Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 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 June 30, 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
June 30, 2022
Assets:
Cash equivalents	Money market funds	$	3,142	$	—	$	—	$	3,142


Marketable securities	U.S. treasury bills	—		69,489		—		69,489
Marketable securities	U.S. corporate bonds	—		218,326		—		218,326
Marketable securities	Foreign corporate bonds	—		29,865		—		29,865
Total assets		$	3,142	$	317,680	$	—	$	320,822

Liabilities:
Derivative liabilities	Series B preferred shares forward contracts	$	—	$	—	$	71,110	$	71,110
Derivative liabilities	Series B preferred shares derivative liability	—		—		33,760		33,760
Derivative liabilities	Series A preferred shares derivative liability	—		—		5,259		5,259
Total liabilities		$	—	$	—	$	110,129	$	110,129

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:
Derivative liability	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 six months ended June 30, 2022 or 2021.

Series B Preferred Shares Forward Contract

In August 2020, the Company entered into Series B preferred share agreement, whereby RPI will invest in the Company through the purchase of up to 3,992 Series B preferred shares (the "Series B Preferred Shares") at a price of $50,100 per share (the "RPI Series B Preferred Share Agreement"). Upon issuance of the Series B Preferred Shares, they qualify as mandatorily redeemable instruments and are initially classified at their fair value as preferred shares liabilities. The Company will then accrete the carrying value to the redemption value through interest expense using the effective interest rate method.

The Company is required to redeem the Series B Preferred Shares for 1.77 times the original purchase price, payable beginning March 31, 2025 in equal quarterly installments through December 31, 2030 (the "Normal Series B Redemption Provision").

The holders of the Company's outstanding Series B Preferred Shares will have the right to require redemption of the shares in certain circumstances, including in the event of a Change of Control, as defined in the Company's memorandum and article of association. If a Change of Control occurs, the Company will be required to sell and RPI will be required to buy the remaining unissued Series B Preferred Shares. The holders of a majority of outstanding Series B Preferred Shares will then have an option to redeem all outstanding Series B Preferred Shares in a single payment at a price equal to 1.77 times the original issuance price of the Series B Preferred Shares (the "Change of Control Series B Redemption Provision").

Accordingly, the Company has concluded that the agreement to issue Series B Preferred Shares at a future date represents a forward contract, and classified as a derivative.

The fair value of the forward contract recognized in connection with the RPI Series B Preferred Share Agreement was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The fair value of the forward contract is made up of the probability weighted fair value of the Normal Series B Redemption Provision and the Change of Control Series B Redemption Provision for the 2,004 unissued Series B Preferred Shares at June 30, 2022. The fair value of the Normal Series B Preferred Shares Redemption Provision for the forward contract is calculated as the difference between the present value of proceeds to the

Company for the quarterly issuances of the remaining unissued Series B Preferred Shares and the present value of the required quarterly redemption payments to the holders. The fair value of the Change of Control Series B Redemption Provision for the forward contract is calculated as the difference between the present value of the proceeds to the Company on the estimated change of control date for the issuance of the remaining unissued Series B Preferred Shares and the present value of the lump sum redemption payment to the holders.

As inputs into the valuation, the Company assessed the Change of Control Series B Redemption Provision as highly likely due to Pfizer's pending acquisition of Biohaven, see Note 1 for additional details. In addition, the Company considered the amount of the payments and a risk-adjusted discount rate ranging from low single digits to low-twenty percent. Due to the uncertainty around the close date of Pfizer's pending acquisition of Biohaven, the Company's expectation of the timing of a change of control event at the reporting date could reasonably be different than the timing of an actual change of control event, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined.

In accordance with ASC 815, Derivatives and Hedging, the fair value of the forward contract was recorded on the balance sheet as a derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

The following table provides a roll forward of the aggregate fair value of the Company's series B preferred shares forward contract for which fair value is determined by Level 3 inputs for the six months ended June 30, 2022 and 2021:


	Carrying Value
Balance at December 31, 2021	$	13,110
Change in fair value of derivative liability	68,574
Partial settlement of derivative liability	(10,574)
Balance at June 30, 2022	$	71,110

Balance at December 31, 2020	$	14,190
Change in fair value of derivative liability	3,295
Partial settlement of derivative liability	(1,595)
Balance at June 30, 2021	$	15,890

Series B Preferred Shares Derivative Liability

As of June 30, 2022, the Company has 1,988 Series B Preferred Shares outstanding, see Note 8 for details. As discussed in the Series B Preferred Shares Forward Contracts section above, the holders of the Company's outstanding Series B Preferred Shares will have the right to require redemption of the shares in certain circumstances, including in the event of a Change of Control, as defined in the Company's memorandum and article of association.

