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Fair Value of Financial Assets and Liabilities
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities 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.
Financial assets measured at fair value on a recurring basis on the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023 and financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at September 30, 2024 were as follows:
Fair Value Measurement Using:
Balance Sheet ClassificationType of InstrumentLevel 1Level 2Level 3Total
September 30, 2024
Assets:
Cash and cash equivalentsMoney market funds$65,497 $— $— $65,497 
Marketable securitiesU.S. treasury bills15,828 278,598 — 294,426 
Other non-current assetsMoney market funds2,548 — — 2,548 
Total assets$83,873 $278,598 $— $362,471 
Liabilities:
Forward contract liability
Forward contract, current
$— $— $69,030 $69,030 
Derivative liability, non-current
Written put option, non-current
— — 12,320 12,320 
Total liabilities$— $— $81,350 $81,350 
December 31, 2023
Assets:
Cash and cash equivalentsMoney market funds$59,199 $— $— $59,199 
Cash and cash equivalentsU.S. treasury bills— 27,901 — 27,901 
Cash and cash equivalentsU.S. corporate bonds— 6,001 — 6,001 
Marketable securitiesU.S. treasury bills9,874 76,160 — 86,034 
Marketable securitiesU.S. corporate bonds— 40,210 — 40,210 
Marketable securitiesForeign corporate bonds— 7,173 — 7,173 
Other non-current assetsMoney market funds1,900 — — 1,900 
Total assets$70,973 $157,445 $— $228,418 
The Company had no financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at December 31, 2023.
There were no securities transferred into or out of Level 3 during the three and nine months ended September 30, 2024 or 2023.
The following is a description, including valuation methodology, of the financial assets measured at fair value on a recurring basis:
Cash Equivalents
Cash equivalents consisted of cash invested in short-term money market funds and debt securities with an original maturity of 90 days or less at the date of purchase. The carrying value of cash equivalents approximates fair value as maturities are less than three months. When quoted prices are available in an active market, cash equivalents are classified in Level 1 of the fair value hierarchy. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.
Marketable Securities and Other Non-Current Assets
Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries and money market funds. The fair values of the Company’s Level 2 debt securities are obtained from quoted market prices of debt securities with similar characteristics, quoted prices from identical assets in inactive markets, or discounted cash flows to estimate fair value.
Forward Contract and Derivative Liabilities
In connection with the Knopp Amendment, Knopp had the option to request a one-time cash true-up payment from the Company in December 2024, as defined in the agreement (the "2024 Knopp True-up"). As of September 30, 2024, the Company determined the fair value of its liability for the 2024 Knopp True-Up to be $0. Also in connection with the Knopp Amendment, the Company agreed to issue to Knopp additional common shares of the Company with an approximate value of $75,000 within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). In addition, Knopp has the option to request a one-time cash true-up payment from the Company in December 2025, as defined in the agreement (the "2025 Knopp True-up"). See Note 10, "License, Acquisitions and Other Agreements," for further details.
The following table provides a roll forward of the fair value of the Company's forward contract and derivative liabilities related to the Knopp Amendment for which fair value is determined by Level 3 inputs from inception on May 1, 2024 to September 30, 2024:
Carrying Value
Fair value at May 1, 2024
$93,290 
Change in fair value of forward contract and derivative liabilities in other income, net
(11,940)
Fair value at September 30, 2024
$81,350 
The fair value of the forward contract and remaining derivative liability recognized in connection with the Knopp Amendment were determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuation is based on a Monte Carlo simulation of Biohaven's share price, which requires judgement and assumption on the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk since payable in a variable number of shares for the 2025 Additional Consideration or potentially cash for the 2025 Knopp True-up. A summary of the unobservable inputs (Level 3 inputs) used in measuring the Company’s forward contract and derivative liability related to the Knopp Amendment as of September 30, 2024 and May 1, 2024 are as follows, presented on a weighted-average basis based on relative fair value:
As of September 30, 2024
As of May 1, 2024
Time to payment and potential payment (years)
0.741.08
Volatility (annual)
65.0 %80.0 %
Discount rate
12.7 %14.8 %
Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. The Company expects the fair value of the forward contract to be approximately $75,000 on the first anniversary of the Knopp Amendment. An increase in the derivative liability related to the 2025 Knopp True-up between the reporting date and settlement date of the derivative would have a material adverse effect on the Company's financial performance.