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Fair Value
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value

5. FAIR VALUE

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy and the valuation techniques that the Company utilized to determine such fair value:

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

2022

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

19,927

 

 

$

19,927

 

 

$

—

 

 

$

—

 

U.S. government and agency debt securities

 

 

204,023

 

 

 

164,218

 

 

 

39,805

 

 

 

—

 

Corporate debt securities

 

 

216,243

 

 

 

—

 

 

 

216,243

 

 

 

—

 

Non-U.S. government debt securities

 

 

61,067

 

 

 

—

 

 

 

61,067

 

 

 

—

 

Total

 

$

501,260

 

 

$

184,145

 

 

$

317,115

 

 

$

—

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency debt securities

 

$

126,139

 

 

$

96,597

 

 

$

29,542

 

 

$

—

 

Corporate debt securities

 

 

196,478

 

 

 

—

 

 

 

196,478

 

 

 

—

 

Non-U.S. government debt securities

 

 

103,760

 

 

 

—

 

 

 

103,760

 

 

 

—

 

Contingent consideration

 

 

23,048

 

 

 

—

 

 

 

—

 

 

 

23,048

 

Total

 

$

449,425

 

 

$

96,597

 

 

$

329,780

 

 

$

23,048

 

 

The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fair value hierarchies at the end of each reporting period.

There were no transfers of any securities between levels during the nine months ended September 30, 2022. The following table is a rollforward of the fair value of the Company’s investments with fair values that were determined using Level 3 inputs at September 30, 2022:

 

(In thousands)

 

Fair Value

 

Balance, January 1, 2022

 

$

23,048

 

Purchase of corporate debt security

 

 

500

 

Change in the fair value of contingent consideration

 

 

(21,750

)

Milestone and royalty payments received by the Company related to contingent consideration

 

 

(1,273

)

Impairment of corporate debt security

 

 

(500

)

Royalty payments due to the Company related to contingent consideration

 

 

(25

)

Balance, September 30, 2022

 

$

—

 

 

The Company’s investments in U.S. government and agency debt securities, non-U.S. government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated the prices developed using the market-observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.

In April 2015, the Company sold its Gainesville, GA manufacturing facility, the related manufacturing and royalty revenue associated with certain products manufactured at the facility, and the rights to intravenous/intramuscular (“IV/IM”) and parenteral forms of Meloxicam to Recro Pharma, Inc. (“Recro”) and Recro Gainesville LLC (such transaction, the “Gainesville Transaction”). The Gainesville Transaction included in the purchase price contingent consideration tied to low double digit royalties on net sales of the IV/IM and parenteral forms of Meloxicam and any other product with the same active ingredient as Meloxicam IV/IM that is discovered or identified using certain of the Company’s IP to which Recro was provided a right of use, through license or transfer, pursuant to the Gainesville Transaction (such products, the “Meloxicam Products”), and milestone payments upon the achievement of certain regulatory and sales milestones related to the Meloxicam Products.

In November 2019, Recro spun out its acute care segment to Baudax Bio, Inc. (“Baudax”), a publicly-traded pharmaceutical company. As part of this transaction, Recro’s obligations to pay certain contingent consideration from the Gainesville Transaction, including royalties on net sales of Meloxicam Products and development and commercial milestones, were assigned and/or transferred to Baudax.

In Baudax’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, Baudax continued to include disclosures regarding its ability to continue as a going concern, which first appeared in its Annual Report on Form 10-K for the period ended December 31, 2021. In March 2022, Baudax reduced its workforce by approximately 80%, which was designed to reduce its operational expenses and conserve its cash resources. As a result of these events and the fact that, as of March 31, 2022, Baudax had only paid $0.5 million of the $6.4 million milestone payment that was due to the Company in March 2022, the Company recorded a reduction in the fair value of the contingent consideration of $19.1 million during the three months ended March 31, 2022. In light of Baudax’s continued disclosures regarding its ability to continue as a going concern and the fact that, as of September 30, 2022, Baudax had only paid $1.2 million of the $6.4

million that was due to the Company in March 2022, the Company determined that it was unlikely to collect any further proceeds under this arrangement. During the three months ended September 30, 2022, the Company recorded a $3.6 million charge to reduce the fair value of the contingent consideration to zero within “Change in the fair value of contingent consideration” in the accompanying condensed consolidated statements of operations and comprehensive loss. In addition, during the three months ended September 30, 2022, the Company determined that certain construction in progress related to the manufacturing of the approved Meloxicam Product had no future value. See Note 7, Property, Plant and Equipment, within the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q for details related to such construction in progress.

At December 31, 2021, the Company determined that the fair value of the contingent consideration was $23.0 million, $6.4 million of which was included within “Prepaid expenses and other current assets” in the accompanying condensed consolidated balance sheets, and $16.6 million of which was included within “Other assets” in the accompanying condensed consolidated balance sheets. For discussion on the calculation of the fair value of the contingent consideration at December 31, 2021, refer to Note 5, Fair Value within the “Notes to Consolidated Financial Statements” in the Company’s Annual Report.

The carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, contract assets, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature.

The estimated fair value of the Company’s long-term debt under its amended and restated credit agreement (such debt, the “2026 Term Loans”), which was based on quoted market price indications (Level 2 in the fair value hierarchy) and which may not be representative of actual values that could have been, or will be, realized in the future, was $279.6 million and $285.8 million at September 30, 2022 and December 31, 2021, respectively.