Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 6. Fair Value of Financial Instruments

In connection with the Acquisition, the Company pays royalty on U.S. net sales of Sunosi to Jazz. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The fair value of the contingent consideration is reflected as current accrued contingent consideration of $7.0 million and non-current contingent consideration liability of $69.6 million in the consolidated balance sheet as of June 30, 2024.

The fair value of financial instruments measured on a recurring basis is as follows:

	June 30, 2024
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents - money market funds	$	238,204	$	—	$	—	$	238,204
Liabilities:
Contingent consideration	$	—	$	—	$	76,660	$	76,660

	December 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents - money market funds	$	251,768	$	—	$	—	$	251,768
Liabilities:
Contingent consideration	$	—	$	—	$	79,707	$	79,707

Contingent Consideration Liabilities

The fair value of the contingent consideration liabilities is marked-to-market each reporting period and was remeasured at June 30, 2024. Changes in fair value of the contingent consideration liabilities as of June 30, 2024 are as follows:

	Contingent consideration
Balance at December 31, 2023	$	79,707
Adjustment to fair value		748
Payments		(3,795	)
Balance at June 30, 2024 (Level 3)	$	76,660

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

			As of June 30, 2024	As of December 31, 2023
	Valuation methodology	Significant unobservable input	Weighted average (range, if applicable)	Weighted average (range, if applicable)
Contingent consideration	Probability weighted income approach	Discount rate	15.9%	13.2%
		Revenue discount rate	16.1% - 19.1%	16.4% - 19.4%

The Company's fair value measurement of contingent consideration liabilities has been classified as Level 3 as its valuation requires substantial judgment and estimation of factors which requires use of unobservable inputs. The fair value of contingent consideration liabilities are estimated by using the probability weighted income approach using significant assumptions including estimated future sales of Sunosi in current and future indications, timing of regulatory and commercial milestone achievements, probability of technical and regulatory success rates, and discount rates. If significant changes are made to one or more of these assumptions, the estimated fair value of contingent consideration liabilities may result in a significantly higher or lower fair value measurement.