FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2021

The Company measures certain financial assets and liabilities at fair value. The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and

Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.


	September 30, 2021
	Level 1		Level 2		Level 3		Total
Financial Assets

Short term investments
Exchange Trade Mutual Funds	$	35,358	$	—	$	—	$	35,358
Corporate Bonds	$	8,209	$	—	$	—	$	8,209
Treasury Bonds	$	4,206	$	—	$	—	$	4,206
Other	$	3,575	$	—	$	—	$	3,575
Financial Liabilities
Contingent Consideration	$	—	$	—	$	34,420	$	34,420

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash Equivalents	$	15,002	$	—	$	—	$	15,002
Short term investments
Exchange Trade Mutual Funds	$	35,208	$	—	$	—	$	35,208
Corporate Bonds	$	9,616	$	—	$	—	$	9,616
Treasury Bonds	$	6,520	$	—	$	—	$	6,520
Other	$	3,797	$	—	$	—	$	3,797
Financial Liabilities
Contingent Consideration	$	—	$	—	$	30,710	$	30,710

The Company's level 1 assets consist of cash equivalents which are generally comprised of short-term, liquid investments with original maturity of three months or less at inception and other short term investments which are comprised of exchange traded mutual funds and marketable securities with a maturity date greater than 3 months.

The Company's Level 3 instruments consist of contingent consideration. The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition and is determined using a discounted cash flow model or probability simulation model. The significant inputs of such models are not always observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement. The adjustments in the fair value of the contingent consideration payments included an income adjustment of $1,430 and an expense adjustment of $3,710 for the three and nine month periods ended September 30, 2021, respectively, in other expenses on the condensed consolidated statements of operations. Additionally, $489 and $1,701 was recognized as interest expense for the three and nine month periods ended September 30, 2021, respectively, on the condensed consolidated statements of operations for the accretion of the acquisition installment payable.

The following table summarizes the change in fair value of Level 3 instruments in 2021:


	Total
Balance at January 1, 2021	$	30,710

Change in fair value of contingent consideration	3,710
Balance at September 30, 2021	$	34,420

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020
Valuation techniques	Discounted cash flow, Monte Carlo
Present value discount rate(1)	25.5	%	25.8	%
Volatility factor	51.0	%	51.8	%
Expected years	2.6 years		3.5 years

(1) The present value discount rate includes estimated risk premium.

The estimated fair value reflects assumptions made by management as of September 30, 2021; however, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration.

- 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.

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