3Fair 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.