If a Change of Control occurs the holders of the outstanding Series B Preferred Shares will have the option to exercise the Change of Control Series B Redemption Provision. The Company would then be required to redeem the outstanding Series B Preferred Shares in a lump sum payment of 1.77 times the original issue price instead of in equal quarterly installments.

The series B preferred shares derivative liability recognized in connection with the RPI Series B Preferred Share Agreement was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The fair value of the series B preferred shares derivative liability is calculated as the difference between the fair value of the outstanding Series B Preferred Shares with and without the derivative. The fair value of the outstanding Series B Preferred Shares both with and without the derivative is calculated as the probability weighted present value of the required quarterly redemption payments considering the likelihood of a Change of Control.

As inputs into the valuation, the Company assessed the likelihood of a Change of Control, and the risk-adjusted discount rate similarly to these same inputs for the Series B Preferred Shares Forward Contract.

In accordance with ASC 815, Derivatives and Hedging, the fair value of the series B preferred shares derivative liability was recorded on the balance sheet as a derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

The following table provides a roll forward of the aggregate fair value of the Company's series B preferred shares derivative liability for which fair value

is determined by Level 3 inputs for the six months ended June 30, 2022:


	Carrying Value
Balance at December 31, 2021	$	—
Change in fair value of derivative liability	33,760

Balance at June 30, 2022	$	33,760

The series B preferred shares derivative liability had no material value at December 31, 2021.

Series A Preferred Shares Derivative Liability

In April 2019, the Company sold 2,495 series A preferred shares (the "Series A Preferred Shares") to RPI at a price of $50,100 per preferred share pursuant to a Series A preferred share purchase agreement (the "RPI Series A Preferred Share Agreement"). The Company is required to redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable beginning March 31, 2021 in equal quarterly installments through December 31, 2024 (the "Normal Series A Preferred Share Redemption Provision"). As of June 30, 2022, the Company had 1,559 outstanding Series A Preferred Shares, see Note 8 for additional details.

The holders of the Company's outstanding Series A Preferred Shares will have the right to require a lump sum redemption of the shares in the event of a Change of Control, as defined in the Company's memorandum and article of association. Upon exercise of the put option by the holders, the Company will be required to redeem the outstanding Series A Preferred Shares that have not previously been redeemed for two times (2x) the original purchase price of the Series A Preferred Shares payable in a lump sum at the closing of the Change of Control (the "Change of Control Series A Preferred Share Redemption Provision").

The series A preferred shares derivative liability recognized in connection with the RPI Series A Preferred Share Agreement was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The fair value of the series A preferred shares derivative liability is calculated as the difference between the fair value of the outstanding Series A Preferred Shares with and without the derivative. The fair value of the outstanding Series A Preferred Shares both with and without the derivative is calculated as the probability weighted present value of the required redemption payments considering the likelihood of a Change of Control.

In accordance with ASC 815, Derivatives and Hedging, the fair value of the series A preferred shares derivative liability was recorded on the balance sheet as a derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

The following table provides a roll forward of the aggregate fair value of the Company's series A preferred

shares derivative liability for which fair value is determined by Level 3 inputs for the six months ended June 30, 2022:


	Carrying Value
Balance at December 31, 2021	$	—
Change in fair value of derivative liability	5,259

Balance at June 30, 2022	$	5,259

The series A preferred shares derivative liability had no material value as of December 31, 2021.

Financial Instruments Not Measured at Fair Value on the Consolidated Balance Sheets

The carrying value and estimated fair value classified by level of fair value hierarchy for financial instruments carried on the condensed consolidated balance sheets at adjusted cost or contract value at June 30, 2022 and December 31, 2021 were as follows:


	Carrying		Fair Value Measurement Using:
	Value		Level 1		Level 2		Level 3		Total
June 30, 2022


Liabilities:
Long-term debt(1)	$	764,983	$	—	$	861,877	$	—	$	861,877

December 31, 2021


Liabilities:
Long-term debt(1)	$	626,720	$	—	$	646,159	$	—	$	646,159

(1) Due to the $125,000 draw of the remaining delayed draw term loan commitment in June 2022, see Note 14 for details, and the announcement of the acquisition of Biohaven by Pfizer in May 2022, see Note 1 for details, the Company remeasured the fair value of its long-term debt as of June 30, 2022.

- 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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