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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 3. Fair Value Measurements The Company categorizes its financial assets and liabilities measured and reported at fair value in the financial statements on a recurring basis based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities, are as follows: •Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. •Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. •Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Each major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):
|  | As of December 31, 2023
|  |  |  | Fair Value
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 482.4 |  |  | $ | 482.4 |  |  | $ | — |  |  | $ | — |
Marketable securities |  | $ | 298.1 |  |  | $ | 298.1 |  |  | $ | — |  |  | $ | — |
Collateral for interest rate swap |  | $ | 6.0 |  |  | $ | 6.0 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |
Interest rate swap |  | $ | 1.2 |  |  | $ | — |  |  | $ | 1.2 |  |  | $ | — |
Deferred consideration |  | $ | 5.7 |  |  | $ | — |  |  | $ | 5.7 |  |  | $ | — |
Contingent consideration |  | $ | 84.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 84.6 |
|  | As of December 31, 2022
|  |  |  | Fair Value
|  | Carrying Value |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,074.0 |  |  | $ | 1,074.0 |  |  | $ | — |  |  | $ | — |
Marketable securities |  | $ | 74.2 |  |  | $ | 74.2 |  |  | $ | — |  |  | $ | — |
Collateral for interest rate swap |  | $ | 5.0 |  |  | $ | 5.0 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |
Interest rate swap |  | $ | 1.5 |  |  | $ | — |  |  | $ | 1.5 |  |  | $ | — |
Deferred consideration |  | $ | 7.4 |  |  | $ | — |  |  | $ | 7.4 |  |  | $ | — |
Contingent consideration |  | $ | 58.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 58.1 |
During the year ended December 31, 2023, the Company purchased $588.7 million of marketable securities consisting of US Treasury Notes. As of December 31, 2023, the Company held $298.1 million of available-for-sale securities, including an unrealized gain o f $0.7 million re corded in accumulated other comprehensive (loss) income. As of December 31, 2022, the Company held $74.2 million of available-for-sale securities, net of an unrealized loss of $0.5 million that were in an unrealized gain or loss position. During the year ended December 31, 2022, the Company entered into an interest rate swap in connection with the Company's Term Loan. The Company entered into the interest rate swap to hedge its variable interest rate in an exchange for a fixed interest rate. The collateral for interest rate swap and the interest rate swap are recorded in other assets and accounts payable and accrued liabilities, respectively, in the consolidated balance sheet as of December 31, 2023 and 2022. The collateral for interest rate swap is cash, a Level 1 asset. The interest rate swap is a Level 2 liability as it uses observable inputs other than quoted market prices in an active market. There were no transfers in or out of Level 1, Level 2 or Level 3 during the years ended December 31, 2023 and 2022. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the security was rated below investment grade; (3) failure of the issuer to make scheduled interest or principal payments; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the year ended December 31, 2023. Deferred Consideration The deferred consideration arose from the Business Acquisition in August 2021 (see Note 18). The Company is obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the closing date, subject to certain reductions. During August 2022 and August 2023, the Company fulfilled the payments due on the first and second anniversary of the closing date by issuing 171,427 and 177,203 shares of the Company's common stock, respectively, after certain reductions. A valuation of the deferred consideration is performed quarterly, based on the Company's current stock price, with gains and losses included within change in fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. As the deferred consideration is settled in shares, there is no discount rate applied in the fair value calculation. The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the Insmed share price, which is a directly observable input at the measurement date and for the duration of the liabilities' anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability and are included in accrued liabilities. As of December 31, 2023, the fair value of deferred consideration included in accrued liabilities w as $5.7 million. D eferred consideration expected to be settled in more than twelve months are classified as a non-current liability and are included in other long-term liabilities. The following observable input was used in the valuation of the deferred consideration as of December 31, 2023 and 2022:
| Fair Value as of December 31, 2023 (in millions) | Observable Input | Input Value
Deferred consideration | $5.7 | Insmed share price on December 31, 2023 | $30.99
| Fair Value as of December 31, 2022 (in millions) | Observable Input | Input Value
Deferred consideration | $7.4 | Insmed share price on December 31, 2022 | $19.98
