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Fair value of financial instruments and investments

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair value of financial instruments and investments

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.

The Company owns common stock in ClearPoint Neuro, Inc. (“ClearPoint”) (formerly MRI Interventions, Inc.), a publicly traded medical device company. The 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 years ended December 31, 2022 and 2021, the Company recorded unrealized losses of $3.5 million and $6.1 million, respectively, which are components of other (expense) income, net within the consolidated statement of operations. The fair value of the equity investments was $11.0 million and $14.5 million as of December 31, 2022 and 2021, 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 years ended December 31, 2022 and 2021, the Company recorded unrealized losses of $5.8 million and $8.3 million, respectively. These unrealized losses are components of other (expense) income, net within the consolidated statement of operations. The fair value of the convertible debt security was $15.2 million and $21.0 million as of December 31, 2022 and 2021, 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.

The Company has investments in mutual funds, including one that is denominated in a foreign currency. 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 years ended December 31, 2022 and 2021, the Company had $8.0 million unrealized losses and $1.7 million unrealized net gains, respectively, relating to the equity investments still held at the reporting date. During the years ended December 31, 2022 and 2021, the Company had redemptions of $113.0 million and $4.3 million, respectively. During the years ended December 31, 2022 and 2021, the Company had $0.5 million and $0.4 million foreign currency unrealized losses, respectively, 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, 2022 and 2021:


		December 31, 2022
					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		$	22,610		$	—		$	22,610		$	—
Marketable securities - equity investments		$	108,261		$	108,261		$	—		$	—
ClearPoint Equity Investments		$	10,965		$	10,965		$	—		$	—
ClearPoint convertible debt security		$	15,231		$	—		$	15,231		$	—
Contingent consideration payable- development and regulatory milestones		$	82,500		$	—		$	—		$	82,500
Contingent consideration payable- net sales milestones and royalties		$	81,500		$	—		$	—		$	81,500


		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

No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the years ended December 31, 2022 and 2021.

The following is a summary of marketable securities accounted for as available for sale debt securities at December 31, 2022 and 2021:


		December 31, 2022
		Amortized			Gross Unrealized
		Cost			Gains			Losses			Fair Value
Commercial paper		$	12,419		$	5		$	—		$	12,424
Corporate debt securities			10,685			—			(499)			10,186
Total		$	23,104		$	5		$	(499)		$	22,610


		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

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, 2022 and 2021, 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, 2022 and 2021, 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, 2022, the Company had $4.0 million of realized losses from the sale of available for sale debt securities. For the year ended December 31, 2021, the Company had $0.8 million of 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, 2022 are as follows:


		December 31, 2022
		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
Corporate debt securities		$	—			—			(499)			10,186			(499)		$	10,186
Total		$	—		$	—		$	(499)		$	10,186		$	(499)		$	10,186

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

Available for sale debt securities on the balance sheet at December 31, 2022 and 2021 mature as follows:


		December 31, 2022
		Less Than			More Than
		12 Months			12 Months
Commercial paper		$	12,424		$	—
Corporate debt securities			—			10,186
Total		$	12,424		$	10,186


		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

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”). On August 15, 2022, the Company repaid the outstanding principal amount and accrued interest, totaling $152.3 million, of the 2022 Convertible Notes that was due upon maturity in accordance with the terms of the 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. As the 2022 Convertible Notes have been repaid, they are no longer on the balance sheet as of December 31, 2022. The estimated fair value of the 2022 Convertible Notes at December 31, 2021 was $158.3 million. The estimated fair value of the 2026 Convertible Notes at December 31, 2022 and December 31, 2021 was $281.7 million and $305.3 million, respectively.

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, 2022, the weighted average discount rate for the development and regulatory milestones was 7.8% and the weighted average probability of success was 35%. 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, 2022, the weighted average discount rate for the net sales milestones and royalties was 11.5% and the weighted average probability of success for the net sales milestones was 50%.

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, 2022, and 2021:



		Contingent consideration payable-			Contingent consideration payable-
		development and regulatory			net sales milestones and royalties
		milestones - Agilis			- Agilis
Beginning balance as of December 31, 2020		$	139,200		$	101,200
Additions			—			—
Change in fair value			100			(600)
Payments			—			—
Ending balance as of December 31, 2021		$	139,300		$	100,600
Additions			—			—
Change in fair value			(6,800)			(19,100)
Payments			(50,000)			—
Ending balance as of December 31, 2022		$	82,500		$	81,500

In July 2022, the European Commission approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the EEA, which triggered a $50.0 million milestone payment to the former equityholders of Agilis in accordance with the terms of the Agilis Merger Agreement. In accordance with ASC 230, the portion of the $50.0 million milestone payment up to the acquisition date fair value of the contingent consideration liability is classified as a financing outflow and the amount paid in excess of the acquisition date fair value of that liability is classified as an operating outflow on the consolidated statements of cash flows.

The following significant unobservable inputs were used in the valuation of the contingent consideration payables for the years ended December 31, 2022 and 2021:


		December 31, 2022
		Fair Value		Valuation Technique		Unobservable Input		Range
Contingent consideration payable- development and regulatory milestones		$82,500		Probability-adjusted discounted cash flow		Potential development and regulatory milestones Probabilities of success Discount rates Projected years of payments		$0 - $331 million 25% - 92% 6.2% - 8.3% 2023 - 2029
Contingent considerable payable- net sales milestones and royalties		$81,500		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% - 100% 2% - 6% 11.5% 2025 - 2041


		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

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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