Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. Fair Value Measurements

The Company records certain financial assets and liabilities at fair value in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 820 on fair value measurements. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier valuation hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.

Level 1: Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Cash and money market funds	$	103,522	$	—	$	—	$	103,522
Commercial paper		—		5,000		—		5,000
Total cash and cash equivalents		103,522		5,000		—		108,522
Marketable securities:
Commercial paper		—		45,478		—		45,478
U.S. government and agency securities		—		37,164		—		37,164
Corporate debt securities		—		13,610		—		13,610
Total marketable securities		—		96,252		—		96,252
Total fair value of assets	$	103,522	$	101,252	$	—	$	204,774
Liabilities:
Contingent value rights liability	$	—	$	—	$	29,327	$	29,327
Contingent consideration liability		—		—		4,670		4,670
Total fair value of liabilities	$	—	$	—	$	33,997	$	33,997

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Cash and money market funds	$	119,251	$	—	$	—	$	119,251
Certificate of deposit		—		157		—		157
Commercial paper		—		40,844		—		40,844
U.S. government and agency securities		—		27,498		—		27,498
Total cash and cash equivalents		119,251		68,499		—		187,750
Marketable securities:
Commercial paper		—		35,089		—		35,089
U.S. government and agency securities		—		26,029		—		26,029
Corporate debt securities		—		1,504		—		1,504
Total marketable securities		—		62,622		—		62,622
Total fair value of assets	$	119,251	$	131,121	$	—	$	250,372
Liabilities:
Contingent value rights liability	$	—	$	—	$	13,780	$	13,780
Contingent consideration liability		—		—		1,800		1,800
Total fair value of liabilities	$	—	$	—	$	15,580	$	15,580

Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Other cash equivalents and marketable securities, such as commercial paper, U.S. government and agency securities, and corporate debt securities, as well as certificate of deposit, are classified within Level 2 of the fair value hierarchy as the valuation is obtained from third-party pricing services, which utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, estimated interest rates based on the issuer credit rating and term, and other observable inputs.  

The following table presents a summary of the changes in the fair value of our Level 3 financial instruments (in thousands):

	Contingent Value Rights Liability		Contingent Consideration Liability
Balance at December 31, 2020	$	13,780	$	1,800
Net change in fair value upon remeasurement		15,547		2,870
Balance at September 30, 2021	$	29,327	$	4,670

The fair values of the CVR and contingent consideration liabilities related to the Merger are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the CVR and the contingent consideration liabilities related to the Merger, we used a probability-adjusted, scenario-based income approach. For the three and nine months ended September 30, 2021, the change in fair value of the CVR and the contingent value rights liabilities related to the Merger was $0.2 million and $18.4 million, respectively, and was recorded in the consolidated statement of operations and comprehensive loss. The change in the fair value during the periods, resulted from a change in estimate of the potential future proceeds derived from Aduro’s license agreement with Merck and from the sale of certain of our non-renal assets in exchange for preferred shares in Sairopa B.V. (“Sairopa”) during the second quarter of 2021. We will hold the shares in Sairopa until there is a liquidation event at which time, in accordance with the CVR agreement, 50% of any net proceeds will accrue to the benefit of the CVR holders. Refer to Note 15, “Equity Method Investment,” for more information. In addition, we identified measurement period adjustments during the second quarter of 2021, which reduced the CVR liability. Refer to Note 7, “Goodwill and Intangible Assets” for more information.