Contingent Consideration Liabilities The contingent consideration liabilities arose from the Business Acquisition in August 2021 (see Note 18). The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. At December 31, 2023, the weighted average probability of success was 42%. The development and regulatory milestones will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation. If the Company were to receive a priority review voucher, the Company is obligated to pay to the Motus equityholders a portion of the value of the priority review voucher, subject to certain reductions. The potential payout will be either 50% of the after-tax net proceeds received by the Company from a sale of the priority review voucher or 50% of the average of the sales prices for the last three publicly disclosed priority review voucher sales, less certain adjustments. The fair value of the priority review voucher milestone is estimated utilizing a probability-adjusted discounted cash flow approach. This obligation will be settled in cash. The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of December 31, 2023, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration. The contingent consideration liabilities have been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the inputs to the valuation approach, the estimated fair value could be significantly different than the fair value the Company determined. Contingent consideration liabilities expected to be settled within twelve months are classified as a current liability withing accounts payable and accrued liabilities in the consolidated balance sheet. Contingent consideration liabilities expected to be settled in more than twelve months are classified as a non-current liability in the consolidated balance sheet. A valuation of the contingent consideration liabilities is performed quarterly with gains and losses included within change in fair value of contingent consideration liabilities in the consolidated statements of comprehensive loss. The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of December 31, 2023 and 2022 (in millions):
Contingent Consideration Liabilities | Fair Value as of December 31, 2023 | Valuation Technique | Unobservable Inputs | Values
Development and regulatory milestones | $74.8 | Probability-adjusted | Probabilities of success | 14% - 97%
Priority review voucher milestone | $6.0 | Probability-adjusted discounted cash flow | Probability of success | 16.4%
Discount rate | 10.0%
Contingent Consideration Liabilities | Fair Value as of December 31, 2022 | Valuation Technique | Unobservable Inputs | Values
Development and regulatory milestones | $48.1 | Probability-adjusted | Probabilities of success | 14% - 95%
Priority review voucher milestone | $6.8 | Probability-adjusted discounted cash flow | Probability of success | 16.4%
Discount rate | 8.5%
A rollforward of the Company's valuations deferred and contingent consideration liabilities for the years ended December 31, 2023 and 2022 follows (in thousands):
| Deferred Consideration (level 2 liabilities) |  | Contingent Consideration (level 3 liabilities)
Balance as of December 31, 2021 | $ | 14,931 |  |  | $ | 75,668 |
Additions | — |  |  | — |
Change in Fair Value | (3,234) |  |  | (17,568) |
Payments | (4,297) |  |  | — |
Balance as of December 31, 2022 | 7,400 |  |  | 58,100 |
Additions | — |  |  | — |
Change in Fair Value | 2,197 |  |  | 26,500 |
Payments | (3,897) |  |  | — |
Balance as of December 31, 2023 | $ | 5,700 |  |  | $ | 84,600 |
The change in fair value of deferred and contingent consideration liabilities are due to changes in factors such as the probability of achieving milestones, our stock price, or certain other estimated assumptions. Convertible Notes The estimated fair value of the liability component of the Company's 0.75% convertible senior notes due 2028 (the 2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of December 31, 2023 was $665.5 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes. The $565.0 million carrying value of the 2028 Convertible Notes as of December 31, 2023 excludes the $10.0 million of unamortized issuance costs. The estimated fair value of the liability component of the Company's 1.75% convertible senior notes due 2025 (the 2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of December 31, 2023 was $240.2 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. The $223.9 million carrying value of the 2025 Convertible Notes as of December 31, 2023 excludes the $1.1 million of unamortized issuance costs. Synthetic Royalty Financing Agreement In October 2022, the Company entered into the Royalty Financing Agreement with OrbiMed. Under the Royalty Financing Agreement, OrbiMed paid the Company $150 million in exchange for the right to receive, on a quarterly basis, royalties in an amount equal to 4% of ARIKAYCE global net sales prior to September 1, 2025 and 4.5% of ARIKAYCE global net sales on or after September 1, 2025, as well as 0.75% of brensocatib global net sales, if approved. In the event that OrbiMed has not received aggregate Revenue Interest Payments of at least $150 million on or prior to March 31, 2028, the Company must make a one-time payment to OrbiMed for the difference between the $150 million and the aggregated Revenue Interest Payments that have been paid. In addition, the royalty rate for ARIKAYCE will be increased beginning March 31, 2028 to the rate which would have resulted in aggregate Revenue Interest Payments as of March 31, 2028 equaling $150 million. The total Revenue Interest Payments payable by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of the purchase price under certain conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders fees and deal expenses of $3.6 million, were $146.4 million. The fair value of the Royalty Financing Agreement at the time of the transaction was based on the Company’s estimates of future royalties expected to be paid to OrbiMed over the life of the arrangement, which was determined using forecasts from market data sources, which are considered Level 3 inputs. This liability is being amortized using the effective interest method over the life of the arrangement, in accordance ASC 470, Debt and ASC 835, Interest. The Company will utilize the prospective method to account for subsequent changes in the estimated future payments to be made to OrbiMed and will update the effective interest rate on a quarterly basis. For more information, see Note - 11 Royalty Financing Agreement.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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