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Fair value measurement | 9 Months Ended
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Sep. 30, 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 can 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. 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 September 30, 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 September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 88,934 |  | $ | — |  | $ | — |  | $ | 88,934 |  |
Total assets |  |  | 88,934 |  |  | — |  |  | — |  |  | 88,934 |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments - debt |  |  | — |  |  | — |  |  | 3 |  |  | 3 |  | Accrued expenses and other current liabilities
Derivative financial instruments - related party |  |  | — |  |  | — |  |  | 35 |  |  | 35 |  | Other non-current liabilities
Contingent consideration |  |  | — |  |  | — |  |  | 3,610 |  |  | 3,610 |  |
Total liabilities |  | $ | — |  | $ | — |  | $ | 3,648 |  | $ | 3,648 |  |
Changes in Level 3 items during the nine months ended September 30, 2017, and 2016, are as follows:
|  |  |  | Derivative |  |  |
|  | Contingent |  | financial |  |  |
|  | consideration |  | instruments |  | Total
|  | in thousands
Balance at December 31, 2016 |  | $ | 1,838 |  | $ | 62 |  | $ | 1,900
(Gains) / losses recognized in profit or loss |  |  | 2,704 |  |  | (29) |  |  | 2,675
Amounts due (presented in Accrued expenses and other current liabilities) |  |  | (1,181) |  |  | — |  |  | (1,181)
Currency translation effects |  |  | 249 |  |  | 5 |  |  | 254
Balance at September 30, 2017 |  | $ | 3,610 |  | $ | 38 |  | $ | 3,648
|  |  |  |  | Derivative |  |  |
|  | Contingent |  | financial |  |  |
|  | consideration |  | instruments |  | Total
|  | in thousands
Balance at December 31, 2015 |  | $ | 2,926 |  | $ | 837 |  | $ | 3,763
(Gains) / losses recognized in profit or loss |  |  | (1,569) |  |  | (701) |  |  | (2,270)
Currency translation effects |  |  | 87 |  |  | 20 |  |  | 107
Balance at September 30, 2016 |  | $ | 1,444 |  | $ | 156 |  | $ | 1,600
Contingent consideration In connection with the Company’s acquisition of InoCard GmbH (“InoCard”) in 2014, the Company recorded contingent consideration related to amounts potentially payable to InoCard’s former shareholders. In August 2017, the Company and the former shareholders amended the 2014 sale and purchase agreement to waive certain of the Company’s obligations regarding the development of the acquired program pursuant to a plan to be agreed to between the Company and the InoCard former shareholders. The parties also modified the conditions of the agreed milestone payments, including a reduction of the percentage of any future milestone that can be settled in the form of Company ordinary shares from 100% to 50%. The Company recorded $2.3 million in research and development cost in the three and nine months ended September 30, 2017, related to the increase of fair value of the contingent consideration resulting from these modifications. The amounts payable in accordance with the amended sale and purchase agreement are contingent upon realization of the following milestones:
| · |  | Early candidate nomination of product by third party;
| · |  | Acceptance of investigational new drug application by the United States Food and Drug Administration or an equivalent filing in defined Western European countries;
| · |  | Completion of dosing of all patients in the first clinical study; and
| · |  | Full proof of concept of the product in humans after finalization of the first clinical 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 three 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 discount rate applied, which represents a Level 3 measurement. The POS as well as the discount rate both reflect the probability of achieving a milestone as of a specific date. In June 2017, the Company replaced the risk-adjusted discount rate of 30.0% with the Company’s weighted average rate of capital of 14.5% to reflect the full integration of the acquired business into the Company’s operation. This resulted in a $0.3 million increase of the liability. Varying the timing of the milestones, the discount rate and the POS of unobservable inputs results in the following fair value changes:
|  |  | September 30,
|  | 2017
|  | in thousands
Change in fair value |  |  |
Moving out of all milestones by 6 months |  | $ | (231)
Increasing the POS for the first milestone by 20% |  |  | 1,103
Decreasing the POS for the first milestone by 20% |  |  | (1,103)
Reducing the discount rate from 14.5% to 4.5% |  |  | 1,004
Increasing the discount rate from 14.5% to 24.5% |  |  | (590)
|  |  | December 31,
|  | 2016
|  | in thousands
Change in fair value |  |  |
Moving out of all milestones by 6 months |  | $ | (209)
Increasing the POS for the first milestone by 20% |  |  | 367
Decreasing the POS for the first milestone by 20% |  |  | (367)
Reducing the discount rate from 30% to 20% |  |  | 638
Increasing the discount rate from 30% to 40% |  |  | (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 September 30, 2017, was $0.0 million (December 31, 2016: $0.1 million), and these derivative financial instruments are described in more detail below. There were no significant changes in the sensitivity of the fair value from (un)observable inputs as of September 30, 2017, compared to December 31, 2016. BMS collaboration On April 6, 2015, the Company entered into several 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 ordinary 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 ordinary 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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