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Fair value of financial instruments and marketable securities

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair value of financial instruments and marketable securities

4. Fair value of financial instruments and investments

The Company follows the fair value measurement rules, which provide guidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. Cash equivalents, marketable securities, and equity investments are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments.

The Company uses the market approach to measure fair value for its marketable securities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company’s marketable securities are classified as Level 2 as they primarily utilize broker quotes in a nonactive market to value these securities.

In May 2019, the Company purchased $4.0 million of shares of ClearPoint Neuro, Inc.’s (“ClearPoint”) (formerly MRI Interventions, Inc.) common stock, at a purchase price of $3.10 per share, in connection with a securities purchase agreement that the Company entered into with ClearPoint, a publicly traded medical device company. In February 2021, the Company purchased $0.1 million of shares of ClearPoint’s common stock, at a purchase price of $23.50 per share, in connection with ClearPoint’s underwritten public offering of common stock. The Company determined that the May 2019 and February 2021 ClearPoint equity investments (collectively, the “ClearPoint Equity Investments”) represent financial instruments, and therefore, are recorded at fair value, which is readily determinable. The ClearPoint Equity Investments are components of deposits and other assets on the consolidated balance sheet. During the year ended December 31, 2021 and 2020, the Company recorded an unrealized loss of $6.1 million and an unrealized gain of $14.3 million respectively, which are components of other (expense) income, net within the consolidated statement of operations. The fair value of the equity investments was $14.5 million and $20.5 million as of December 31, 2021 and 2020, respectively. The Company classifies its equity investments in ClearPoint as a Level 1 asset within the fair value hierarchy, as the value is based on a quoted market price in an active market, which is not adjusted.

In January 2020, the Company purchased a $10.0 million convertible note from ClearPoint that the Company can convert into ClearPoint shares at a conversion rate of $6.00 per share at any point throughout the term of the loan, which matures five years from the purchase date. The Company determined that the convertible note represents an available for sale debt security and the Company has elected to record it at fair value under ASC 825. The Company classifies its ClearPoint convertible debt security as a Level 2 asset within the fair value hierarchy, as the value is based on inputs other than quoted prices that are observable. The fair value of the ClearPoint convertible debt security is determined at each reporting period by utilizing a Black-Scholes option pricing model, as well as a present value of expected cash flows from the debt security utilizing the risk free rate and the estimated credit spread as of the valuation date as the discount rate. During the year ended December 31, 2021 and 2020, the Company recorded an unrealized loss of $8.3 million and an unrealized gain of $19.3 million, respectively. These unrealized gains and losses are components of other (expense) income, net within the consolidated statement of operations. The fair value of the convertible debt security was $21.0 million and $29.3 million as of December 31, 2021 and 2020, respectively. The convertible debt security is considered to be long term and is included as a component of deposits and other assets on the consolidated balance sheet. Other than the equity investment and the convertible debt security, no other items included in deposits and other assets on the consolidated balance sheets are fair valued.

In February 2021, the Company invested $200.0 million in two mutual funds. In August 2021 and November 2021, the Company made a $5.4 million and $4.6 million investment into a third mutual fund that is denominated in a foreign currency, respectively. All of these are equity investments and are classified as marketable securities on the Company’s consolidated balance sheets. These equity investments are reported at fair value, as it is readily available, and as such are

classified as Level 1 assets. Unrealized holding gains and losses for these equity investments are included as components of other (expense) income, net within the consolidated statement of operations. During the year ended December 31, 2021, the Company had $1.7 million unrealized net gains relating to the equity investments still held at the reporting date. During the year ended December 31, 2021, the Company had redemptions of $4.3 million. During the year ended December 31, 2021, the Company had $0.4 million foreign currency unrealized losses relating to these equity investments.

Fair value of marketable securities that are classified as available for sale debt securities is based upon market prices using quoted prices in active markets for identical assets quoted on the last day of the period. In establishing the estimated fair value of the remaining available for sale debt securities, the Company used the fair value as determined by its investment advisors using observable inputs other than quoted prices.

