Fair Value Measurements | 6. Fair value measurements The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy: June 30, 2023 Valuation Amortized Cost Gross Gross Estimated (in thousands) Financial assets: Cash equivalents: Money market funds Level 1 $ 86,623 $ - $ - $ 86,623 U.S. government and agency securities Level 2 45,700 12 - 45,712 Total cash equivalents 132,323 12 - 132,335 Short-term marketable securities: U.S. government and agency securities Level 2 142,940 15 ( 868 ) 142,087 Corporate debt securities Level 2 10,065 - ( 24 ) 10,041 Total short-term marketable securities 153,005 15 ( 892 ) 152,128 Other assets Level 3 369 - - 369 Total financial assets $ 285,697 $ 27 $ ( 892 ) $ 284,832 Financial liabilities: Short-term financial liabilities: Contingent consideration Level 3 $ 58,417 $ - $ - $ 58,417 Total short-term financial liabilities 58,417 - - 58,417 Long-term financial liabilities: Contingent consideration Level 3 103,317 - - 103,317 Success payment liabilities Level 3 36,451 - - 36,451 Total long-term financial liabilities 139,768 - - 139,768 Total financial liabilities $ 198,185 $ - $ - $ 198,185 December 31, 2022 Valuation Amortized Cost Gross Gross Estimated (in thousands) Financial assets: Cash equivalents: Money market funds Level 1 $ 114,363 $ - $ - $ 114,363 U.S. government and agency securities Level 2 40,532 10 - 40,542 Corporate debt securities Level 2 9,796 1 ( 2 ) 9,795 Total cash equivalents 164,691 11 ( 2 ) 164,700 Short-term marketable securities: U.S. government and agency securities Level 2 222,435 2 ( 3,711 ) 218,726 Corporate debt securities Level 2 28,836 - ( 364 ) 28,472 Total short-term marketable securities 251,271 2 ( 4,075 ) 247,198 Long-term marketable securities: U.S. government and agency securities Level 2 10,314 - ( 263 ) 10,051 Total long-term marketable securities 10,314 - ( 263 ) 10,051 Other assets Level 3 369 - - 369 Total financial assets $ 426,645 $ 13 $ ( 4,340 ) $ 422,318 Financial liabilities: Short-term financial liabilities: Contingent consideration Level 3 $ 55,345 $ - $ - $ 55,345 Total short-term financial liabilities 55,345 - - 55,345 Long-term financial liabilities: Contingent consideration Level 3 95,034 - - 95,034 Success payment liabilities Level 3 21,007 - - 21,007 Total long-term financial liabilities 116,041 - - 116,041 Total financial liabilities $ 171,386 $ - $ - $ 171,386 The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. government and agency securities and corporate debt securities and are valued based on either recent trades of securities in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. The following table summarizes available-for-sale debt securities in a continuous unrealized loss position for less than and greater than twelve months for the periods presented: Less than 12 months 12 months or greater Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses (in thousands) June 30, 2023 U.S. government and agency securities $ 5,431 $ ( 45 ) $ 81,549 $ ( 823 ) $ 86,980 $ ( 868 ) Corporate debt securities - - 10,041 ( 24 ) 10,041 ( 24 ) Total $ 5,431 $ ( 45 ) $ 91,590 $ ( 847 ) $ 97,021 $ ( 892 ) December 31, 2022 U.S. government and agency securities $ 49,253 $ ( 673 ) $ 172,845 $ ( 3,301 ) $ 222,098 $ ( 3,974 ) Corporate debt securities 13,333 ( 16 ) 19,664 ( 350 ) 32,997 ( 366 ) Total $ 62,586 $ ( 689 ) $ 192,509 $ ( 3,651 ) $ 255,095 $ ( 4,340 ) The Company determined that there was no material change in the credit risk of the above investments during the three and six months ended June 30, 2023. As such, an allowance for credit losses has not been recognized. As of June 30, 2023, the Company does not intend to sell such securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to the recovery of the amortized cost basis. As of June 30, 2023, all marketable securities had an effective maturity date of two years or less. Investments in securities with maturities of less than one year , or those for which management intends to use to fund current operations, are included in current assets and classified as available-for-sale. As of June 30, 2023, the balance in accumulated other comprehensive loss included net unrealized gains (losses) related to the Company’s available-for-sale debt securities. The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities: Contingent Cobalt Harvard (in thousands) Balance as of December 31, 2022 $ 150,379 $ 19,016 $ 1,991 Changes in fair value – expense (gain) 5,460 ( 4,760 ) ( 580 ) Balance as of March 31, 2023 155,839 14,256 1,411 Changes in fair value – expense 5,895 18,505 2,279 Balance as of June 30, 2023 $ 161,734 $ 32,761 $ 3,690 Contingent consideration The Company utilizes significant estimates and assumptions it believes would be made by a market participant in determining the estimated fair value of the Cobalt Contingent Consideration at each balance sheet date. The fair value of the Cobalt Contingent Consideration was determined by calculating the probability-weighted estimated value of the pre-specified development milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and the applicable discount rates. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. The Company assesses these estimates on an ongoing basis as additional data impacting the assumptions are obtained. The fair value of the Cobalt Contingent Consideration was calculated using the following unobservable inputs: June 30, 2023 December 31, 2022 Unobservable Input Range Weighted-Average Range Weighted-Average Discount rates 13.0 % – 15.1 % 13.8 % 13.4 % – 15.1 % 14.6 % Probability of milestone achievement 5.0 % – 85.0 % 36.0 % 5.0 % – 85.0 % 36.0 % The weighted-average unobservable inputs were calculated based on the relative value of the pre-specified development milestones. The estimated fair value of the Cobalt Contingent Consideration may change significantly as development progresses and additional data are obtained, impacting the assumptions regarding probabilities of successful achievement of the milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value assumptions, judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions, inputs and/or different valuation techniques could result in materially different fair value estimates. Success payments The Company utilizes significant estimates and assumptions in determining the estimated fair value of the success payment liabilities and the associated expense or gain at each balance sheet date. The estimated fair value of the Cobalt Success Payment and Harvard Success Payment liabilities was determined using a Monte Carlo simulation methodology, which models the estimated fair value of the liability based on several key assumptions, including the expected volatility, remaining term, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and, for the Cobalt Success Payment, the Company’s market capitalization, and, for the Harvard Success Payments, the per share fair value of the Company’s common stock. The fair values of the Cobalt Success Payments and Harvard Success Payments were calculated using the following unobservable inputs: June 30, 2023 December 31, 2022 Unobservable Input Cobalt Harvard Cobalt Harvard Expected stock price volatility 72.5 % 72.5 % 70.0 % 70.0 % Expected term (years) 15.6 7.7 16.1 8.2 |