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FAIR VALUE
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE FAIR VALUE
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.
 
•Level 1: Quoted prices in active markets for identical assets or liabilities.
•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.
•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 following table reflects the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024Financial Statement ClassificationLevel 1Level 2Level 3Total
Assets
Cash equivalents:
U.S. TreasuriesCash and cash equivalents$— $2,187 $— $2,187 
Money market fundsCash and cash equivalents25,792 — — 25,792 
Short-term investments:
U.S. TreasuriesShort-term investments— 50,598 — 50,598 
Total$25,792 $52,785 $— $78,577 
Liabilities
Short-term contingent considerationContingent consideration, current portion$— $— $3,000 $3,000 
Derivative liabilityLong-term debt— — 308 308 
Total$— $— $3,308 $3,308 

December 31, 2023Financial Statement ClassificationLevel 1Level 2Level 3Total
Assets
Cash equivalents:
U.S. TreasuriesCash and cash equivalents$— $35,458 $— $35,458 
U.S. Government agenciesCash and cash equivalents— 3,294 — 3,294 
Money market fundsCash and cash equivalents32,534 — — 32,534 
Total$32,534 $38,752 $— $71,286 
Liabilities
Short-term contingent considerationContingent consideration, current portion$— $— $2,700 $2,700 
Derivative liabilityLong-term debt— — 308 308 
Total$— $— $3,008 $3,008 
    
Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity date at purchase of three months or less to be cash equivalents. The Company invests its cash in money market funds and marketable securities including U.S. Treasury and government agency securities, and higher quality debt securities of financial and commercial institutions. The Company classified money market funds as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The Company classified U.S. Treasury and government agency securities as Level 2, as the inputs used to value these instruments are directly observable or can be corroborated by observable market data for substantially the full term of the assets.

Short-Term Investments

The Company considers all highly liquid investments with a maturity date at purchase of more than three months and less than one year to be short-term investments. The Company’s short-term investments consist of marketable securities, which may include commercial paper and U.S. Treasury securities. The Company has classified its short-term investments as trading securities. The short-term investments are recorded at fair value using Level 2 inputs, as the inputs used to value these instruments are directly observable or can be corroborated by observable market data for substantially the full term of the assets. Gains and losses on short-term investments are included in Interest income in the Condensed Consolidated Statements of Comprehensive Loss.
Unrealized gains and losses from short-term investments classified as trading securities recognized by the Company for the three and nine months ended September 30, 2024 were immaterial. The Company had no short-term investments classified as trading securities during the three and nine months ended September 30, 2023.

Contingent Consideration Obligations

Spectrum Merger Contingent Variable Rights

In connection with the Spectrum Merger, the Company issued CVRs (See Note 2, Acquisitions) that represent a contingent consideration obligation which is measured at fair value. The initial fair value of the CVR determined as of the Effective Date of the Spectrum Merger was $3.9 million.

As of September 30, 2023, the fair value of the Company’s CVR liability related to the Spectrum Merger was determined by the Company to be zero. During both the three and nine months ended September 30, 2023, the Company recognized a benefit of $3.9 million for the change in fair value of the CVR contingent consideration, which was recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive Loss.

As of both September 30, 2024 and December 31, 2023, the fair value of the Company’s CVR liability related to the Spectrum Merger was also determined by the Company to be zero. Accordingly, the Company recognized no expense or benefit for the change in fair value of the CVR contingent consideration during the three and nine months ended September 30, 2024.

The fair value of the CVR contingent consideration is determined using a Monte Carlo simulation model under the income approach based on the probability of achievement of ROLVEDON net sales milestones using projections of 2024 and 2025 net sales and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2024 included updated projections of future ROLVEDON product net sales, which resulted in no probability of achievement under the Monte Carlo simulation.

Zyla Merger Contingent Consideration Obligation

In connection with the Zyla Merger, the Company assumed a contingent consideration obligation which is measured at fair value. The Company has obligations to make contingent consideration payments for future royalties to an affiliate of CR Group L.P. based upon annual INDOCIN product net sales over $20.0 million at a 20% royalty through January 2029. The Company classified the acquisition-related contingent consideration liabilities to be settled in cash as Level 3, due to the lack of relevant observable inputs and market activity. As of September 30, 2024 and December 31, 2023, the fair value of the INDOCIN product contingent consideration was determined to be $3.0 million and $2.7 million, respectively, and has been classified as Contingent consideration, current in the Company’s Condensed Consolidated Balance Sheets.

During each of the three and nine months ended September 30, 2024, the Company recognized an expense of $0.3 million for the change in fair value of contingent consideration. During the three and nine months ended September 30, 2023, the Company recognized a benefit of $17.5 million and $8.1 million, respectively, for the change in fair value of contingent consideration. Both were recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive Loss. The fair value of the contingent consideration incurred in the Zyla Merger is determined using an option pricing model under the income approach based on estimated INDOCIN product net sales through January 2029 and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2024 included updated projections of future INDOCIN product net sales.
The following table summarizes changes in fair value of the Company’s contingent consideration obligations that are measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2024 and 2023 (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Fair value, beginning of the period$2,700 $42,500 $2,700 $48,500 
Fair value of contingent consideration incurred in Spectrum Merger— 3,932 — 3,932 
Change in fair value of contingent consideration recorded within costs and expenses300 (17,532)300 (8,124)
Cash payment related to contingent consideration— — — (15,408)
Fair value, end of the period$3,000 $28,900 $3,000 $28,900 

Derivative Liability
The Company determined that an embedded conversion feature included in the 2027 Convertible Notes required bifurcation from the host contract and to be recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $0.3 million as of both September 30, 2024 and December 31, 2023, and was determined using a binomial lattice model using certain assumptions and consideration of an increased conversion ratio on the underlying convertible notes that could result from the occurrence of certain events. The significant assumption used in the binomial lattice model is a credit spread of 8.8%.

There was no change in the fair value of the derivative liability for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized a loss on the fair value adjustment of the derivative liability in the amount of $0.5 million in Other gain (loss) in the Condensed Consolidated Statements of Comprehensive Loss.

The following table summarizes changes in fair value of the derivative liability that is measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2024 and 2023 (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Fair value, beginning of the period$308 $252 $308 $252 
Change in fair value of derivative liability
$— $512 — $512 
Fair value, end of the period$308 $764 $308 $764 

Financial Instruments Not Required to be Remeasured at Fair Value

The Company’s other financial assets and liabilities are not remeasured to fair value, as the carrying cost of each approximates its fair value. As of September 30, 2024, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $36.4 million, compared to a par value of $40.0 million. As of December 31, 2023, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $35.7 million, compared to a par value of $40.0 million. The Company estimated the fair value of its 2027 Convertible Notes as of September 30, 2024 and December 31, 2023 based on a market approach, which represents a Level 2 valuation.