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Fair value measurement | 3 Months Ended
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Mar. 31, 2017
Fair value measurement |
Fair value measurement | 3 Fair value measurement The Company measures certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. U.S. GAAP, requires disclosure of methodologies used in determining the reported fair values, and establishes a hierarchy of inputs used when available. The three levels of the fair value hierarchy are described below:
| · |  | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
| · |  | Level 2 - Valuations based on quoted prices for similar assets or liabilities in markets that are not active or models for which the inputs are observable, either directly or indirectly.
| · |  | Level 3 - Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and are unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Items measured at fair value on a recurring basis include financial instruments and contingent consideration (note 3, “Fair value measurement”). The carrying amount of cash and cash equivalents, accounts receivable from collaborators, prepaid expenses, other assets, accounts payable, accrued expenses and other current liabilities reflected in the consolidated balance sheets approximate their fair values due to their short-term maturities. The following table sets forth the Company’s assets and liabilities that are required to be measured at fair value on a recurring basis as of March 31, 2017, and December 31, 2016:
|  | Quoted prices in active markets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3) |  | Total |  | Classification in consolidated balance sheets |
|  | in thousands |  |  |
At December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 132,496 |  | $ | — |  | $ | — |  | $ | 132,496 |  |  |
Total assets |  | 132,496 |  | — |  | — |  | 132,496 |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments - debt |  | — |  | — |  | 11 |  | 11 |  | Accrued expenses and other current liabilities |
Derivative financial instruments - related party |  | — |  | — |  | 51 |  | 51 |  | Other non-current liabilities |
Contingent consideration |  | — |  | — |  | 1,838 |  | 1,838 |  |  |
Total liabilities |  | $ | — |  | $ | — |  | 1,900 |  | $ | 1,900 |  |  |
At March 31, 2017 |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 120,271 |  | $ | — |  | $ | — |  | $ | 120,271 |  |  |
Total assets |  | 120,271 |  | — |  | — |  | 120,271 |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments - debt |  | — |  | — |  | 2 |  | 2 |  | Accrued expenses and other current liabilities |
Derivative financial instruments - related party |  | — |  | — |  | 32 |  | 32 |  | Other non-current liabilities |
Contingent consideration |  | — |  | — |  | 1,989 |  | 1,989 |  |  |
Total liabilities |  | $ | — |  | $ | — |  | $ | 2,023 |  | $ | 2,023 |  |  |
Changes in Level 3 items during the three months ended March 31, 2017, and 2016, are as follows:
|  | Contingent consideration |  | Derivative financial instruments |  | Total |
|  | in thousands |
Balance at December 31, 2015 |  | $ | 2,926 |  | $ | 837 |  | $ | 3,763 |
(Gains) / losses recognized in profit or loss |  | 60 |  | (317 | ) | (257 | )
Currency translation effects |  | 127 |  | 30 |  | 157 |
Balance at March 31, 2016 |  | $ | 3,113 |  | $ | 550 |  | $ | 3,663 |
|  | Contingent consideration |  | Derivative financial instruments |  | Total |
|  | in thousands |
Balance at December 31, 2016 |  | $ | 1,838 |  | $ | 62 |  | $ | 1,900 |
(Gains) / losses recognized in profit or loss |  | 124 |  | (29 | ) | 95 |
Currency translation effects |  | 27 |  | 1 |  | 28 |
Balance at March 31, 2017 |  | $ | 1,989 |  | $ | 34 |  | $ | 2,023 |
Contingent consideration In connection with the Company’s acquisition of InoCard GmbH in 2014, the Company recorded a contingent consideration related to amounts potentially payable to InoCard’s former shareholders. The amounts payable are contingent upon realization of the following milestones:
| · |  | Successful completion of GLP safety and toxicology study;
| · |  | First patient dosed in a clinical study; and
| · |  | Full proof-of-concept of the product in human patients after finalization of a phase I/II study.
The valuation of the contingent liability is based on significant inputs not observable in the market such as the probability of success (“POS”) of achieving certain research milestones (estimated as probable for the first two milestones as of the balance sheet date), the time at which the research milestones are expected to be achieved (ranging from 2018 to 2021), as well as the 30% discount rate applied, which represents a Level 3 measurement. Varying, next to the passing of time, the unobservable inputs results in the following fair value changes:
|  | March 31, |  | December 31, |
|  | 2017 |  | 2016 |
|  | in thousands |
Change in fair value |  |  |  |  |
Moving out of all milestones by 6 months |  | $ | (226 | ) | $ | (209 | )
Increasing the POS for the first milestone by 20% |  | 398 |  | 367 |
Decreasing the POS for the first milestone by 20% |  | (398 | ) | (367 | )
Reducing the discount rate from 30% to 20% |  | 636 |  | 638 |
Increasing the discount rate from 30% to 40% |  | (305 | ) | (309 | )
Derivative financial instruments The Company issued derivative financial instruments related to its collaboration with Bristol-Meyers Squibb Company (“BMS”) and in relation to the issuance of the Hercules Technology Growth Corp. (“Hercules”) loan facility. The fair value of these derivative financial instruments as of March 31, 2017, was $0.0 million (December 31, 2016: $0.1 million), both of which are described in more details below. There were no significant changes in (un)observable inputs, nor in the sensitivity of the fair value from (un)observable inputs as at March 31, 2017, compared to December 31, 2016. BMS collaboration On April 6, 2015, the Company entered into a number of agreements with BMS (the “BMS Agreements”). Pursuant to the terms of the BMS Agreements the Company granted BMS two warrants:
| · |  | A warrant allowing BMS to purchase a specific number of uniQure common shares such that its ownership will equal 14.9% immediately after such purchase. The warrant can be exercised on the later of (i) the date on which the Company receives from BMS the Target Designation Fees (as defined in the collaboration agreements) associated with the first six New Targets (as defined in the collaboration agreements); and (ii) the date on which BMS designates the sixth New Target.
| · |  | A warrant allowing BMS to purchase a specific number of uniQure common shares such that its ownership will equal 19.9% immediately after such purchase. The warrant can be exercised on the later of (i) the date on which uniQure receives from BMS the Target Designation Fees associated with the first nine New Targets; and (ii) the date on which BMS designates the ninth New Target.
Pursuant to the terms of the BMS Agreements the exercise price, in respect of each warrant, is equal to the greater of (i) the product of (A) $33.84, multiplied by (B) a compounded annual growth rate of 10% and (ii) the product of (A) 1.10 multiplied by (B) the VWAP for the 20 trading days ending on the date that is five trading days prior to the date of a notice of exercise delivered by BMS. Hercules loan facility On June 14, 2013, the Company entered into a venture debt loan facility with (the “Original Facility”) with Hercules Technology Growth Capital, Inc. (“Hercules”) pursuant to a Loan and Security Agreement (the “Loan Agreement”) which included a warrant. The warrant was not closely related to the host contract and was accounted for separately as a derivative financial liability measured at fair value though profit or loss. The warrant included in the Original Facility remained in place following the 2014 and 2016 amendments of the loan.

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
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