The following represents the fair value using the hierarchy described in Note 2 for the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2021 and 2020:


		December 31, 2021
					Quoted prices			Significant
					in active			other			Significant
					markets for			observable			unobservable
					identical assets			inputs			inputs
		Total			(level 1)			(level 2)			(level 3)
Marketable securities - available for sale		$	376,685		$	—		$	376,685		$	—
Marketable securities - equity investments		$	206,973		$	206,973		$	—		$	—
ClearPoint Equity Investments		$	14,525		$	14,525		$	—		$	—
ClearPoint convertible debt security		$	20,971		$	—		$	20,971		$	—
Contingent consideration payable- development and regulatory milestones		$	139,300		$	—		$	—		$	139,300
Contingent consideration payable- net sales milestones and royalties		$	100,600		$	—		$	—		$	100,600


		December 31, 2020
					Quoted prices			Significant
					in active			other			Significant
					markets for			observable			unobservable
					identical assets			inputs			inputs
		Total			(level 1)			(level 2)			(level 3)
Marketable securities - available for sale		$	894,838		$	—		$	894,838		$	—
ClearPoint Equity Investments		$	20,503		$	20,503		$	—		$	—
ClearPoint convertible debt security		$	29,252		$	—		$	29,252		$	—
Contingent consideration payable- development and regulatory milestones		$	139,200		$	—		$	—		$	139,200
Contingent consideration payable- net sales milestones and royalties		$	101,200		$	—		$	—		$	101,200

No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the years ended December 31, 2021 and 2020.

The following is a summary of marketable securities accounted for as available for sale debt securities at December 31, 2021 and 2020:


		December 31, 2021
		Amortized			Gross Unrealized
		Cost			Gains			Losses			Fair Value
Commercial paper		$	75,275			5			(1)			75,279
Corporate debt securities			268,246			81			(644)			267,683
Asset-backed securities			15,287			16			(5)			15,298
Government obligations			18,479			5			(59)			18,425
Total		$	377,287		$	107		$	(709)		$	376,685


		December 31, 2020
		Amortized			Gross Unrealized
		Cost			Gains			Losses			Fair Value
Commercial paper		$	276,855		$	19		$	(37)		$	276,837
Corporate debt securities			474,030			1,658			(29)			475,659
Asset-backed securities			28,681			210			(3)			28,888
Government obligations			113,372			88			(6)			113,454
Total		$	892,938		$	1,975		$	(75)		$	894,838

For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. For the years ended December 31, 2021 and 2020, no write downs occurred. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. The Company also reviews its available for sale debt securities in an unrealized loss position and evaluates whether the decline in fair value has resulted from credit losses or other factors. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. For the years ended December 31, 2021 and 2020, no allowance was recorded for credit losses. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ equity.

For the year ended December 31, 2021, the Company had $0.8 million, realized gains from the sale of available for sale debt securities. For the year ended December 31, 2020, the Company had $0.7 million, realized gains from the sale of available for sale debt securities. Realized gains and losses are reported as a component of interest expense, net in the consolidated statement of operations.

The unrealized losses and fair values of available for sale debt securities that have been in an unrealized loss position for a period of less than and greater than or equal to 12 months as of December 31, 2021 are as follows:


		December 31, 2021
		Securities in an unrealized loss						Securities in an unrealized loss
		position less than 12 months						position greater than or equal to 12 months						Total
		Unrealized losses			Fair Value			Unrealized losses			Fair Value			Unrealized losses			Fair Value
Commercial paper		$	(1)			12,992			—			—			(1)			12,992
Corporate debt securities			(608)			217,540			(36)			4,985			(644)			222,525
Asset-backed securities			(5)			10,786			—			—			(5)			10,786
Government obligations			(59)			15,483			—			—			(59)			15,483
Total		$	(673)		$	256,801		$	(36)		$	4,985		$	(709)		$	261,786

The unrealized losses and fair values of available for sale debt securities that have been in an unrealized loss position for a period of less than and greater than or equal to 12 months as of December 31, 2020 are as follows:


