XML 30 R14.htm IDEA: XBRL DOCUMENT
v3.22.4

Fair Value Measurements and Financial Instruments | 12 Months Ended
--- | ---
Dec. 31, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Financial Instruments | Fair Value Measurements and Financial Instruments Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table summarizes assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
| As of December 31, 2022 |  | As of December 31, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds | $ | 5,068 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,068 |  |  | $ | 598,253 |  |  | $ | — |  |  | $ | — |  |  | $ | 598,253 |
Commercial paper | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,997 |  |  | — |  |  | 13,997 |
Certificates of deposit | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 40,954 |  |  | — |  |  | 40,954 |
Marketable securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial paper | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 207,457 |  |  | — |  |  | 207,457 |
Certificates of deposit | — |  |  | 11,501 |  |  | — |  |  | 11,501 |  |  | — |  |  | 374,415 |  |  | — |  |  | 374,415 |
U.S. government securities | — |  |  | 12,920 |  |  | — |  |  | 12,920 |  |  | — |  |  | — |  |  | — |  |  | — |
Available for sale debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities (1) | — |  |  | — |  |  | 1,300 |  |  | 1,300 |  |  | — |  |  | — |  |  | 66,000 |  |  | 66,000 |
Derivative instruments (2) | — |  |  | — |  |  | 86,150 |  |  | 86,150 |  |  | — |  |  | — |  |  | — |  |  | — |
Total current assets | $ | 5,068 |  |  | $ | 24,421 |  |  | $ | 87,450 |  |  | $ | 116,939 |  |  | $ | 598,253 |  |  | $ | 636,823 |  |  | $ | 66,000 |  |  | $ | 1,301,076 |
Equity securities | 103,876 |  |  | — |  |  | 8,472 |  |  | 112,348 |  |  | 226,787 |  |  | — |  |  | 43,013 |  |  | 269,800 |
Available for sale debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities (1) | — |  |  | — |  |  | 226,300 |  |  | 226,300 |  |  | — |  |  | — |  |  | 187,700 |  |  | 187,700 |
Forwards (3) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,700 |  |  | 16,700 |
Derivative instruments (2) | — |  |  | — |  |  | 10,460 |  |  | 10,460 |  |  | — |  |  | — |  |  | — |  |  | — |
Royalty at fair value (4) | — |  |  | — |  |  | 14,500 |  |  | 14,500 |  |  | — |  |  | — |  |  | — |  |  | — |
Total non-current assets | $ | 103,876 |  |  | $ | — |  |  | $ | 259,732 |  |  | $ | 363,608 |  |  | $ | 226,787 |  |  | $ | — |  |  | $ | 247,413 |  |  | $ | 474,200 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Funding commitments (5) | — |  |  | — |  |  | (2,500) |  |  | (2,500) |  |  | — |  |  | — |  |  | — |  |  | — |
Total non-current liabilities | $ | — |  |  | $ | — |  |  | $ | (2,500) |  |  | $ | (2,500) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
(1)As of December 31, 2022, amounts reflect the fair value of the funded portion of the Cytokinetics Commercial Launch Funding and the funded portion of the Development Funding Bonds. As of December 31, 2021, amounts reflect the fair value of the Series A Biohaven Preferred Shares and Series B Biohaven Preferred Shares. (2)Reflects the fair value of the Milestone Acceleration Option. (3)Reflects the fair value of our obligations to fund the acquisitions of the Series B Biohaven Preferred Shares and our obligations to fund the Development Funding Bonds. (4)Recorded within Other assets on the consolidated balance sheet. See Note 9–Non-Consolidated Affiliates for additional discussion. (5)Related to the fair value of the Cytokinetics Funding Commitments. For 2022 and 2021, we recognized losses of $39.1 million and $41.4 million, respectively, on equity securities still held as of December 31, 2022. There were no gains or losses in 2020 associated with the equity securities still held as of December 31, 2022. The table presented below summarizes the change in the combined fair value (current and non-current) of Level 3 financial instruments (in thousands):
| Year Ended December 31, 2022 |  | Year Ended December 31, 2021
| Equity Securities |  | Debt Securities |  | Forwards |  | Funding Commitments |  | Derivative Instruments |  | Royalty at Fair Value |  | Equity Securities |  | Debt Securities |  | Forwards
Balance at the beginning of the year | $ | 43,013 |  |  | $ | 253,700 |  |  | $ | 16,700 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 214,400 |  |  | $ | 18,600 |
Purchases (1) | 28,785 |  |  | 479,559 |  |  | — |  |  | — |  |  | — |  |  | 21,215 |  |  | 35,120 |  |  | 70,441 |  |  | — |
Gains/(losses) on initial recognition (2) | — |  |  | 600 |  |  | — |  |  | (9,400) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
(Losses)/gains on equity securities | (22,634) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,893 |  |  | — |  |  | — |
Gains on derivative financial instruments | — |  |  | — |  |  | — |  |  | — |  |  | 96,610 |  |  | — |  |  | — |  |  | — |  |  | — |
Unrealized gains on available for sale debt securities included in other comprehensive losses | — |  |  | 24,000 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,600 |  |  | — |
(Losses)/gains on available for sale debt securities included in earnings (3) | — |  |  | (67,800) |  |  | 62,885 |  |  | 6,900 |  |  | — |  |  | — |  |  | — |  |  | 1,300 |  |  | 16,559 |
Other non-operating expense | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6,715) |  |  | — |  |  | — |  |  | — |
Settlement of forwards (4) | — |  |  | 79,585 |  |  | (79,585) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18,459 |  |  | (18,459) |
