Fair value measurement

9 Months Ended

Sep. 30, 2022

Fair value measurement

Fair value measurement

5  Fair value measurement

The Company measures certain financial assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. U.S. GAAP requires disclosure of methodologies used in determining the reported fair values and establishes a hierarchy of inputs used when available. The three levels of the fair value hierarchy are described below:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2 – Valuations based on quoted prices for similar assets or liabilities in markets that are not active or models for which the inputs are observable, either directly or indirectly.

Level 3 – Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and are unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses, other assets, accounts payable, accrued expenses and other current liabilities reflected in the Consolidated balance sheets approximate their fair values due to their short-term maturities.

The following table sets forth the Company’s assets and liabilities that are required to be measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021:

	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		Classification in Consolidated balance sheets
		(in thousands)
At December 31, 2021
Assets:
Cash and cash equivalents	$	556,256	$	—	$	—	$	556,256	Cash and cash equivalents
Restricted cash		3,097		—		—		3,097	Other non-current assets
Total assets	$	559,353	$	—	$	—	$	559,353
Liabilities:
Contingent consideration		—		—		29,542		29,542	Contingent consideration
Derivative financial instrument		—		—		2,805		2,805	Other non-current liabilities
Consideration for post-acquisition services		—		—		846		846	Other non-current liabilities
Total liabilities	$	—	$	—	$	33,193	$	33,193
At September 30, 2022
Assets:
Cash and cash equivalents	$	440,313	$	—	$	—	$	440,313	Cash and cash equivalents
Restricted cash		3,106		—		—		3,106	Other non-current assets
Total assets	$	443,419	$	—	$	—	$	443,419
Liabilities:
Contingent consideration		—		—		32,695		32,695	Current portion of contingent consideration; contingent consideration, net of current portion
Derivative financial instrument		—		—		2,171		2,171	Other non-current liabilities
Consideration for post-acquisition services		—		—		312		312	Other non-current liabilities
Total liabilities	$	—	$	—	$	35,178	$	35,178

Contingent consideration

The Company is required to pay up to EUR 178.8 million ($175.2 million) at September 30, 2022 to the former shareholders of Corlieve upon the achievement of contractually defined milestones in connection with the Company’s acquisition of Corlieve. The fair market value of the contingent consideration was determined using unobservable initial inputs with respect to (i) the probability of achieving the relevant milestones, or POS, (ii) the estimated timing of achieving such milestones, and (iii) the interest rate used to discount the payments. The Company determined the fair market value of the contingent consideration by calculating the probability-adjusted payments based on each milestone’s probability of achievement. The probability-adjusted payments were then discounted to present value using a discount rate representing the Company’s credit risk. The discount rate was determined using the effective interest rate of the Company’s existing debt facility adjusted for difference in maturity dates based on market data on effective yields for US bonds with a CCC credit rating.

The fair value of the contingent consideration as of September 30, 2022 was $32.7 million (December 31, 2021: $29.5 million) using discount rates of approximately 11.9% to 13.3% (December 31, 2021: 10.9% to 11.9%) as well as a 66.0% (December 31, 2021: 55.0%) likelihood of Corlieve’s target candidate for treatment of temporal lobe epilepsy (“AMT-260”) advancing into clinical development by no later than late 2023. If as of September 30, 2022 the Company had assumed a 100% likelihood of AMT-260 advancing into clinical development, then the fair value of the contingent consideration would have increased to $45.4 million. If as of September 30, 2022 the Company assumed that it would discontinue development of the AMT-260 program, then the contingent consideration would be released to income. Changes in fair value of the contingent consideration are recognized within research and development expenses in the consolidated statements of operations.

The following table presents the changes in fair value of contingent consideration between December 31, 2021 and September 30, 2022:

	Amount of
	contingent
	consideration
		2022
	(in thousands)
Balance at December 31, 2021	$	29,542
Change in fair value (presented within research and development expenses)		7,510
Currency translation effects		(4,357)
Balance at September 30, 2022	$	32,695

As of September 30, 2022, the Company classified $23.5 million of the total contingent consideration of $32.7 million as current liabilities. The balance sheet classification between current and non-current liabilities is based upon the Company’s best estimate of the timing of settlement of the remaining relevant milestones.  

Derivative financial instrument

The Company issued a derivative financial instrument related to its collaboration with BMS.

On December 1, 2020, the Company and BMS agreed that upon the consummation of a change of control transaction of uniQure that occurs prior to December 1, 2026 or BMS’ delivery of a target cessation notice for all four collaboration targets, the Company (or its third party acquirer) shall pay to BMS a one-time, non-refundable, non-creditable cash payment of $70.0 million, provided that (x) if $70.0 million is greater than five percent (5.0%) of the net proceeds (as contractually defined) from such change of control transaction, the payment shall be an amount equal to five percent of such net proceeds, and (y) if $70.0 million is less than one percent of such net proceeds, the change of control payment shall be an amount equal to one percent of such net proceeds (“CoC-payment”). The Company has not consummated any change of control transaction as of September 30, 2022 that would obligate it to make a CoC-payment.

The Company determined that the CoC-payment should be recorded as a derivative financial liability as of December 1, 2020 and that subsequent changes in the fair market value of this derivative financial liability should be recorded in profit and loss. The fair market value of the derivative financial liability is materially impacted by probability that market participants assign to the likelihood of the occurrence of a change of control transaction that would give rise to a CoC-payment. This probability represents an unobservable input. The Company determines the fair market value of the derivative financial liability by using a present value model based on expected cash flow. The expected cash flows are materially impacted by the probability that market participants assign to the likelihood of the occurrence of a change of control transaction within the biotechnology industry. The Company estimated this unobservable input using the best information available as of September 30, 2022 and December 31, 2021. The Company obtained reasonably available market information that it believed market participants would use in determining the likelihood of the occurrence of a change-of control transaction within the biotechnology industry. Selecting and evaluating market information involves considerable judgement and uncertainty. Based on all such information and its judgment, the Company estimated that the fair market value of the derivative financial liability (presented within “Other non-current liabilities”) as of September 30, 2022 was $2.2 million and as of December 31, 2021 was $2.8 million. The change in the fair market value of the derivative financial liability was nil for the three months ended September 30, 2022 and was $0.6 million for the nine months ended September 30, 2022 related to a decrease in the fair market value (nil in the same periods in 2021). The decrease in fair market value for the nine months ended September 30, 2022 was recorded as a gain within Other non-operating (losses) / gains.