Fair Value Measurements

12 Months Ended

Dec. 31, 2019

We record fair values at an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2019, we have equity securities (refer to Note 4), forward foreign currency exchange contracts for inventory purchases (refer to Note 19) and contingent consideration related to the acquisitions of CURNA, OPKO Diagnostics and OPKO Renal that are required to be measured at fair value on a recurring basis. In addition, in connection with our investment and our consulting agreement with BioCardia, we record the related BioCardia options at fair value as well as the warrants from COCP, InCellDx, Inc., Xenetic and Phio.

Our financial assets and liabilities measured at fair value on a recurring basis are as follows:



	Fair value measurements as of December 31, 2019
(In thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Equity securities	$	18,870	$	—	$	—	$	18,870
Common stock options/warrants	—		120		—		120
Forward contracts	—		133		—		133
Total assets	$	18,870	$	253	$	—	$	19,123
Liabilities:
Contingent consideration:	$	—	$	—	$	9,683	9,683
Total liabilities	$	—	$	—	$	9,683	$	9,683



	Fair value measurements as of December 31, 2018
(In thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Equity securities	$	26,313	$	—	$	—	$	26,313
Common stock options/warrants	—		855		—		855
Forward contracts	—		21		—		21
Total assets	$	26,313	$	876	$	—	$	27,189
Liabilities:
Contingent consideration:	$	—	$	—	$	24,537	$	24,537
Total liabilities	$	—	$	—	$	24,537	$	24,537

The carrying amount and estimated fair value of our 2025 Notes, as well as the applicable fair value hierarchy tiers, are contained in the table below. The fair value of the 2025 Notes is determined using quoted prices in active markets.



	December 31, 2019
(In thousands)	Carrying Value		Total Fair Value		Level 1		Level 2		Level 3
2025 Notes	$	148,140	$	158,174	$	158,174	$	—	$	—

There have been no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy.

As of December 31, 2019 and 2018, the carrying value of our other significant financial instrument assets and liabilities approximates their fair value due to their short-term nature or variable rate of interest.

The following tables reconcile the beginning and ending balances of our Level 3 assets and liabilities as of December 31, 2019 and 2018:



	December 31, 2019
(In thousands)	Contingent consideration
Balance at December 31, 2018	$	24,537
Total losses (gains) for the period:
Included in results of operations	(14,854		)
Balance at December 31, 2019	$	9,683



	December 31, 2018
(In thousands)	Contingent consideration
Balance at December 31, 2017	$	41,353
Total losses (gains) for the period:
Included in results of operations	(16,816		)
Balance at December 31, 2018	$	24,537

The estimated fair values of our financial instruments have been determined by using available market information and what we believe to be appropriate valuation methodologies. We use the following methods and assumptions in estimating fair value:

Contingent consideration – We estimate the fair value of the contingent consideration utilizing a discounted cash flow model for the expected payments based on estimated timing and expected revenues. We use several discount rates depending on each type of contingent consideration related to OPKO Diagnostics, CURNA and OPKO Renal transactions. If estimated future sales were to decrease by 10%, the contingent consideration related to OPKO Renal, which accounts for the majority of the change in our contingent consideration liability, would decrease by $0.8 million. As of December 31, 2019, of the $9.7 million of contingent consideration, $2.4 million is recorded in Accrued expenses and $7.3 million is recorded in Other long-term liabilities. As of December 31, 2018, of the $24.6 million of contingent consideration, $2.4 million is recorded in Accrued expenses and $22.2 million is recorded in Other long-term liabilities.

- 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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