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Fair Value of Financial Assets and Liabilities | 6 Months Ended
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Jun. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value of Financial Assets and Liabilities | 3. Fair Value of Financial Assets and Liabilities The following table presents information about the Company’s financial assets that were carried at fair value on a recurring basis on the condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.
June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Other asset – advance payment to supplier |  | $ | 3,756 |  |  |  | — |  |  |  | — |  |  |  | 3,756 |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Other asset – advance payment to supplier |  | $ | 3,884 |  |  |  | — |  |  |  | — |  |  |  | 3,884 |
The other asset above relates to advance payments made to a supplier that were recorded at fair value using DCF analysis as of June 30, 2020 and December 31, 2019. The fair value measurements of these advance payments were determined based on significant unobservable inputs, including discount rates of 21% and 15%, as of June 30, 2020 and December 31, 2019, respectively, and the expected time to recovery of the payment. Changes to the inputs described above are not expected to have a material impact on the company’s financial position and results of operations in any given period. The carrying amounts reported in the condensed consolidated balance sheets for prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments. The following table presents information about the Company’s debt, Exchangeable Notes, Derivative liability and RLNs. The Company’s long-term debt were carried at amortized cost on the condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation inputs utilized to determine the approximate fair value:
June 30, 2020 |  | Book |  |  | Approximate |  |  |  |  |  |  |  |  |  |  |  |  |
Liabilities |  | Value |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Debt |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of long-term debt |  | $ | 5,930 |  |  | $ | 5,930 |  |  |  | — |  |  |  | 5,930 |  |  |  | — |
Long-term debt, less current portion |  |  | 5,366 |  |  |  | 5,079 |  |  |  | — |  |  |  | 5,079 |  |  |  | — |
Exchangeable Notes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term exchangeable note |  |  | 15,565 |  |  |  | 28,578 |  |  |  | — |  |  |  | 28,578 |  |  |  | — |
Derivative liability - exchange option and change of control |  |  | 25,371 |  |  |  | 25,371 |  |  |  | — |  |  |  | — |  |  |  | 25,371 |
Revenue Futures |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of royalty linked notes |  |  | 53 |  |  |  | 53 |  |  |  | — |  |  |  | — |  |  |  | 53 |
Long-term royalty linked notes, less current portion |  |  | 11,826 |  |  |  | 12,993 |  |  |  | — |  |  |  | — |  |  |  | 12,993 |
Total |  | $ | 64,111 |  |  | $ | 78,004 |  |  |  | — |  |  |  | 39,587 |  |  |  | 38,417 |
December 31, 2019 |  | Book |  |  | Approximate |  |  |  |  |  |  |  |  |  |  |  |  |
Liabilities |  | Value |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Current portion of long-term debt |  | $ | 5,800 |  |  | $ | 5,800 |  |  |  | — |  |  |  | 5,800 |  |  |  | — |
Long-term debt, less current portion |  |  | 7,625 |  |  |  | 7,213 |  |  |  | — |  |  |  | 7,213 |  |  |  | — |
Total |  | $ | 13,425 |  |  | $ | 13,013 |  |  |  | — |  |  |  | 13,013 |  |  |  | — |
The book value of the current portion of long-term debt approximates its fair value due to the short-term nature of the balance. The fair value of long-term debt, less current portion were determined using DCF analysis using quoted market interest rates, without consideration of transaction costs, which represents a Level 2 basis of fair value measurement. The counterparty to the long-term debt is a major international financial institution. The fair value of long-term Exchangeable Notes were determined using DCF analysis using the fixed interest rate outlined in the Exchangeable Note indenture, without consideration of transaction costs, which represents a Level 2 basis of fair value measurement. The Level 3 liabilities held as of June 30, 2020 consist of the embedded exchange option and change of control premium contained in the Exchangeable Notes (see Note 8 - Debt) and a separate financial instrument, that was issued as part of the Units, the RLNs (see Note 9 – Royalty-Linked Notes). The exchange option and change of control premium met the criteria requiring these to be bifurcated and accounted for separately from the host debt in accordance with ASC 