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.

•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.

The following table reflects the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):


September 30, 2023	Financial Statement Classification	Level 1		Level 2		Level 3		Total
Assets:

U.S. Treasuries	Cash and cash equivalents	$	—	$	38,204	$	—	$	38,204

Money market funds	Cash and cash equivalents	22,797		—		—		22,797
Total		$	22,797	$	38,204	$	—	$	61,001
Liabilities:
Short-term contingent consideration	Contingent consideration, current portion	$	—	$	—	$	12,800	$	12,800
Long-term contingent consideration	Contingent consideration	—		—		16,100		16,100
Derivative liability	Long-term debt	—		—		764		764
Total		$	—	$	—	$	29,664	$	29,664


December 31, 2022	Financial Statement Classification	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	Cash and cash equivalents	$	—	$	4,983	$	—	$	4,983
U.S. Treasuries	Cash and cash equivalents	—		3,981		—		3,981
U.S. Government agencies	Cash and cash equivalents	—		10,937		—		10,937
Money market funds	Cash and cash equivalents	38,478		—		—		38,478
Total		$	38,478	$	19,901	$	—	$	58,379
Liabilities:
Short-term contingent consideration	Contingent consideration, current portion	$	—	$	—	$	26,300	$	26,300
Long-term contingent consideration	Contingent consideration	—		—		22,200		22,200
Derivative liability	Long-term debt	—		—		252		252
Total		$	—	$	—	$	48,752	$	48,752

The Company considers all highly liquid investments with a maturity date of purchase of three months or less to be cash equivalents. The Company invests its cash in money market funds and marketable securities including U.S. Treasury and government agency securities, commercial paper, and higher quality debt securities of financial and commercial institutions. The Company classified money market funds as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The Company classified commercial paper, U.S. Treasury and government agency securities as Level 2, as the inputs used to value these instruments are directly observable or can be corroborated by observable market data for substantially the full term of the assets.

Pursuant to the Spectrum Merger, the Company issued CVRs (See Note 2, Acquisitions) that represent a contingent consideration obligation which is measured at fair value. The Company has a contingent obligation to make payments to the holders of the CVRs representing a contractual right to receive consideration worth up to an aggregate maximum amount of $0.20 per CVR, contingent on the achievement of annual sales milestones in 2024 and 2025 of Spectrum’s product ROLVEDON. The Company classified the acquisition-related contingent consideration liabilities as a Level 3 measurement, due to the lack of relevant observable inputs and market activity.

The initial fair value of the CVR determined as of the Effective Date of the Spectrum Merger was $3.9 million. As of September 30, 2023, the fair value of the Company’s CVR liability related to the Spectrum Merger was determined by the

Company to be zero. During both the three and nine months ended September 30, 2023, the Company recognized a benefit of $3.9 million for the change in fair value of the CVR contingent consideration, which was recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. The fair value of the CVR contingent consideration is determined using a Monte Carlo simulation model under the income approach based on the probability of achievement of ROLVEDON net sales milestones using projections of 2024 and 2025 net sales and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2023 included the discount rate of 18.0% and updated projections of future ROLVEDON product net sales, which resulted in no probability of achievement under the Monte Carlo simulation.

Pursuant to the Zyla Merger, the Company assumed a contingent consideration obligation which is measured at fair value. The Company has obligations to make contingent consideration payments for future royalties to an affiliate of CR Group L.P. based upon annual INDOCIN product net sales over $20.0 million at a 20% royalty through January 2029. The Company classified the acquisition-related contingent consideration liabilities to be settled in cash as a Level 3 measurement, due to the lack of relevant observable inputs and market activity. As of September 30, 2023 and December 31, 2022, INDOCIN product contingent consideration was $28.9 million and $48.5 million, respectively, with $12.8 million and $26.3 million classified as current and $16.1 million and $22.2 million classified as long-term contingent consideration, respectively, in the Company’s Condensed Consolidated Balance Sheets.

During the three and nine months ended September 30, 2023, the Company recognized a benefit of $17.5 million and $8.1 million, respectively, for the change in fair value of contingent consideration, which was recognized in Change in fair value of contingent consideration in the Company’s Condensed Consolidated Statements of Comprehensive (Loss) Income. During the three and nine months ended September 30, 2022, the Company recognized an expense of $3.9 million and $6.8 million, respectively, for the change in fair value of contingent consideration. The fair value of the contingent consideration is determined using an option pricing model under the income approach based on estimated INDOCIN product revenues through January 2029 and discounted to present value. The significant assumptions used in the calculation of the fair value as of September 30, 2023 included revenue volatility of 30%, discount rate of 8.5%, credit spread of 3.8% and updated projections of future INDOCIN product revenues.

The following table summarizes changes in fair value of the Company’s contingent consideration obligations that are measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Fair value, beginning of the period	$	42,500	$	36,759	$	48,500	$	37,659
Fair value of contingent consideration incurred in Spectrum Merger	3,932		—		3,932		—
Change in fair value of contingent consideration recorded within costs and expenses	(17,532)		3,900		(8,124)		6,845
Cash payment related to contingent consideration	—		(4,000)		(15,408)		(7,845)
Fair value, end of the period	$	28,900	$	36,659	$	28,900	$	36,659

The Company determined that an embedded conversion feature included in the 2027 Convertible Notes required bifurcation from the host contract and to be recognized as a separate derivative liability carried at fair value. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was $0.8 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively, and was determined using a binomial lattice model using certain assumptions and consideration of an increased conversion ratio on the underlying convertible notes that could result from the occurrence of certain events. Accordingly, the Company has recognized a loss on the fair value adjustment of the derivative liability in the amount of $0.5 million in Other (loss) gain in the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023. There was no gain or loss on the fair value adjustment of the derivative liability for the three and nine months ended September 30, 2022.

The following table summarizes changes in fair value of the derivative liability that is measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 (in thousands):


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Fair value, beginning of the period	$	252	$	252
Change in fair value of derivative liability recorded within Other (loss) gain	512		512
Fair value, end of the period	$	764	$	764

The Company’s other financial assets and liabilities, including trade accounts receivable and accounts payable, are not remeasured to fair value, as the carrying cost of each approximates its fair value. As of September 30, 2023, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $41.8 million, compared to a par value of $40.0 million. As of December 31, 2022, the estimated fair value of the 2027 Convertible Notes, excluding the bifurcated embedded conversion option, was approximately $92.5 million, compared to a par value of $70.0 million. The Company estimated the fair value of its 2027 Convertible Notes as of September 30, 2023 and December 31, 2022 based on a market approach which represents a Level 2 valuation.