Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2021

Fair Value of Financial Assets and Liabilities

5. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements as of June 30, 2021 Using:
	Level 1		Level 2		Level 3		Total

Assets:
Money market funds	$	—	$	167,938	$	—	$	167,938
U.S. treasuries		—		359,871		—		359,871
U.S. government agency bonds		—		57,856		—		57,856

	$	—	$	585,665	$	—	$	585,665

Liabilities:
Contingent consideration	$	—	$	—	$	112,493	$	112,493

	$	—	$	—	$	112,493	$	112,493


	Fair Value Measurements as of December 31, 2020 Using:
	Level 1		Level 2		Level 3		Total
Assets:

Money market funds	$	—	$	273,827	$	—	$	273,827
U.S. treasuries		—		292,001		—		292,001
U.S. government agency bonds		—		20,000		—		20,000

	$	—	$	585,828	$	—	$	585,828

Liabilities:
Contingent consideration	$	—	$	—	$	152,230	$	152,230

	$	—	$	—	$	152,230	$	152,230

During the six months ended June 30, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.

Cash equivalents as of June 30, 2021 and December 31, 2020 consisted of money market funds totaling $167.9 million and $273.8 million, respectively. The money market funds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company’s investments as of June 30, 2021 and December 31, 2020 consisted of U.S. treasuries and U.S. government agency bonds and were clas

ified as

available-for-sale

securities. The U.S. treasuries and U.S. government agency bonds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such

available-for-sale

securities represent the investment of cash that is available for current operations.

The estimated amortized costs and fair value of the Company’s

available-for-sale

securities by contractual maturity are summarized as follows:


	June 30, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	305,053	$	305,095	$	201,606	$	201,596
Due after one year through two years		112,639		112,632		110,395		110,405

Total available-for-sale securities	$	417,692	$	417,727	$	312,001	$	312,001

Valuation of Contingent Consideration

The contingent consideration liability related to the acquisition of Shire’s MRT Program in 2016 was classified as a Level 3 measurement within the fair value hierarchy. The Company may be required to pay future consideration to Shire contingent upon the achievement of potential future milestones and earnout payments.

The fair value of the liability to make potential future milestone and earnout payments was estimated by the Company at each reporting date based, in part, on the results of a valuation u

ing a discounted cash flow analysis based on various assumptions, including the amount and timing of cash flows, probability of achieving specified events, discount rate, and the period of time until earnout payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.

The following table presents the unobservable inputs and fair value of the components of the contingent consideration (dollar amounts in thousands):


	Unobservable Inputs		Fair Value at
	Projected Year of Payment		June 30,		December 31,
			2021		2020
Earnout payments		2027 - 2039	$	103,093	$	142,250
Milestone payments		2027 - 2031		9,400		9,980

			$	112,493	$	152,230

The discount rate used in the valuation was 10.8% and 11.0% as of June 30, 2021 and December 31, 2020, respectively.

The following table presents a roll-forward of the total acquisition-related contingent consideration liability (in thousands):


	Fair Value
Balance as of December 31, 2020	$	152,230
Decrease in fair value of contingent consideration		(39,737	)

Balance as of June 30, 2021	$	112,493

The change in the fair value of contingent consideration was due to a large decrease in the fair value of contingent consideration during the three months ended March 31, 2021 due to the previously announced results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005. This decrease was partially offset by an increase in the fair value of contingent consideration during the three months ended June 30, 2021 due to

the

time value of money due to the passage of time and a decrease in the discount rate.

- 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.

+ References + Details