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Fair Value

12 Months Ended

Dec. 31, 2022

5. FAIR VALUE

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy and the valuation techniques the Company utilized to determine such fair value:

	December 31,
(In thousands)	2022		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	19,857	$	19,857	$	—	$	—
U.S. government and agency debt securities		202,050		168,639		33,411		—
Corporate debt securities		208,938		—		208,938		—
Non-U.S. government debt securities		34,794		—		34,794		—
Total	$	465,639	$	188,496	$	277,143	$	—

	December 31,
	2021		Level 1		Level 2		Level 3
Assets:
U.S. government and agency debt securities	$	126,139	$	96,597	$	29,542	$	—
Corporate debt securities		196,478		—		196,478		—
Non-U.S. government debt securities		103,760		—		103,760		—
Contingent consideration		23,048		—		—		23,048
Total	$	449,425	$	96,597	$	329,780	$	23,048

The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fair value hierarchies at the end of each reporting period.

There were no transfers of any securities between levels during the year ended December 31, 2022. The following table is a rollforward of the fair value of the Company’s investments whose fair value was determined using Level 3 inputs at December 31, 2022:

(In thousands)	Fair Value
Balance, January 1, 2022	$	23,048
Purchase of corporate debt security		500
Change in the fair value of contingent consideration		(21,750	)
Milestone and royalty payments received by the Company related to contingent consideration		(1,298	)
Impairment of corporate debt security		(500	)
Balance, December 31, 2022	$	—

The Company’s investments in U.S. government and agency debt securities, non-U.S. government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated the prices developed using the market-observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.

In November 2019, Recro Pharma, Inc. (“Recro”) spun out its acute care segment to Baudax Bio, Inc. (“Baudax”), a publicly-traded pharmaceutical company. As part of this transaction, Recro’s obligations to pay certain contingent consideration from the Gainesville Transaction were assigned and/or transferred to Baudax.

In Baudax’s Quarterly Report on Form 10-Q for the period ended September 30, 2022, Baudax continued to include disclosures regarding its ability to continue as a going concern, which first appeared in its Annual Report on Form 10-K for the period ended December 31, 2021. In March 2022, Baudax reduced its workforce by approximately 80%, which was designed to reduce its operational expenses and conserve its cash resources. As a result of these events and the fact that, as of March 31, 2022, Baudax had only paid $0.5 million of the $6.4 million milestone payment that was due to the Company in March 2022, the Company recorded a reduction in the fair value of the contingent consideration of $19.1 million during the three months ended March 31, 2022. In light of Baudax’s disclosures and the fact that, as of September 30, 2022, Baudax had only paid $1.2 million of the $6.4 million that was due to the Company in March 2022, the Company determined, during the three months ended September 30, 2022, that it was unlikely to collect any further proceeds under this arrangement and recorded a $3.6 million charge to reduce the fair value of the contingent consideration to zero within “Change in the fair value of contingent consideration”. In addition, during the three months ended September 30, 2022, the Company determined that certain construction in progress related to the manufacture of ANJESO had no future value. See Note 7, Property, Plant and Equipment, within the “Notes to Consolidated Financial Statements” in this Annual Report for details related to such construction in progress.

In December 2022, Baudax announced that it would discontinue the sale of ANJESO and on December 28, 2022, the U.S. Food and Drug Administration (“FDA”) acknowledged the discontinuation of sale of ANJESO via listing in the Orange Book.

The estimated fair value of the Company’s long-term debt under the 2026 Term Loans (as defined in Note 11, Long-Term Debt within these “Notes to Consolidated Financial Statements” in this Annual Report), which was based on quoted market price indications (Level 2 in the fair value hierarchy) and which may not be representative of actual values that could have been, or will be, realized in the future, was $278.9 million and $285.8 million at December 31, 2022 and 2021, 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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