Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Recurring Valuations

Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):


	Fair Value Measurements at December 31, 2023
	Total			Level 1		Level 2		Level 3

Assets at Fair Value:
Current:
Cash and cash equivalents	$	265,453		$	265,453	$	—	$	—
Equity securities	916			916		—		—

Foreign bonds	54			—		54		—
Mutual funds	39			39		—		—
Noncurrent:
Foreign bonds	891			—		891		—
Total assets measured at fair value	$	267,353		$	266,408	$	945	$	—
Liabilities at Fair Value:
Current:
Contingent consideration	$	(20)	(1)	$	—	$	—	$	(20)
Noncurrent:
Stock option purchase liability	(819)		(2)	—		—		(819)
Derivative liabilities	(35,333)		(3)	—		—		(35,333)
Warrant liabilities	(118,770)		(4)	—		—		(118,770)
Total liabilities measured at fair value	$	(154,942)		$	—	$	—	$	(154,942)


	Fair Value Measurements at December 31, 2022
	Total			Level 1		Level 2		Level 3

Assets at Fair Value:
Current:
Cash and cash equivalents	$	104,641	(5)	$	63,860	$	40,781	$	—
Equity securities	2,507			2,507		—		—


Mutual funds	36			36		—		—
Noncurrent:
Foreign bonds	840			—		840		—
Total assets measured at fair value	$	108,024		$	66,403	$	41,621	$	—
Liabilities at Fair Value:
Current:
Contingent consideration	$	(19)	(1)	$	—	$	—	$	(19)
Noncurrent:
Warrant liability	(21,636)		(4)	—		—		(21,636)
Total liabilities measured at fair value	$	(21,655)		$	—	$	—	$	(21,655)

_______________


(1)			Contingent Consideration

Contingent consideration is recorded at estimated fair value and revalued each reporting period until the related contingency is resolved. The fair value measurement is based on inputs that are unobservable and significant to the overall fair value measurement (i.e., a Level 3 measurement within the fair value hierarchy) and are reviewed periodically by management. See Note 7, Commitments and Contingencies—Contingent Consideration Related to Business Combinations, for more information.

Changes in the carrying amount of contingent consideration were as follows (in thousands):


	Year Ended December 31,
	2023		2022		2021

Fair value, beginning of year	$	(19)	$	(409)	$	(972)
Consideration paid	—		339		419
Net (increase) decrease in fair value	(1)		51		144
Fair value, end of year	$	(20)	$	(19)	$	(409)


(2)			Stock Option Purchase Liability

In connection with the RIPA, we entered into an SPOA pursuant to which Oberland has an option to purchase up to an additional $10.0 million of our common stock, at a price to be determined by reference to the 30-day trailing volume weighted-average price of our common stock calculated from the date of exercise. This stock purchase option was classified as a liability at its fair value upon issuance. The fair value was estimated using probability-weighted scenarios over the likelihood of this option being exercised. As of December 31, 2023, the stock purchase option was outstanding. The fair value of the stock purchase option was estimated at $0.8 million at issuance. Due to the proximity of the inception date of the SPOA to December 31, 2023, the change in fair value was immaterial. See Note 9, Revenue Interest Purchase Agreement, for more information.


(3)			Derivative Liabilities

The debt incurred pursuant to the RIPA entered on December 29, 2023 contains embedded derivatives requiring bifurcation as a single compound derivative instrument. The company estimated the fair value of the derivative liability using a “with-and-without” method. The with-and-without methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative. The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative is the fair value of the derivative liability, which is estimated at $34.5 million as of December 31, 2023. The estimated probability and timing of underlying events triggering the exercisability of the Put Option contained in the RIPA, forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative. As of December 31, 2023, the discount rate used for valuation of the derivative liability was 12.1%. See N ote 9, Revenue Interest Purchase Agreement, for more information.

