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Fair Value of Financial Assets and Liabilities | 9 Months Ended
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Sep. 30, 2024
Fair Value Disclosures [Abstract] |
Fair Value of Financial Assets and Liabilities | Fair Value of Financial Assets and Liabilities The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. In this note, the Company provides details on the fair value of financial assets and liabilities and how it determines those fair values. Financial Instruments Measured at Fair Value on the Condensed Consolidated Balance Sheets Certain assets of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: •Level 1 — Quoted prices in active markets for identical assets or liabilities. •Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. •Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. Financial assets measured at fair value on a recurring basis on the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023 and financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at September 30, 2024 were as follows:
|  |  |  | Fair Value Measurement Using:
Balance Sheet Classification |  | Type of Instrument |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
September 30, 2024 |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | Money market funds |  | $ | 65,497 |  |  | $ | — |  |  | $ | — |  |  | $ | 65,497 |
Marketable securities |  | U.S. treasury bills |  | 15,828 |  |  | 278,598 |  |  | — |  |  | 294,426 |
Other non-current assets |  | Money market funds |  | 2,548 |  |  | — |  |  | — |  |  | 2,548 |
Total assets |  |  |  | $ | 83,873 |  |  | $ | 278,598 |  |  | $ | — |  |  | $ | 362,471 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Forward contract liability |  | Forward contract, current |  | $ | — |  |  | $ | — |  |  | $ | 69,030 |  |  | $ | 69,030 |
Derivative liability, non-current |  | Written put option, non-current |  | — |  |  | — |  |  | 12,320 |  |  | 12,320 |
Total liabilities |  |  |  | $ | — |  |  | $ | — |  |  | $ | 81,350 |  |  | $ | 81,350 |
December 31, 2023 |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | Money market funds |  | $ | 59,199 |  |  | $ | — |  |  | $ | — |  |  | $ | 59,199 |
Cash and cash equivalents |  | U.S. treasury bills |  | — |  |  | 27,901 |  |  | — |  |  | 27,901 |
Cash and cash equivalents |  | U.S. corporate bonds |  | — |  |  | 6,001 |  |  | — |  |  | 6,001 |
Marketable securities |  | U.S. treasury bills |  | 9,874 |  |  | 76,160 |  |  | — |  |  | 86,034 |
Marketable securities |  | U.S. corporate bonds |  | — |  |  | 40,210 |  |  | — |  |  | 40,210 |
Marketable securities |  | Foreign corporate bonds |  | — |  |  | 7,173 |  |  | — |  |  | 7,173 |
Other non-current assets |  | Money market funds |  | 1,900 |  |  | — |  |  | — |  |  | 1,900 |
Total assets |  |  |  | $ | 70,973 |  |  | $ | 157,445 |  |  | $ | — |  |  | $ | 228,418 |
The Company had no financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at December 31, 2023. There were no securities transferred into or out of Level 3 during the three and nine months ended September 30, 2024 or 2023. The following is a description, including valuation methodology, of the financial assets measured at fair value on a recurring basis: Cash Equivalents Cash equivalents consisted of cash invested in short-term money market funds and debt securities with an original maturity of 90 days or less at the date of purchase. The carrying value of cash equivalents approximates fair value as maturities are less than three months. When quoted prices are available in an active market, cash equivalents are classified in Level 1 of the fair value hierarchy. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2. Marketable Securities and Other Non-Current Assets Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries and money market funds. The fair values of the Company’s Level 2 debt securities are obtained from quoted market prices of debt securities with similar characteristics, quoted prices from identical assets in inactive markets, or discounted cash flows to estimate fair value. Forward Contract and Derivative Liabilities In connection with the Knopp Amendment, Knopp had the option to request a one-time cash true-up payment from the Company in December 2024, as defined in the agreement (the "2024 Knopp True-up"). As of September 30, 2024, the Company determined the fair value of its liability for the 2024 Knopp True-Up to be $0. Also in connection with the Knopp Amendment, the Company agreed to issue to Knopp additional common shares of the Company with an approximate value of $75,000 within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). In addition, Knopp has the option to request a one-time cash true-up payment from the Company in December 2025, as defined in the agreement (the "2025 Knopp True-up"). See Note 10, "License, Acquisitions and Other Agreements," for further details. The following table provides a roll forward of the fair value of the Company's forward contract and derivative liabilities related to the Knopp Amendment for which fair value is determined by Level 3 inputs from inception on May 1, 2024 to September 30, 2024:
|  | Carrying Value |  |
Fair value at May 1, 2024 |  | $ | 93,290 |  |  |
Change in fair value of forward contract and derivative liabilities in other income, net |  | (11,940) |  |  |
Fair value at September 30, 2024 |  | $ | 81,350 |  |  |
The fair value of the forward contract and remaining derivative liability recognized in connection with the Knopp Amendment were determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuation is based on a Monte Carlo simulation of Biohaven's share price, which requires judgement and assumption on the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk since payable in a variable number of shares for the 2025 Additional Consideration or potentially cash for the 2025 Knopp True-up. A summary of the unobservable inputs (Level 3 inputs) used in measuring the Company’s forward contract and derivative liability related to the Knopp Amendment as of September 30, 2024 and May 1, 2024 are as follows, presented on a weighted-average basis based on relative fair value:
|  | As of September 30, 2024 |  | As of May 1, 2024
Time to payment and potential payment (years) |  | 0.74 |  | 1.08
Volatility (annual) |  | 65.0 | % |  | 80.0 | %
Discount rate |  | 12.7 | % |  | 14.8 | %
Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. The Company expects the fair value of the forward contract to be approximately $75,000 on the first anniversary of the Knopp Amendment. An increase in the derivative liability related to the 2025 Knopp True-up between the reporting date and settlement date of the derivative would have a material adverse effect on the Company's financial performance.

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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/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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