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Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2023

Fair Value of Financial Assets and Liabilities

Fair Value of Financial Assets and Liabilities

6. Fair Value of Financial Assets and Liabilities

As of September 30, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $299,260 and $333,288, respectively, which approximates fair value. Cash and cash equivalents and short-term investments includes investments in U.S. treasury securities and money market funds that invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1. The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade corporations.

The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair value:


		Fair Value Measurements as of
		September 30, 2023 using:
		Level 1			Level 2			Level 3			Total
Assets:
Cash equivalents:
Money market funds		$	52,666		$	—		$	—		$	52,666
Marketable securities:
Corporate debt securities and commercial paper			—			234,667			—			234,667
Total		$	52,666		$	234,667		$	—		$	287,333
Liabilities:
Derivative liability		$	—		$	—		$	1,190		$	1,190
Total		$	—		$	—		$	1,190		$	1,190


		Fair Value Measurements as of
		December 31, 2022 using:
		Level 1			Level 2			Level 3			Total
Assets:
Cash equivalents:
Commercial paper		$	—		$	8,484		$	—		$	8,484
Money market funds			99,962			—			—			99,962
Marketable securities:
Corporate debt securities and commercial paper			—			205,611			—			205,611
Total		$	99,962		$	214,095		$	—		$	314,057
Liabilities:
Derivative liability		$	—		$	—		$	1,340		$	1,340
Total		$	—		$	—		$	1,340		$	1,340

The estimated fair value of the derivative liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty Partners was determined using Level 3 inputs. The fair value measurement of the derivative liability is sensitive to changes in the unobservable inputs used to value the financial instrument. Changes in the inputs could result in changes to the fair value of each financial instrument.

The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 12, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other (expense) income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of IMCIVREE, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument.


		Nine months ended
		September 30,
		2023			2022
Beginning aggregate estimated fair value of Level 3 RareStone equity		$	—		$	—
Initial recording of RareStone equity			—			1,040
Change in fair value of embedded derivative			—			(1,040)
Ending aggregate estimated fair value of Level 3 RareStone equity		$	—		$	—

		Nine months ended
		September 30,
		2023			2022
Beginning aggregate estimated fair value of Level 3 liabilities		$	1,340		$	—
Initial recording of embedded derivative			—			1,590
Change in fair value of embedded derivative			(150)			(670)
Ending aggregate estimated fair value of Level 3 liabilities		$	1,190		$	920

Marketable Securities

The following tables summarize the Company's marketable securities:


		September 30, 2023
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
Assets
Corporate debt securities and commercial paper (due within 1 year)		$	234,842		$	11		$	(185)		$	234,668
		$	234,842		$	11		$	(185)		$	234,668


		December 31, 2022
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
Assets
Corporate debt securities and commercial paper (due within 1 year)		$	205,702		$	—		$	(91)		$	205,611
		$	205,702		$	—		$	(91)		$	205,611

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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