Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

The following table represents significant unobservable inputs used in determining the estimated fair value of the Wellstat Diagnostics note receivable investment:



Asset	Valuation Technique	Unobservable Input	March 31, 2020	December 31, 2019

Wellstat Diagnostics
Wellstat Guarantors intellectual property	Income Approach
		Discount rate	12%	12%
		Undiscounted royalty amount	$21 million	$21 million
Settlement Amount	Income Approach
		Discount rate	15%	15%
		Undiscounted settlement amount	$25 million	$28 million
Real Estate Property	Market Approach
		Annual appreciation rate	—%	—%
		Estimated realtor fee	6%	6%
		Undiscounted market value	$16 million	$16 million

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The following tables summarize the changes in Level 3 Royalty Right Assets and the gains and losses included in earnings for the three months ended March 31, 2020:



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Right Assets

(in thousands)			Royalty Rights - At Fair Value
Fair value as of December 31, 2019					$	266,196

	Total net change in fair value for the period
		Change in fair value of royalty rights - at fair value	9,394
		Proceeds from royalty rights	(13,569	)
		Total net change in fair value for the period			(4,175		)

Fair value as of March 31, 2020					$	262,021

The table above does not include the aggregate remaining estimated cost to sell the royalty right assets of $5.8 million.



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Right Assets

	Fair Value as of		Royalty Rights -			Fair Value as of
(in thousands)	December 31, 2019		Change in Fair Value			March 31, 2020 ⁽¹⁾

Assertio	$	218,672	$	(3,161	)	$	215,511
VB	13,590		206			13,796
U-M	20,398		(1,391		)	19,007
AcelRx	12,952		200			13,152
KYBELLA	584		(29		)	555
	$	266,196	$	(4,175	)	$	262,021

________________

⁽¹⁾ Excludes the aggregate remaining estimated costs to sell of $5.8 million.

Schedule of fair value of financial instruments measured on recurring basis



	March 31, 2020								December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Financial assets:
Money market funds	$	81,808	$	—	$	—	$	81,808	$	131,264	$	—	$	—	$	131,264
Corporate securities⁽¹⁾	70,933		—		—		70,933		82,267		—		—		82,267
Warrants⁽²⁾	—		11,698		—		11,698		—		14,152		—		14,152
Royalty rights - at fair value	—		—		262,021		262,021		—		—		266,196		266,196
Total	$	152,741	$	11,698	$	262,021	$	426,460	$	213,531	$	14,152	$	266,196	$	493,879

Schedule of fair value of assets and liabilities not subject to fair value recognition by level within the valuation hierarchy

Assets/Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets consist of long-lived assets, including property and equipment and intangible assets and the shares of Alphaeon Class A common stock, received in connection with the loans made to LENSAR by the Company prior to its acquisition of LENSAR. The Company’s carrying value of the 1.7 million shares of Alphaeon common stock as of both March 31, 2020 and December 31, 2019 is $6.6 million based on an estimated per share value of $3.84, which was established by a valuation performed when the shares were acquired. The value of the Company’s investment in Alphaeon is not readily determinable as Alphaeon’s shares are not publicly traded. The Company evaluates the fair value of this investment by performing a qualitative assessment each reporting period. If the results of this qualitative assessment indicate that the fair value is less than the carrying value, the investment is written down to its fair value. There have been no such write downs since the Company acquired these shares. This investment is included in Other long-term assets. For additional information on the Alphaeon investment, see Note 6, Notes and Other Long-Term Receivables.

During the quarter ended March 31, 2020 it was determined that Noden met the criteria as an asset held for sale, see Note 2, Discontinued Operations Classified as Assets Held for Sale. Assets classified as held for sale are reported at the lower of carrying value or fair value less costs to sale. As a result of our analysis of the fair value of Noden we recorded a loss on classification as held for sale of $6.7 million of which $1.8 million relates to the estimated costs to sell Noden and $4.9 million relates to the difference in carrying value versus fair value. The fair value calculation was made using a discounted cash flow model, utilizing a discount rate of approximately 19%, and included level 3 inputs.

Assets/Liabilities Not Subject to Fair Value Recognition

The Company has two notes receivable assets with an aggregate carrying value of $52.1 million as of March 31, 2020 and December 31, 2019. The estimated fair value of these notes receivable of $57.3 million exceeded the carrying value as of December 31, 2019 and was substantially equivalent to the carrying values as of March 31, 2020. The notes receivable are classified as Level 3 in the fair value hierarchy. The Company determined its notes receivable assets are Level 3 assets as the Company’s valuations utilized significant unobservable inputs, including estimates of future revenues, discount rates, expectations about settlement, terminal values, required yield and the value of underlying collateral. The Company engages third-party valuation experts when deemed necessary to assist in evaluating its investments and the related inputs needed to estimate the fair value of certain investments.