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Fair Value Measurements

3 Months Ended

Mar. 31, 2024

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

The fair values of financial instruments are classified into one of the following categories based upon the lowest level of input that is significant to the fair value measurement:

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Level 1 — Quoted prices in active markets for identical assets or liabilities.

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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.

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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 fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.

Unrealized gains and losses on available-for-sale debt securities are reported as a component of accumulated comprehensive income (loss), with the exception of unrealized losses believed to be related to credit losses, if any, which are recognized in earnings in the period the impairment occurs. Impairment assessments are made at the individual

security level each reporting period. When the fair value of an available-for-sale debt investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is related to a credit loss and, if it is, the portion of the impairment relating to credit loss is recorded as an allowance through net income. Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net, in the condensed consolidated statements of operations based on the specific identification method.

In connection with the acquisition (the “Surface Acquisition”) of Surface Oncology, Inc. (“Surface”) on September 8, 2023 (see Note 6. Acquisition and Disposition), the Company recorded a contingent consideration liability related to CVRs issued in connection with the acquisition. The fair value of the CVR liability was determined using a Monte Carlo simulation-based model discounted to present value and represents a Level 3 measurement within the fair value hierarchy. Assumptions used in this calculation include estimated revenue, discount rate and various probability factors. If different assumptions were used for the various inputs, the estimated fair value could be significantly higher or lower than the fair value the Company determined. For example, increases in discount rates and the time to payment may result in lower fair value measurements. There is no assurance that any of the conditions for payment of the CVR liability will be met. During the three months ended March 31, 2024, the Company impaired the out-licensed partnership program with Novartis Institutes (NZV930), which resulted in a net impairment charge of $6.8 million in selling, general and administrative expenses in the condensed consolidated statements of operations relating to the write-off of the net carrying value of the Novartis Institutes out-license intangible asset of $10.6 million and the final remeasurement of the CVR liability of $3.8 million to its fair value of zero. The remaining CVR liability associated with GSK of $0.5 million and other contingent consideration are recorded in other liabilities, non-current on the condensed consolidated balance sheets at March 31, 2024.

Financial liabilities related to long-term debt obligations are summarized in Note 8. Debt Obligations. Other financial liabilities and financial assets measured at fair value on a recurring basis are summarized as follows:


		Fair Value Measurements
		March 31, 2024
(in thousands)		Level 1			Level 2			Level 3			Total
Financial Assets:
Cash equivalents⁽¹⁾		$	259,413		$	—		$	—		$	259,413
Prepaid financial instrument in Prepaid manufacturing⁽²⁾			—			—			432			432
Total		$	259,413		$	—		$	432		$	259,845
Financial Liabilities:
Contingent consideration		$	—		$	—		$	632		$	632


		Fair Value Measurements
		December 31, 2023
(in thousands)		Level 1			Level 2			Level 3			Total
Financial Assets:
Cash equivalents⁽¹⁾		$	88,460		$	998		$	—		$	89,458
Marketable debt securities:
U.S. government agency securities			5,195			—			—			5,195
U.S. treasury securities			2,993			—			—			2,993
Commercial paper and corporate notes			—			6,669			—			6,669
Prepaid financial instrument in Prepaid manufacturing⁽²⁾			—			—			625			625
Total		$	96,648		$	7,667		$	625		$	104,940
Financial Liabilities:
Contingent consideration		$	—		$	—		$	4,472		$	4,472

(1)	Cash equivalents consist of money market funds, U.S treasury securities and commercial paper and corporate notes with original maturities of 90 days or less.

(2)	Relates to Optional Stock Purchase Agreement as described in the Company’s 2023 Form 10-K.

Proceeds from the divestiture of the CIMERLI ophthalmology franchise received in March were used to pay down $175.0 million out of the total principal balance of $250.0 million on the Company’s 2027 Term Loans in April 2024 (see Note 13. Subsequent Events).

The cost, unrealized gains or losses, and fair value by investment type are summarized as follows:


		March 31, 2024
(in thousands)		Cost			Unrealized Gain			Unrealized (Loss)			Fair Value
Money market funds		$	259,413		$	—		$	—		$	259,413
Total		$	259,413		$	—		$	—		$	259,413


		December 31, 2023
(in thousands)		Cost			Unrealized Gain			Unrealized (Loss)			Fair Value
Money market funds		$	79,484		$	—		$	—		$	79,484
U.S. government agency securities			5,200			—			(5)			5,195
U.S. treasury securities			11,967			2			—			11,969
Commercial paper and corporate notes			7,673			—			(6)			7,667
Total		$	104,324		$	2		$	(11)		$	104,315

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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