		December 31, 2020
		Securities in an unrealized loss						Securities in an unrealized loss
		position less than 12 months						position greater than or equal to 12 months						Total
		Unrealized losses			Fair Value			Unrealized losses			Fair Value			Unrealized losses			Fair Value
Commercial paper		$	(37)			129,630			—			—			(37)			129,630
Corporate debt securities			(29)			102,426			—			—			(29)			102,426
Asset-backed securities			(3)			1,830			—			—			(3)			1,830
Government obligations			(6)			27,084			—			—			(6)			27,084
Total		$	(75)		$	260,970		$	—		$	—		$	(75)		$	260,970

Available for sale debt securities on the balance sheet at December 31, 2021 and 2020 mature as follows:


		December 31, 2021
		Less Than			More Than
		12 Months			12 Months
Commercial paper		$	75,279		$	—
Corporate debt securities			131,606			136,077
Asset-backed securities			8,724			6,574
Government obligations			6,002			12,423
Total		$	221,611		$	155,074


		December 31, 2020
		Less Than			More Than
		12 Months			12 Months
Commercial paper		$	276,837		$	—
Corporate debt securities			240,139			235,520
Asset-backed securities			6,363			22,525
Government obligations			65,524			47,930
Total		$	588,863		$	305,975

The Company classifies all of its marketable securities as current as they are all either available for sale debt securities or equity investments and are available for current operations.

Convertible senior notes

In August 2015, the Company issued $150.0 million of 3.0% convertible senior notes due August 15, 2022 (the “2022 Convertible Notes”). In September 2019, the Company issued $287.5 million of 1.5% convertible senior notes due September 15, 2026 (the “2026 Convertible Notes,” together with the “2022 Convertible Notes,” the “Convertible Notes”). The fair value of the Convertible Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the 2022 Convertible Notes at December 31, 2021 and 2020 was $158.3 million and $193.2 million, respectively. The estimated fair value of the 2026 Convertible Notes at December 31, 2021 and December 31, 2020 was $305.3 million and $394.9 million.

Rights Exchange Agreement

On April 29, 2020, the Company, certain of the former equity holders of Agilis, and, for the limited purposes set forth in the agreement, Shareholder Representative Services LLC, entered into a Rights Exchange Agreement (the “Rights Exchange Agreement”). Pursuant to the terms of the Rights Exchange Agreement, in the year ended December 31, 2020, the Company issued 2,821,176 shares of its common stock (the “Common Stock Consideration”) and paid $36.9 million (the “Cash Consideration”), in the aggregate, to such former equityholders of Agilis (the “Participating Rightholders”) who in exchange have canceled and forfeited their rights under the Agilis Merger Agreement to receive (i) $174.0 million, in the aggregate, of potential milestone payments based on the achievement of certain regulatory milestones and (ii) $37.6 million, in the aggregate, of $40.0 million in development milestone payments, or the deferred consideration, that would have been due upon the passing of the second anniversary of the closing of the Agilis Merger. As a result of the Rights Exchange Agreement, the remaining deferred consideration payable was $2.4 million, was paid out upon the passing of the second anniversary of the closing of the Agilis Merger. Accordingly, there was no deferred consideration payable as of December 31, 2020.

The Rights Exchange Agreement has no effect on the Agilis Merger Agreement other than to provide for the cancellation and forfeiture of the Participating Rightholders’ rights to receive $211.6 million, in the aggregate, of the milestone payments described above. As a result, all other rights and obligations under the Agilis Merger Agreement remain in effect pursuant to their terms. The Company’s outstanding obligations under the Agilis Merger Agreement include obligations to pay up to an aggregate maximum amount of $20.0 million upon the achievement of certain development milestones, up to an aggregate maximum amount of $361.0 million upon the achievement of certain regulatory milestones, up to a maximum aggregate amount of $150.0 million upon the achievement of certain net sales milestones and a percentage of annual net sales for Friedreich ataxia and Angelman syndrome during specified terms, ranging from 2% to 6%, pursuant to the terms of the Agilis Merger Agreement.