Transfer out of Level 3 (5) | (40,692) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Redemptions (1) | — |  |  | (542,044) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (62,500) |  |  | — |
Balance at the end of the year | $ | 8,472 |  |  | $ | 227,600 |  |  | $ | — |  |  | $ | (2,500) |  |  | $ | 96,610 |  |  | $ | 14,500 |  |  | $ | 43,013 |  |  | $ | 253,700 |  |  | $ | 16,700 |
(1)Following Pfizer’s acquisition of Biohaven in October 2022, we purchased all remaining unissued Series B Biohaven Preferred Shares and we received accelerated redemption payments for all outstanding Series A Biohaven Preferred Shares and Series B Biohaven Preferred Shares. (2)Reflects the purchase price allocation for the long-term funding agreement entered into with Cytokinetics to arrive at the appropriate fair value of the Cytokinetics Funding Commitments on initial recognition. Amounts also reflect the losses on initial recognition of debt securities related to the difference in (a) the fair value of the Additional Funding of the Development Funding Bonds and (b) the actual additional funded amount of $150 million. (3)Amounts reflect changes in the fair values of the Series B Biohaven Preferred Shares, Series B Forwards and the Development Funding Bond Forward. For 2022, amounts also reflect the change in the fair value of the funded portion of the Cytokinetics Commercial Launch Funding, the funded portion of the Development Funding Bonds and the Cytokinetics Funding Commitments. (4)Amounts reflect the fair value attributed to the Series B Forwards that were settled as we acquired the Series B Biohaven Preferred Shares. Amounts in 2022 also reflect the fair value attributed to the Development Funding Bond Forward that was settled upon funding the Development Funding Bonds. (5)Related to the expiration of the transfer restriction on BioCryst common stock. Valuation Inputs for Recurring Fair Value Measurements Below is a discussion of the valuation inputs used for financial instruments classified as Level 2 and Level 3 measurements in the fair value hierarchy. ApiJect Investment We utilized the discounted cash flow method using Level 3 inputs, including forecasted cash flows and the weighted average cost of capital, to estimate the fair value as of December 31, 2022 of the equity securities and revenue participation right that we acquired from ApiJect Holdings, Inc. (“ApiJect”), a private company, in April 2022. Our estimate of the forecasted cash flows and the weighted average cost of capital could reasonably be different than those selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Refer to Note 9–Non-Consolidated Affiliates for additional discussion. Cytokinetics Commercial Launch Funding & Funding Commitments We estimated the fair value of the funded Cytokinetics Commercial Launch Funding as of December 31, 2022 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including an estimated risk-adjusted discount rate and the probability that there will be a change of control event, which would result in accelerated payments. Developing a risk-adjusted discount rate and assessing the probability that there will be a change of control event over the duration of the Cytokinetics Commercial Launch Funding require significant judgement. Our estimate of the risk-adjusted discount rate could reasonably be different than the discount rate selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date. We estimated the fair value of the Cytokinetics Funding Commitments as of December 31, 2022 using a Monte Carlo simulation methodology that includes simulating the interest rate movements using a Geometric Brownian Motion-based pricing model. This methodology simulates the likelihood of future discount rates exceeding the counterparty’s assumed cost of debt, which would impact Cytokinetics’ decision to exercise its option to draw on each respective tranche. This methodology incorporates Level 3 fair value measurements and inputs, including an assumed interest rate volatility of 30% and an assumed risk-adjusted discount rate of 13.5%. We also assumed probabilities for the occurrence of each regulatory or clinical milestone, which impacts the availability of each future tranche of funding. Our estimate of the risk-adjusted discount rate, the interest rate volatility and the probabilities of each underlying milestone could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. BioCryst Common Stock In November 2021, we purchased 3,846 thousand shares of common stock of BioCryst Pharmaceuticals, Inc. (“BioCryst”). As part of the transaction, we were restricted from selling the BioCryst common stock for six months following the close of the transaction. We determined the fair value of the BioCryst common stock as of December 31, 2021 based on the closing stock price and adjusted for the transfer restriction, which was determined by calculating the value of a put option over the common stock to match the duration of the transfer restriction. This methodology incorporated Level 3 inputs, including the estimated volatility of the BioCryst common stock, which required significant judgement. Our estimated volatility could be reasonably different than the actual volatility of BioCryst’s common stock, which would mean that the estimated fair value for the common stock could be significantly higher or lower than the fair value determined by management at any particular date. During the second quarter of 2022, the transfer restriction expired and the BioCryst common stock was transferred from a Level 3 to a Level 1 asset. MorphoSys Development Funding Bonds & Forward The fair values of the Development Funding Bonds and the Development Funding Bond Forward as of December 31, 2022 and 2021 were based on a discounted cash flow calculation using estimated risk-adjusted discount rates, which are Level 3 fair value inputs. Our estimate of the risk adjusted discount rates could reasonably be different than the discount rates selected by a market participant, which would mean that the estimated fair values could be significantly higher or lower. Series A Biohaven Preferred Shares The Series A Biohaven Preferred Shares were redeemed following Pfizer’s acquisition of Biohaven in October 2022. The fair value of the Series A Biohaven Preferred Shares as of December 31, 2021 was calculated using probability-adjusted discounted cash flow calculations incorporating Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability of a change of control event occurring during the investment term, which results in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a four-year time period and developing a risk-adjusted discount rate require significant judgement. Our estimate of a risk adjusted discount rate of 9.5% as of December 31, 2021 could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series A Biohaven Preferred Shares, which would mean that the estimated fair value could be significantly higher or lower. Series B Biohaven Preferred Shares & Forwards All remaining unissued Series B Biohaven Preferred Shares were purchased simultaneously with the redemption of all outstanding Series B Biohaven Preferred Shares following Pfizer’s acquisition of Biohaven in October 2022. The fair value of each of the Series B Biohaven Preferred Shares and Series B Forwards as of December 31, 2021 was based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability that there will be a change of control event in different periods of time, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over the duration of the Series B Biohaven Preferred Shares and developing a risk-adjusted discount rate require significant judgement. Our estimate of a risk adjusted discount rate, expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than those determined by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Milestone Acceleration Option We estimated the fair value of the Milestone Acceleration Option as of December 31, 2022 using the “with-and-without” methodology, which is a variation of the income approach and is based on the difference between cash flows for two different scenarios. The prospective cash flows for the success-based milestone payments include the Milestone Acceleration Option in the first scenario. For the second scenario, the prospective cash flows are estimated assuming they remain payable over time. The difference between the fair value of these two scenarios represents the fair value of the Milestone Acceleration Option. This methodology includes the use of Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rate which was primarily based on Pfizer’s cost of debt and management’s estimated probabilities of achieving the success-based milestones. Assessing the likelihood that the success-based milestones are achieved over the duration of the Milestone Acceleration Option and developing a risk-adjusted discount rate require significant judgement. Our estimate of a risk adjusted discount rate and the probabilities of achieving marketing approval could reasonably be different than those determined by a market participant, which would mean that the estimated fair value could be significantly higher or lower. The fair value associated with this instrument was not material prior to the second quarter of 2022, when Pfizer announced its intended acquisition of Biohaven. Other Financial Instruments Financial instruments whose fair values are measured on a recurring basis using Level 2 inputs primarily consist of commercial paper, certificates of deposit and U.S. government securities. We measure the fair value of these financial instruments with the help of third-party pricing services that provide quoted market prices in active markets for similar securities or observable inputs for their pricing without applying significant adjustments. Financial Assets Not Measured at Fair Value Financial royalty assets are measured and carried on the consolidated balance sheets at amortized cost using the effective interest method. The current portion of financial royalty assets approximates fair value. Management calculates the fair value of financial royalty assets using the forecasted royalty payments that are expected to be received based on the projected product sales for all royalty bearing products which are estimated using sell-side equity research analysts’ consensus sales forecasts. These projected future royalty payments by asset, along with any projected incoming or outgoing milestone payments, are then discounted to a present value using appropriate individual discount rates. The fair value of financial royalty assets is classified as Level 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. The estimated fair values and related carrying values of the non-current portion of financial royalty assets as of December 31, 2022 and 2021 are presented below (in thousands):
| As of December 31, 2022 |  | As of December 31, 2021
| Fair Value |  | Carrying Value, net |  | Fair Value |  | Carrying Value, net
Financial royalty assets, net | $ | 17,314,094 |  |  | $ | 13,493,106 |  |  | $ | 19,047,183 |  |  | $ | 13,718,245 |

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration