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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 3. Fair Value Measurements The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities. • Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of the Company’s financial instruments, including receivable from collaboration, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Cash Equivalents and Available-for-Sale Debt Securities The following tables summarize the Company’s Level 1 and Level 2 financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2022 and December 31, 2021:
|  |  |  | September 30, 2022 |
|  | Valuation Hierarchy |  | Amortized Cost |  |  | Gross Unrealized Holding Gains |  |  | Gross Unrealized Holding Losses |  |  | Aggregate Fair Value |
|  |  |  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds(1) |  | Level 1 |  | $ | 978,367 |  |  | $ | — |  |  | $ | — |  |  | $ | 978,367 |
U.S. government treasuries |  | Level 2 |  |  | 1,385,672 |  |  |  | — |  |  |  | (11,626 | ) |  |  | 1,374,046 |
Total financial assets |  |  |  | $ | 2,364,039 |  |  | $ | — |  |  | $ | (11,626 | ) |  | $ | 2,352,413 |
(1) Includes $21.7 million of restricted cash equivalents.
|  |  |  | December 31, 2021 |
|  | Valuation Hierarchy |  | Amortized Cost |  |  | Gross Unrealized Holding Gains |  |  | Gross Unrealized Holding Losses |  |  | Aggregate Fair Value |
|  |  |  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds(1) |  | Level 1 |  | $ | 345,098 |  |  | $ | — |  |  | $ | — |  |  | $ | 345,098 |
U.S. government treasuries |  | Level 2 |  |  | 419,442 |  |  |  | — |  |  |  | (872 | ) |  |  | 418,570 |
Total financial assets |  |  |  | $ | 764,540 |  |  | $ | — |  |  | $ | (872 | ) |  | $ | 763,668 |
(1) Includes $15.6 million of restricted cash equivalents. Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities are presented within prepaid expenses and other current assets, and other assets in the unaudited condensed consolidated balance sheets. Accrued interest receivable amounted to $2.8 million and $1.1 million as of September 30, 2022 and December 31, 2021, respectively. The Company did no t write off any accrued interest receivable during the nine months ended September 30, 2022 and 2021. As of September 30, 2022, there were no in vestments that have been in a continuous unrealized loss position for longer than 12 months. Total net unrealized losses of $11.6 million were recorded in accumulated other comprehensive income (loss) as of September 30, 2022. As of September 30, 2022, no securi ties had contractual maturities of longer than two years. Equity Investments As of September 30, 2022, the Company's equity investment consisted solely of ordinary shares of Brii Biosciences Limited (“Brii Bio Parent”). The Company acquired the securities as partial consideration for entering into the collaboration, option and license agreement (the “Brii Agreement”) with Brii Bio Parent and Brii Biosciences Offshore Limited (“Brii Bio”) in May 2018. The Company concluded it does not have a controlling interest or significant influence over Brii Bio based on its ownership percentage and other factors. See further discussion in Note 6—Collaboration and License Agreements. In July 2021, Brii Bio Parent completed its initial public offering (“Brii Bio Parent IPO”) on the Stock Exchange of Hong Kong Limited. Upon the completion of the Brii Bio Parent IPO, the securities were considered to be marketable equity securities and subsequently remeasured at fair value at each reporting date. As of September 30, 2022, the Company remeasured the equity investment at a fair value of $22.8 million. For the three and nine months ended September 30, 2022, the Company recognized an unrealized loss of $13.6 million and $120.0 million, respectively, as other income (expenses) in the unaudited condensed consolidated statement of operations. For the three and nine months ended September 30, 2022, the unrealized loss related to foreign currency translation for the respective periods was immaterial. As of September 30, 2022, the Company classifies its equity investment in Brii Bio Parent as a Level 1 asset within the fair value hierarchy, as the value is based on a quoted market price in an active market. Contingent Consideration Contingent consideration includes potential milestone payments in connection with the acquisitions of Humabs Biomed SA (“Humabs”) and TomegaVax, Inc. (“TomegaVax”). See further discussion in Note 4—Acquisitions. The Company classifies the contingent consideration as Level 3 financial liabilities within the fair value hierarchy as of September 30, 2022 and December 31, 2021. The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical, regulatory and commercial milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved. As of September 30, 2022, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones related to VIR-3434 using the following significant unobservable inputs:
Unobservable input |  | Range (Weighted-Average)1
Discount rates |  | 8.1% - 9.2% (8.7%)
Probability of achievement |  | 22.1% - 60% (42.1%)
(1) Unobservable inputs were weighted based on the relative fair value of the clinical and regulatory milestone payments. For the commercial milestones, the Company used a Monte Carlo simulation because of the availability of discrete revenue forecasts. As of September 30, 2022, the Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecasts, as well as the following significant unobservable inputs for the remaining commercial milestones related to VIR-3434:
Unobservable input |  | Value
Volatility |  | 90.0%
Discount rate |  | 12.0%
Probability of achievement |  | 26.0%
The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. As of September 30, 2022 and December 31, 2021, the estimated fair value of the contingent consideration related to the Humabs acquisition was $29.6 million and $17.1 million, respectively, with changes in the estimated fair value recorded in research and development expenses and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations based on the nature of the relevant underlying activities. The estimated fair value of the contingent consideration related to the TomegaVax acquisition was determined by using a Monte Carlo simulation model which included estimates of both the probability and timing to achieve the required per-share price of the Company’s common stock, and incorporates assumptions as to expected volatility and discount rate. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. Although the TomegaVax acquisition was accounted for as an asset acquisition, such contingent consideration met the definition of an embedded derivative financial instrument. As of September 30, 2022, the fair value of the remaining contingent consideration was estimated using the following significant unobservable inputs:
Unobservable input |  | Value
Volatility |  | 90.0%
Risk-free rate |  | 4.1%
As of September 30, 2022 and December 31, 2021, the estimated fair value of the contingent consideration related to the TomegaVax acquisition was $1.1 million and $5.7 million, respectively, with changes in the estimated fair value recorded in other income (expense), net in the unaudited condensed consolidated statements of operations. The estimated fair value of the contingent consideration related to the Humabs and TomegaVax acquisitions involves significant estimates and assumptions which give rise to measurement uncertainty. The following table sets forth the changes in the estimated fair value of the Company’s contingent consideration (in thousands):
|  | Contingent Consideration |
Balance at December 31, 2021 |  | $ | 22,822 |
Changes in fair value |  |  | 7,890 |
Balance at September 30, 2022 |  | $ | 30,712 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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