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Fair Value Measurements
 9 Months Ended
Sep. 30, 2021
Fair Value Measurements
2.
Fair Value Measurements

The Company uses various valuation approaches in determining the fair value of its assets and liabilities. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

 

Level 1 –

Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

 

Level 2 –

Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

 

 

Level 3 –

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

Fair Value Measured on a Recurring Basis

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of September 30, 2021 and December 31, 2020:

 

 

 

As of September 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

$

448,908

 

 

$

—

 

 

$

—

 

 

$

448,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration - earnout obligation

 

$

—

 

 

$

—

 

 

$

79,962

 

 

$

79,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

$

549,030

 

 

$

—

 

 

$

—

 

 

$

549,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

As of September 30, 2021 and December 31, 2020, cash and cash equivalents on the Company's consolidated balance sheets included $448.9 million and $549.0 million, respectively, in money market accounts. These funds are valued on a recurring basis using Level 1 inputs.

 

Contingent Consideration – Earnout

 

On September 20, 2021, the Company completed the acquisition of Avitide (the "Avitide Acquisition"), a privately-held affinity ligand discovery and development company headquartered in Lebanon, New Hampshire. The transaction consisted of upfront payments of $150.0 million and up to an additional $125.0 million (undiscounted) in contingent consideration earnout payments made equally in cash and the Company's common stock over a three-year performance period beginning January 1, 2022 and ending December 31, 2024. Refer to Note 3, "Acquisitions" below for additional information.

 

A reconciliation of the change in the fair value of contingent consideration - earnout is included in the following table (amounts in thousands):

 

Balance as of December 31, 2020

 

$

—

 

Acquisition date fair value of contingent consideration - earnout

 

 

79,962

 

Change in fair value

 

 

—

 

Balance as of September 30, 2021

 

$

79,962

 

 

 

 

 

The recurring Level 3 fair value measurement of our contingent consideration earnout that we expect to be required to settle include the following significant unobservable inputs:

 

Contingent Consideration Earnout

 

Fair Value as of September 20, 2021
(amounts in thousands)

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Weighted Average(1)

 

 

 

 

 

 

 

Probability of

 

 

 

 

Commercialization-based

 

 

 

 

Monte Carlo

 

Success

 

100%

 

100%

payments

 

$

28,553

 

 

Simulation

 

Earnout Discount Rate

 

1.4%-2.6%

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

32.8%

 

32.8%

Revenue and Volume-

 

 

 

 

Monte Carlo

 

Revenue & Volume

 

 

 

 

based payments

 

$

51,409

 

 

Simulation

 

Discount Rate

 

9.4%

 

9.4%

 

 

 

 

 

 

 

Earnout Discount Rate

 

1.4%-2.6%

 

2%
(1)
Unobservable inputs were weighted by the relative fair value of the contingent consideration liability.

 

The Company estimates the fair value of the contingent consideration earnouts at each subsequent reporting period using a Monte Carlo simulation. Changes in the projected performance of the acquired business could result in a higher or lower contingent consideration obligation in the future.

 

There were no changes in revenue projections during the period from September 20, 2021, the date of the Avitide Acquisition, and September 30, 2021 that would cause a material change in amounts reported as of September 30, 2021.

Fair Value Measured on a Nonrecurring Basis

 

During the nine months ended September 30, 2021, there were no re-measurements to fair value of financial assets and liabilities that are measured at fair value on a nonrecurring basis.

Convertible Senior Notes

In July 2019, the Company issued $287.5 million aggregate principal amount of the Company’s 0.375% convertible senior notes due July 15, 2024 (the “2019 Notes”). Interest is payable semi-annually in arrears on January 15 and July 15 of each year. The 2019 Notes will mature on July 15, 2024, unless earlier converted or repurchased in accordance with their terms. At September 30, 2021 and December 31, 2020, the carrying value of the 2019 Notes was $252.3 million and $243.7 million, respectively, net of unamortized discount, and the fair value of the 2019 Notes was $732.9 million and $501.0 million, respectively. The fair value of the 2019 Notes is a Level 1 valuation and was determined based on the most recent trade activity of the 2019 Notes as of September 30, 2021. The 2019 Notes are discussed in more detail in Note 12, “Convertible senior notes” to Part II, Item 8, “Financial Statements and Supplementary Data” to our 2020 Annual Report on Form 10-K (“Form 10-K"), which was filed with the SEC on February 24, 2021.