815-15, Derivatives and Hedging; Embedded Derivatives. The exchange option and change of control premium are presented as a Derivative liability. The Exchangeable Notes are exchangeable for the Company’s ordinary shares, cash or a combination of ordinary shares and cash, at an initial exchange rate of 1,000 shares per $1,000 of principal and interest on the Exchangeable Notes (equivalent to an initial exchange price of approximately $1.00 per ordinary share), at any time beginning on the first anniversary of the issuance of the Exchangeable Notes, subject to specified limitations. The Derivative liability, representing the exchange option, was recorded at a fair value of $27,038 upon issuance of the Exchangeable Notes and is subsequently remeasured to fair value at the end of each reporting period. The fair value of the exchange option at June 30, 2020 amounted to $12,743. In the event of a fundamental change that is not a liquidation event (Fundamental Change), under the Exchangeable Note indenture, the Company will be required to pay the holder of the Exchangeable Notes the greater of three times the outstanding principal amount of such Exchangeable Note and the consideration that would be received by the holder of such Exchangeable Note, in connection with such Fundamental Change, if the holder had exchanged its note for ordinary shares immediately prior to the consummation of such Fundamental Change, plus any accrued and unpaid interest. The Derivative liability, representing the change of control feature, was recorded at a fair value of $12,628 at June 30, 2020. The fair value of each component of the Derivative liability was determined using a valuation technique applying DCF analysis or Black-Scholes in combination with binomial lattice models, without consideration of transaction costs, which represents a Level 3 basis of fair value measurement. The key inputs to valuing the Derivative liability as of June 30, 2020 include the indenture terms of the Exchangeable Notes, the Company’s share price at the exchange date, the expected annual volatility of the Company’s ordinary shares, and a risk-adjusted discount rate. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value. The following table presents the changes in fair value of the Company's Derivative liability for the six months ended June 30, 2020:
Balance at December 31, 2019 | $ | — |
Initial fair value upon issuance of the private placement |  | 27,038 |
Adjustment to fair value |  | (1,667 | )
Balance at June 30, 2020 | $ | 25,371 |
The following summary table shows the assumptions used in the Black-Scholes and binomial lattice pricing models to estimate the fair value of the exchange option:
|  | June 30, 2020 |  |  | January 21, 2020 (Issuance Date) |
Expected term in years |  | 4.55 |  |  | 4.98 |
Volatility |  |  | 120 | % |  |  | 80 | %
Risk-free interest rate |  |  | 0.29 | % |  |  | 1.57 | %
Dividend rate |  |  | 0 | % |  |  | 0 | %
Discount rate |  |  | 21 | % |  |  | 21 | %
The significant assumption used in the DCF model, to estimate the fair value of the change of control feature at June 30, 2020, was a discount rate of 21%. The RLN liability is carried at amortized cost on the condensed consolidated balance sheet as of June 30, 2020 (see Note 9 – Royalty-Linked Notes). The book value of the current portion of the RLN liability approximates its fair value due to the short-term nature of the balance. The total fair value of $13,046 was determined using DCF analysis, without consideration of transaction costs, which represents a Level 3 basis of fair value measurement. The key inputs to valuing the RLNs were the indenture terms of the RLNs, the expected cash flows to be received by holders of the RLNs based on management’s revenue forecasts of U.S. sulopenem sales and a risk-adjusted discount rate to derive the net present value of expected cash flows. The RLNs will be subject to a maximum return amount, including all principal and payments and certain default interest in respect of uncurable defaults, of $160.00 (or 4,000 times the principal amount of such note). The discount rate applied to the model was 21%. The book value of the current portion of the RLN approximates its fair value due to the short-term nature of the balance. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value. There have been no transfers of assets or liabilities between the fair value measurement levels.

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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 http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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