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Fair Value of Financial Assets and Liabilities | 9 Months Ended
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Sep. 30, 2021
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 September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Short-term investments |  | $ | 49,729 |  |  |  | 49,729 |  |  |  | — |  |  |  | — |
Other asset – advance payment to supplier |  |  | 3,185 |  |  |  | — |  |  |  | — |  |  |  | 3,185 |
Total |  | $ | 52,914 |  |  | $ | 49,729 |  |  | $ | — |  |  | $ | 3,185 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Other asset – advance payment to supplier |  | $ | 3,357 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,357 |
See Note 4 for details on the short-term investments. The other asset above relates to advance payments made to a supplier that were recorded at fair value using DCF analysis as of September 30, 2021 and December 31, 2020. The fair value measurements of these advance payments were determined based on significant unobservable inputs, including a discount rate of 21% as of September 30, 2021 and December 31, 2020, 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 was carried at amortized cost on the condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs utilized to determine the approximate fair value:
September 30, 2021 |  | Book |  |  | Approximate |  |  |  |  |  |  |  |  |  |  |  |  |
Liabilities |  | Value |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Debt |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of long-term debt |  | $ | 3,244 |  |  | $ | 3,244 |  |  |  | — |  |  |  | 3,244 |  |  |  | — |
Exchangeable Notes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term exchangeable note |  |  | 6,134 |  |  |  | 8,685 |  |  |  | — |  |  |  | 8,685 |  |  |  | — |
Derivative liability - exchange option and change of control |  |  | 9,183 |  |  |  | 9,183 |  |  |  | — |  |  |  | — |  |  |  | 9,183 |
Revenue Futures |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term royalty linked notes, less current portion |  |  | 18,403 |  |  |  | 18,403 |  |  |  | — |  |  |  | — |  |  |  | 18,403 |
Total |  | $ | 36,964 |  |  | $ | 39,515 |  |  |  | — |  |  |  | 11,929 |  |  |  | 27,586 |
December 31, 2020 |  | Book |  |  | Approximate |  |  |  |  |  |  |  |  |  |  |  |  |
Liabilities |  | Value |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Debt |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of long-term debt |  | $ | 6,374 |  |  | $ | 6,374 |  |  |  | — |  |  |  | 6,374 |  |  |  | — |
Long-term debt, less current portion |  |  | 1,626 |  |  |  | 1,512 |  |  |  | — |  |  |  | 1,512 |  |  |  | — |
Exchangeable Notes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term exchangeable note |  |  | 20,836 |  |  |  | 31,493 |  |  |  | — |  |  |  | 31,493 |  |  |  | — |
Derivative liability - exchange option and change of control |  |  | 28,865 |  |  |  | 28,865 |  |  |  | — |  |  |  | — |  |  |  | 28,865 |
Revenue Futures |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of royalty-linked notes |  |  | 114 |  |  |  | 114 |  |  |  | — |  |  |  | — |  |  |  | 114 |
Long-term royalty-linked notes, less current portion |  |  | 13,389 |  |  |  | 16,379 |  |  |  | — |  |  |  | — |  |  |  | 16,379 |
Total |  | $ | 71,204 |  |  | $ | 84,737 |  |  |  | — |  |  |  | 39,379 |  |  |  | 45,358 |
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 was 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 was 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 September 30, 2021 consist of the embedded exchange option and change of control premium contained in the Exchangeable Notes (see Note 9 - Debt) and a separate financial instrument, that was issued as part of the Units, the RLNs (see Note 10 – 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. At any time on or after January 21, 2021, subject to specified limitations, the Exchangeable Notes are exchangeable for the Company’s ordinary shares, cash or a combination of ordinary shares and cash, at an exchange rate of 1,286.1845 shares per $1,000 principal and interest on the Exchangeable Notes (equivalent to an exchange price of approximately $0.7775 per ordinary share) as of November 2, 2020, which was adjusted from an initial exchange rate of 1,000 shares per $1,000 principal and interest on the Exchangeable Notes (equivalent to an initial exchange price of $1.00 per ordinary share) and is subject to further adjustment pursuant to the terms of the Exchangeable Notes. Beginning on January 21, 2021 to September 30, 2021, certain noteholders of $39.2 million aggregate principal amount of Exchangeable Notes have exchanged their notes for an aggregate of 53,888,331 of the Company’s ordinary shares, which included accrued and unpaid interest relating to such notes. The aggregate principal amount of Exchangeable Notes outstanding as of September 30, 2021 was $12.6 million. The Derivative liability, representing the exchange option and change of control premium, was recorded at a fair value of $27,038 upon issuance of the Exchangeable Notes under the Private Placement and is subsequently remeasured to fair value at the end of each reporting period. The fair value of the exchange option at September 30, 2021 amounted to $7,174. 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 each holder of an Exchangeable Note 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 Chang e, plus any accrued and unpaid interest. T he Derivative liability, representing the change of control feature, was recorded at a fair value of $2,009 at September 30, 2021. The fair value of each component of the Derivative liability was determined using the binomial option pricing model, and in the case of the change of control component, in combination with a DCF analysis, 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 September 30, 2021 include the terms of the Exchangeable Notes Indenture, the Company’s share price and market capitalization, the expected annual volatility of the Company’s ordinary shares, management’s assumption regarding the probability of a Fundamental Change pursuant to the terms of the Exchangeable Notes Indenture, and the risk-free interest 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 nine months ended September 30, 2021:
Balance at December 31, 2020 | $ | 28,865 |
Conversion of Exchangeable Notes |  | (80,512 | )
Adjustment to fair value |  | 60,830 |
Balance at September 30, 2021 | $ | 9,183 |
The following summary table shows the assumptions used in the binomial option pricing model to estimate the fair value of the Derivative liabilities:
|  | September 30, 2021 |  |  | December 31, 2020 |
Share price |  | $ | 0.558 |  |  | $ | 0.989 |
Market capitalization |  | $ | 101,887,609 |  |  | $ | 48,887,287 |
Volatility |  |  | 140 | % |  |  | 120 | %
Risk-free interest rate |  |  | 0.60 | % |  |  | 0.26 | %
Dividend rate |  |  | 0 | % |  |  | 0 | %
The additional significant assumption used in the DCF model, to estimate the fair value of the change of control feature at September 30, 2021, was management’s assumption regarding the probability of a Fundamental Change pursuant to the terms of the Exchangeable Notes Indenture. The RLN liability is carried at fair value on the condensed consolidated balance sheet as of September 30, 2021 (amortized cost as of December 31, 2020) (see Note 10 – Royalty-Linked Notes). The total fair value of $18,403 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 terms of the RLN Indenture, 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%. 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=123874694&loc=d3e19207-110258 + Details
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