (see below). During the year ended December 31, 2020, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis.

Lonza Manufacturing Agreement

In March 2021, the Company expanded its manufacturing collaboration with Lonza Houston, Inc. (“Lonza”) for the manufacture of AdCOVID or other adenovirus-based vaccines. Under the expanded agreement, the Company has committed approximately $23.0 million to Lonza to procure long-lead equipment and construct a dedicated manufacturing suite for clinical and commercial production of adenovirus-based vaccines. This work was completed during the fourth quarter of 2021. The Company capitalized a total of $11.4 million as construction-in-progress (“CIP”) during the year ended December 31, 2021 under this expanded agreement.

In June 2021, the Company announced the discontinuation of further development of AdCOVID following the Company’s review of findings from the Phase 1 clinical trial. Construction continued at Lonza, and the Company assessed its strategic options with respect to the suite. Should Lonza contract a replacement project with another customer for the suite within 12 months of termination, Lonza shall reimburse the Company for 75% of the price paid for any equipment that can be utilized for the other customer. The Company’s expectation was that, more likely than not, the suite would be disposed of significantly before the end of its previously estimated useful life.

During the nine months ended September 30, 2021, the Company recorded a non-cash impairment charge of $8.1 million to property and equipment, net associated with the construction of the Lonza facility. The fair value of the CIP related assets was $3.3 million at September 30, 2021. At September 30, 2021, the fair value of the CIP related assets was primarily determined utilizing the cost approach, which reflects the current replacement cost of the asset being appraised, adjusted for contractual restrictions on the assets, the probability of satisfying the contractual restrictions, physical

deterioration, functional obsolescence and economic obsolescence. The fair value measurement was considered a Level 3 measurement within the valuation hierarchy.

During the fourth quarter of 2021, due to the failure of negotiations with the lead potential replacement customer for the CIP related assets and potential negotiations with other prospective customers failing to materialize, and due to other specific competitive and market conditions, as well as the termination of the manufacturing agreement with Lonza in December 2021, along with the remote probability of recovering cost after termination, the Company considered these triggering events and reassessed the CIP related assets for impairment and determined that the assets had no potential value and recorded an additional impairment charge of $3.3 million for the full remaining value of the CIP related assets.

For the year ended December 31, 2021, the Company recorded a total of $11.4 million in non-cash impairment charges associated with CIP in the accompanying audited consolidated statements of operations and comprehensive loss. Following the discontinuation of AdCOVID, incremental costs incurred under the construction contract have been recorded to research and development expenses in the accompanying audited consolidated statements of operations and comprehensive loss. Research and development expenses related to the Lonza manufacturing agreement was approximately $11.6 million, less $1.0 million of credit issued by Lonza, for the year ended December 31, 2021.