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Fair Value Measurements

12 Months Ended

Dec. 31, 2021

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

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Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.

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Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments, including receivable from collaboration, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

Cash Equivalents and Available-for-Sale Debt Securities

The following tables summarize the Company’s Level 1 and Level 2 financial assets measured at fair value on a recurring basis by level within the fair value hierarchy:


		December 31, 2021
	Valuation Hierarchy	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value
				(in thousands)
Assets:
Money market funds(1)	Level 1	$	345,098	$	—	$	—		$	345,098
U.S. government treasuries	Level 2		419,442		—		(872	)		418,570
Total financial assets		$	764,540	$	—	$	(872	)	$	763,668

(1) Includes $15.6 million of restricted cash equivalents.


		December 31, 2020
	Valuation Hierarchy	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value
		(in thousands)
Assets:
Money market funds(1)	Level 1	$	421,835	$	—	$	—		$	421,835
U.S. government treasuries	Level 2		300,201		91		(6	)		300,286
Total financial assets		$	722,036	$	91	$	(6	)	$	722,121

(1) Includes $14.9 million of restricted cash equivalents.

Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities are presented within prepaid expenses and other current assets, and other assets in the consolidated balance sheets. Accrued interest receivable amounted to $1.1 million and $0.8 million as of December 31, 2021 and 2020, respectively. The Company did not write off any accrued interest receivable during the years ended December 30, 2021 and 2020.

The Company recognized total net unrealized loss of $0.9 million and net unrealized gain of $0.1 million in accumulated other comprehensive income (loss) as of December 31, 2021 and 2020, respectively. The gross unrealized losses related to U.S. government treasuries as of December 31, 2021 were due to changes in interest rates. As of December 31, 2021 and 2020, there were no investments that have been in a continuous unrealized loss position for longer than 12 months. The Company determined that the gross unrealized losses on our investments as of December 31, 2021 were temporary in nature. The Company currently does not intend, and it is highly unlikely that it will be required, to sell these securities before recovery of their amortized cost basis. As of December 31, 2021, no securities have contractual maturities of longer than two years.

Equity Investments

As of December 31, 2021, the Company's equity investment consisted solely of ordinary shares of Brii Bio Parent. The Company acquired the securities as partial consideration for entering into the collaboration, option and license agreement (the “Brii Agreement”) with Brii Bio Parent and Brii Biosciences Offshore Limited (“Brii Bio”) in May 2018. The Company concluded it does not have a controlling interest or significant influence over Brii Bio based on its ownership percentage and other factors. See further discussion in Note 7—Collaboration and License Agreements. In July 2021, Brii Bio Parent completed its initial public offering ("Brii Bio Parent IPO") on the Stock Exchange of Hong Kong Limited, prior to which the securities were accounted for as equity securities without a readily determinable fair value. Upon the completion of the Brii Bio Parent IPO, the securities were considered to be marketable equity securities and subsequently remeasured at fair value at each reporting date. The Company classifies its equity investment in Brii Bio Parent as a Level 1 asset within the fair value hierarchy, as the value is based on a quoted market price in an active market. As of December 31, 2021, the Company remeasured the equity investment at a fair value of $143.1 million. For the year ended December 31, 2021, the Company recognized an unrealized gain of $138.0 million as other income in the consolidated statement of operations, net of an unrealized loss of $0.6 million related to foreign currency translation for the period.

Contingent Consideration

Contingent consideration includes potential milestone payments in connection with the acquisitions of Humabs Biomed SA (“Humabs”) and TomegaVax, Inc. (“TomegaVax”). See further discussion in Note 4—Acquisitions. The Company classifies the contingent consideration as Level 3 financial liabilities within the fair value hierarchy as of December 31, 2021 and 2020.

The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical, regulatory, and commercial milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved. In December 2021, the Company achieved the regulatory milestone of $35.0 million related to sotrovimab. As of December 31, 2021, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones related to the HBV product using the following significant unobservable inputs:


Unobservable input		Range (Weighted-Average)1
Discount rates		3% - 5% (4%)
Probability of achievement		22% - 40% (31%)

(1) Unobservable inputs were weighted based on the relative fair value of the clinical and regulatory milestone payments.

For the commercial milestones, the Company used a Monte Carlo simulation because of the availability of a discrete revenue forecast. During the year ended December 31, 2021, the Company achieved the specified sales milestones totaling $60.0 million related to sotrovimab. As of December 31, 2021, the Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecast, as well as the following significant unobservable inputs for the remaining commercial milestones related to the HBV product:


Unobservable input		Value
Volatility		65%
Discount rate		11%
Probability of achievement		22%

The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. As of December 31, 2021 and 2020, the estimated fair value of the contingent consideration related to the Humabs acquisition was $17.1 million and $29.2 million, respectively, with changes in the estimated fair value recorded in research and development expense, and selling, general and administrative expense in the consolidated statements of operations.

The estimated fair value of the contingent consideration related to the TomegaVax acquisition was determined by using a Monte Carlo simulation model which included estimates of both the probability and timing to achieve the required per share price of the Company’s common stock, and incorporates assumptions as to expected volatility and discount rate. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. Although the TomegaVax acquisition was accounted for as an asset acquisition, such contingent consideration met the

definition of an embedded derivative financial instrument. In February 2021, the Company achieved one of the milestones related to a specified per-share price of its common stock resulting in a $10.0 million payable to the former TomegaVax’s stockholders which was paid in July 2021. As of December 31, 2021, the fair value of the remaining contingent consideration was estimated using the following significant unobservable inputs:


Unobservable input		Value
Volatility		115%
Discount rate		0.1%

As of December 31, 2021 and 2020, the estimated fair value of the contingent consideration related to the TomegaVax acquisition was $5.7 million and $6.8 million, respectively, with changes in the estimated fair value recorded in other income (expense), net in the consolidated statements of operations.

The estimated fair value of the contingent consideration related to the Humabs and TomegaVax acquisitions involves significant estimates and assumptions which give rise to measurement uncertainty.

The following table sets forth the changes in the estimated fair value of the Company’s Level 3 financial liabilities (in thousands):


	Contingent Consideration
Balance at December 31, 2020	$	35,974
Changes in fair value		91,848
Reclassification of contingent consideration to accrued liabilities upon achievement of the Humabs milestones		(95,000	)
Payment of contingent consideration upon achievement of the TomegaVax milestone		(10,000	)
Balance at December 31, 2021	$	22,822

- 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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