Fair Value of Financial Assets and Liabilities

3 Months Ended

Mar. 31, 2022

Fair Value of Financial Assets and Liabilities

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. In this note, the Company provides details on the fair value of financial assets and liabilities and how it determines those fair values.

Financial Instruments Measured at Fair Value on the Condensed Consolidated Balance Sheets

Certain assets of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see (Note 4) “Fair Value of Financial Assets and Liabilities” in the 2021 Form 10-K. Financial assets and liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021 were as follows:


		Fair Value Measurement Using:
Balance Sheet Classification	Type of Instrument	Level 1		Level 2		Level 3		Total
March 31, 2022
Assets:
Cash equivalents	Money market funds	$	45,999	$	—	$	—	$	45,999
Cash equivalents	U.S. treasury bills	—		8,497		—		8,497

Marketable securities	U.S. treasury bills	5,992		92,504		—		98,496
Marketable securities	U.S. corporate bonds	—		288,234		—		288,234
Marketable securities	Foreign corporate bonds	—		46,680		—		46,680
Total assets		$	51,991	$	435,915	$	—	$	487,906

Liabilities:
Series B preferred shares forward contracts		$	—	$	—	$	9,120	$	9,120

Total liabilities		$	—	$	—	$	9,120	$	9,120

December 31, 2021
Assets:
Cash equivalents	Money market funds	$	32,420	$	—	$	—	$	32,420

Marketable securities	U.S. treasury bills	5,994		35,937		—		41,931
Marketable securities	U.S. corporate bonds	—		130,155		—		130,155
Marketable securities	Foreign corporate bonds	—		20,561		—		20,561
Total assets		$	38,414	$	186,653	$	—	$	225,067

Liabilities:
Series B preferred shares forward contracts		$	—	$	—	$	13,110	$	13,110

Total liabilities		$	—	$	—	$	13,110	$	13,110

There were no securities transferred between Level 1, 2 and 3 during the three months ended March 31, 2022 or 2021.

Series B Preferred Shares Forward Contracts

The following tables provide roll forwards of the aggregate fair value of the Company's Series B Preferred Shares Forward Contracts for which fair value is determined by Level 3 inputs for the three months ended March 31, 2022 and 2021:


	Carrying Value
Balance at December 31, 2021	$	13,110
Change in fair value of derivative liability	(3,604)
Partial settlement of derivative liability	(386)
Balance at March 31, 2022	$	9,120

Balance at December 31, 2020	$	14,190
Change in fair value of derivative liability	835
Partial settlement of derivative liability	(625)
Balance at March 31, 2021	$	14,400

Contingent Value Right Liability

On January 4, 2021, the Company acquired Kleo Pharmaceuticals, Inc. (“Kleo”) (see Note 6). Included in the purchase consideration transferred was a contingent value right to receive one dollar in cash for each Kleo share if certain specified Kleo biopharmaceutical products or product candidates receive the approval of the FDA prior to the expiration of 30 months following the effective time of the transaction. The maximum amount payable pursuant to the contingent value right is approximately $17,300, and the fair value of the contingent value right was $1,457 as of the acquisition date. The Company recorded the contingent value right in other long-term liabilities on the condensed consolidated balance sheets.

The fair value of the contingent value right was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a discounted cash flow approach to value the contingent value right liability. As inputs into the valuation, the Company considered the probability of FDA approval within the 30 month period, which we estimated at approximately 10%, the amount of the payment, and a discount rate of approximately 7% determined using an implied credit spread adjusted based on companies with similar credit risk.

At December 31, 2021, the Company determined the value of the contingent value right to be immaterial and recognized a gain of $1,457 related to the contingent value right in other income (expense) during the fourth quarter of 2021.

- 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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