Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

Note 12. Fair Value Measurements

The Company groups its assets and liabilities measured at fair value in three levels based on the nature of the inputs and assumptions used to determine fair value. Refer to Note 3, Summary of Significant Accounting Policies, for additional information on the accounting policies related to fair value.

The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments. As of September 30, 2022, and December 31, 2021, the Company had $189,569 and $228,584, respectively, primarily in money market funds that hold U.S. government cash equivalent instruments (included in cash and cash equivalents) which were valued based on Level 1 inputs. There were no transfers between levels within the hierarchy during the nine months ended September 30, 2022, and the year ended December 31, 2021.

Derivative liabilities measured at fair value on a recurring basis are summarized below.

	Nine months ended
	September 30, 2022
	Fair Value		Level 1		Level 2		Level 3		Total
Derivative liability - Equity Investment Right	$	1,281	$	—	$	—	$	1,281	$	1,281
Derivative liability - OnkosXcel Warrants		610		—		—		610		610
Total derivative liabilities	$	1,891	$	—	$	—	$	1,891	$	1,891

Derivative liabilities are comprised of the OnkosXcel Warrants and Equity Investment Right held by the Lenders. The fair value of the derivative liabilities was determined using Monte Carlo simulation models for the Equity Investment Right, and Binomial Option Pricing and Distribution models for the OnkosXcel Warrants.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

	Derivative liabilities
Balance - December 31, 2021	$	—
Addition of derivative liabilities		1,954
Change in fair value		(63)
Balance - September 30, 2022	$	1,891

The change from the day one fair value of the derivative liabilities was reported in the Condensed Consolidated Balance Sheets as derivative liabilities and Condensed Consolidated Statements of Operations as other (income) expense, net, as of and for the nine months ended September 30, 2022, respectively.

Inputs used to calculate the estimated fair value of the Equity Investment Right were as follows:

	Equity Investment Right
Strike price relative to volume weighted 30-day average	110.0	%
Volatility (annual)	95.0	%
Probability of exercise	95.0	%
Time period	6.6	years

In estimating the fair value of the derivative liability related to the OnkosXcel Warrants, inputs included third-party fair value estimates of OnkosXcel limited liability company units along with the volatility of those units (which was set at 100% based on the historical volatility of the Company’s stock, along with a peer group of comparable publicly traded companies), and the timing and probability of the relevant capital transactions occurring.

The estimated fair value of the Credit Agreement and RIFA as of September 30, 2022, are $50,200 and $25,537, respectively. Both observable and unobservable inputs were used to determine the fair value of long-term debt, which was classified within the Level 3 category.

The fair value of the BTI warrants, which is a non-recurring fair value, was determined as of the date of issuance using a Black-Scholes pricing model and the fair value of $3,245 was recorded as a component of stockholders’ equity in additional-paid-in-capital in the Condensed Consolidated Balance Sheets, with the offset recorded as a discount on the amounts funded under the OFA Facilities. This non-recurring measurement is classified as a Level 3. The inputs used were a strike price of $20.04, the Company’s stock price of $14.93, volatility of 95%, term of 7 years and risk-free rate of 2.95%.