Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

Financial instruments, including cash, accounts receivable, net, prepaid expenses, other current assets, other assets, restricted cash, accounts payable, and accrued expenses, are presented at amounts that approximate fair value at June 30, 2022 and December 31, 2021.

We are required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1 inputs - Quoted prices in active markets for identical assets or liabilities

Level 2 inputs - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 inputs - Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability

Our cash equivalents are comprised of money market funds, U.S. government and agency securities and commercial paper as presented in the tables below. We measure these investments at fair value. The fair value of cash equivalents is determined based on “Level 1” or “Level 2” inputs.

Items classified as Level 2 within the valuation hierarchy consist of corporate debt securities, commercial paper and U.S. government and agency securities. We estimate the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. We validate the prices provided by our third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

In certain cases where there is limited activity or less transparency around inputs to valuation, the related assets or liabilities are classified as Level 3. The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 10, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other expense, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of XPOVIO and any of our other future products, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument. Our embedded derivative liability, as well as the estimated fair value of the deferred royalty obligation, is described in Note 2, “Summary of Significant Accounting Policies,” and Note 16, “Long-Term Obligations” to our consolidated financial statements contained in Item 8 of our Annual Report.

The following tables present information about our financial assets and liability that have been measured at fair value and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

Description	As of June 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash equivalents:
Money market funds	$	22,220	$	22,220	$	—	$	—
Commercial paper		14,490		—		14,490		—
Investments:
Corporate debt securities		21,038		—		21,038		—
Commercial paper		38,621		—		38,621		—
U.S. government and agency securities		28,939		—		28,939		—
	$	125,308	$	22,220	$	103,088	$	—
Financial liability
Embedded derivative liability	$	3,080	$	—	$	—	$	3,080

Description	As of December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash equivalents:
Money market funds	$	32,947	$	32,947	$	—	$	—
U.S. government and agency securities		12,000		12,000		—		—
Commercial paper		11,998		—		11,998		—
Investments:
Corporate debt securities		24,269		—		24,269		—
Commercial paper		12,995		—		12,995		—
U.S. government and agency securities		892		—		892		—
	$	95,101	$	44,947	$	50,154	$	—
Financial liability
Embedded derivative liability	$	3,080	$	—	$	—	$	3,080