Fair Value Measurements

3 Months Ended

Mar. 31, 2023

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation:


	March 31, 2023
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash equivalents:
Money market funds	$	52,144	$	52,144	$	—	$	—
Commercial paper		20,967		—		20,967		—
Agency discount notes		323,086		—		323,086		—
Total cash equivalents		396,197		52,144		344,053		—
Marketable securities:
Commercial paper		34,122		—		34,122		—
Total marketable securities		34,122		—		34,122		—
Investment in equity securities		49,803		49,803		—		—
LianBio Warrant		681		681		—		—
Total financial assets	$	480,803	$	102,628	$	378,175	$	—
Liabilities
Embedded derivative	$	1,231	$	—	$	—	$	1,231
Short-term liability		5,490		5,490		—		—
Total financial liabilities	$	6,721	$	5,490	$	—	$	1,231


	December 31, 2022
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash equivalents:
Money market funds	$	202,250	$	202,250	$	—	$	—
Commercial paper		159,758		—		159,758		—
Total cash equivalents		362,008		202,250		159,758		—
Marketable securities:
Commercial Paper		51,580		—		51,580		—
Total marketable securities		51,580		—		51,580		—
Investment in equity securities		43,653		43,653		—		—
LianBio Warrant		570		570		—		—
Total financial assets	$	457,811	$	246,473	$	211,338	$	—
Liability
Embedded derivative	$	1,201	$	—	$	—	$	1,201

There were no transfers between Level 1, Level 2 or Level 3 during the periods presented.

There are uncertainties on the fair value measurement of the instrument classified under Level 3 due to the use of unobservable inputs and interrelationships between these unobservable inputs, which could result in higher or lower fair value measurements.

Marketable Securities

The fair value of our marketable securities classified within Level 2 is based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

Investments in Equity Securities

We have investments in equity securities of publicly held companies and we do not have restrictions on our ability to sell these securities. We have classified our investments in equity securities within Level 1, as the fair value of these equity securities are derived from observable inputs such as quoted prices in active markets. Our investments in equity securities had an aggregate fair value of $40.0 million and $35.5 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023 and December 31, 2022, we also have an investment in LianBio whose fair value amounted to $9.8 million and $8.2 million, respectively.

Total realized and unrealized gains and losses associated with investment in equity securities during the periods presented consisted of the following:


	Three Months Ended March 31,
	2023			2022
	(in thousands)
Net realized gains (losses) recognized on investment in equity securities sold	$	7,158		$	(1,244	)
Net unrealized losses recognized on investment in equity securities held as of the end of the period		(6,194	)		(11,622	)
Total net gains (losses) included in “Other income expense, net”	$	964		$	(12,866	)

LianBio Warrant

As of March 31, 2023 and December 31, 2022 our subsidiary, QED Therapeutics, Inc. (“QED”), held a warrant which entitles QED to purchase shares of LianBio (the “LianBio Warrant”, see Note 6). We classify the LianBio Warrant, which pertains to an equity security of a publicly held company, within Level 1 as the fair value of this equity security is derived from observable inputs such as quoted prices in an active market.

Notes

The fair values of our 2.25% convertible senior notes due 2029 (the “2029 Notes”) and our 2.50% convertible senior notes due 2027 (the “2027 Notes”) (collectively, the “Notes”, see Note 9), which differ from their respective carrying values, are determined by prices for the Notes observed in market trading. The market for trading of the Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs. As of March 31, 2023, the estimated fair value of our 2029 Notes and 2027 Notes, which have aggregate face values of $747.5 million and $550.0 million, respectively, were $480.4 million and $416.6 million, respectively, based on their market prices on the last trading day for the period. As of December 31, 2022, the estimated fair value of our 2029 Notes and 2027 Notes were $314.0 million and $218.6 million, respectively, based on the market price on the last trading day for the period.

Term Loan

The fair value of our outstanding term loan (see Note 9) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with a market interest rate, which is a Level 2 input. The estimated fair value of our outstanding term loan as of March 31, 2023 and December 31, 2022 was $377.4 million and $377.2 million, respectively.

- 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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