As of result of the Rights Exchange Agreement, the Company recognized a gain of $0.7 million on the settlement of the development milestones related to the difference in the development milestone settled of $37.6 million and Cash Consideration of $36.9 million. Additionally, the Company recognized a loss of $11.3 million on the settlement of the regulatory milestones related to the difference in fair value of the regulatory milestones settled of $139.2 million and the fair value of the Common Stock Consideration of $150.5 million. The $0.7 million gain and $11.3 million loss are included in the settlement of deferred and contingent consideration in the Company’s statement of operations for the year ended December 31, 2020. Additionally, as of the date of the Rights Exchange Agreement, the Company recognized a gain on the fair value of the contingent consideration of $1.0 million related to the portion of regulatory milestones that were forfeited, which is included in the change in fair value of the deferred and contingent liability within the Company’s statement of operations for the year ended December 31, 2020. This gain on the fair value of the contingent consideration is considered a non-recurring Level 3 fair value measurement and was estimated using the same valuation methodology and unobservable input ranges for development and regulatory milestones in the Level 3 valuation section below. In conjunction with the Rights Exchange Agreement, the Company also incurred $2.0 million of transaction fees, which were included in other expense in the Company’s statement of operations for the year ended December 31, 2020.

Level 3 valuation

The contingent consideration payable is fair valued each reporting period with the change in fair value recorded as a gain or loss in the consolidated statements of operations. The fair value of the development and regulatory milestones are estimated utilizing a probability adjusted, discounted cash flow approach. The discount rates are estimated utilizing Corporate B rated bonds maturing in the years of expected payments based on the Company’s estimated development timelines for the acquired product candidate. On December 31, 2021, the weighted average discount rate for the development and regulatory milestones was 3.4% and the weighted average probability of success was 42%. The fair value of the net sales milestones and royalties is determined utilizing an option pricing model with Monte Carlo simulation to simulate a range of possible payment scenarios, and the average of the payments in these scenarios is then discounted to calculate present fair value. On December 31, 2021, the weighted average discount rate for the net sales milestones and royalties was 11.0% and the weighted average probability of success for the net sales milestones was 48%.

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the contingent consideration payables for the years ended December 31, 2021, and 2020:



		Contingent consideration payable-			Contingent consideration payable-
		development and regulatory			net sales milestones and royalties
		milestones - Agilis			- Agilis
Beginning balance as of December 31, 2019			290,500			65,800
Additions			—			—
Change in fair value			(12,120)			35,400
Payments			—			—
Rights Exchange settlement			(139,180)			—
Ending balance as of December 31, 2020			139,200			101,200
Additions			—			—
Change in fair value			100			(600)
Payments			—			—
Rights Exchange settlement			—			—
Ending balance as of December 31, 2021		$	139,300		$	100,600

The following significant unobservable inputs were used in the valuation of the contingent consideration payables for the years ended December 31, 2021 and 2020:


		December 31, 2021
		Fair Value		Valuation Technique		Unobservable Input		Range
Contingent consideration payable- development and regulatory milestones		$139,300		Probability-adjusted discounted cash flow		Potential development and regulatory milestones Probabilities of success Discount rates Projected years of payments		$0 - $381 million 25% - 94% 1.7% - 4.7% 2022 - 2028
Contingent considerable payable- net sales milestones and royalties		$100,600		Option-pricing model with Monte Carlo simulation		Potential net sales milestones Probabilities of success Potential percentage of net sales for royalties Discount rate Projected years of payments		$0 - $150 million 25% - 94% 2% - 6% 11.0% 2023 - 2040


		December 31, 2020
		Fair Value		Valuation Technique		Unobservable Input		Range
Contingent consideration payable- development and regulatory milestones		$139,200		Probability-adjusted discounted cash flow		Potential development and regulatory milestones Probabilities of success Discount rates Projected years of payments		$0 - $381 million 25% - 94% 2.2% - 4.5% 2021 - 2028
Contingent considerable payable- net sales milestones and royalties		$101,200		Option-pricing model with Monte Carlo simulation		Potential net sales milestones Probabilities of success Potential percentage of net sales for royalties Discount rate Projected years of payments		$0 - $150 million 25% - 94% 2% - 6% 11.5% 2022 - 2040

The contingent consideration payables are classified Level 3 liabilities as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approaches, including but not limited to, assumptions involving probability adjusted sales estimates for the gene therapy platform and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.

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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