In connection with the December 2023 debt extinguishment, the company identified an embedded derivative related to a contingently exercisable prepayment feature of the amended $505.0 million December 2023 promissory note, which allows the noteholder to request up to a $50.0 million prepayment and accrued interest upon occurrence of a specified transaction (defined in the promissory note). This embedded derivative is recorded as a derivative liability on the consolidated balance sheet and is measured at fair value. Changes in the fair value of the derivative liability are reported as change in fair value of derivative, on the consolidated statement of operations. The fair value of the derivative liability is determined at each period end using a with and without method, which assesses the likelihood and timing of a specified transaction that if triggered could result in a repayment. The fair value of the embedded derivative is estimated at $0.8 million as of December 31, 2023, and will be remeasured to fair value at each reporting date until the derivative is settled.


(4)			Third-Party Warrant Liabilities

December 2022 Warrants

In connection with the December 12, 2022 registered direct offering of common stock, the company issued 9,090,909 warrants (December 2022 Warrants). The warrants were classified as a liability at their fair value upon issuance. As of December 31, 2023 and 2022, all warrants were outstanding. The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following dates:


	Year Ended December 31,
	2023		2022

Exercise price per share	$6.60		$6.60
Expected term	1.0 years		2.0 years
Expected average volatility	119.0	%	99.4	%
Expected dividend yield	—	%	—	%
Risk-free interest rate	4.7	%	4.4	%

February 2023 Warrants

In connection with the February 15, 2023 registered direct offering of common stock, the company issued 14,072,615 warrants. The warrants were classified as a liability at their fair value upon issuance. As of December 31, 2023, all warrants were outstanding. The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following dates:


	December 31, 2023		Issuance Date February 17, 2023

Exercise price per share	$3.2946		$4.2636
Expected term	2.6 years		2.0 years
Expected average volatility	107.3	%	97.0	%
Expected dividend yield	—	%	—	%
Risk-free interest rate	4.1	%	4.6	%

On July 25, 2023, the company reduced the exercise price of the outstanding February 2023 Warrants from $4.2636 per share to $3.2946 per share and extended the expiration date of the warrants until July 24, 2026. The effect of amending the terms of the warrants is reflected in a change in the fair value of warrant liability of $7.3 million.

July 2023 Warrants

In connection with the July 20, 2023 registered direct offering of common stock, the company issued 14,569,296 warrants (July 2023 Warrants). The warrants were classified as a liability at their fair value upon issuance. As of December 31, 2023, all warrants were outstanding. The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following dates:


	December 31, 2023		Issuance Date July 25, 2023

Exercise price per share	$3.2946		$3.2946
Expected term	2.6 years		3.0 years
Expected average volatility	107.3	%	121.0	%
Expected dividend yield	—	%	—	%
Risk-free interest rate	4.1	%	4.5	%

The change in the carrying amount of the warrant liabilities was as follows (in thousands):


	Total		December 2022 Warrants		February 2023 Warrants		July 2023 Warrants


Fair value, December 31, 2022	$	21,636	$	21,636	$	—	$	—
Fair value at issuance	49,534		—		23,698		25,836
Change in fair value	47,600		(4,545)		26,260		25,885
Fair value, December 31, 2023	$	118,770	$	17,091	$	49,958	$	51,721


	December 2022 Warrants

Fair value at issuance, December 12, 2022	$	35,096
Change in fair value	(13,460)
Fair value, December 31, 2022	$	21,636


(5)			As of December 31, 2022, the Level 2 measurements include $32.0 million in U.S. government agency securities and $8.8 million in corporate debt securities with original maturities of less than 90 days.

Non-Recurring Valuations

Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. Except for the impairments discussed in Note 3, Financial Statement Details—Intangible Assets, Net, there were no other material non-financial assets or liabilities deemed to be other-than-temporarily impaired and measured at fair value on a non-recurring basis during the years ended December 31, 2023, 2022 and 2021.

We measured the fair value of the promissory notes before and after amendments that were entered on December 29, 2023 and August 31, 2022, as they were accounted for under the debt extinguishment accounting model. We used discounted cash flow analyses for promissory notes without a holder conversion option and used binomial lattice models for promissory notes with a holder conversion option. Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be a Level 3 valuation. See Note 10, Related-Party Debt, for more information.