Investments and Fair Value Measurements

12 Months Ended

Dec. 31, 2022

The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Consolidated Balance Sheets:


	December 31, 2022
	Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
			Level 1		Level 2		Level 3
Assets:
Commercial paper	$	20,020,000	$	—	$	20,020,000	$	—
Corporate notes/bonds	86,094,000		—		86,094,000		—
Securities of government sponsored entities	1,981,000				1,981,000
Total investments:	$	108,095,000	$	—	$	108,095,000	$	—
Money market funds	$	1,868,000	$	1,868,000	$	—	$	—
Liabilities:
Contingent consideration	$	22,352,000	$	—	$	—	$	22,352,000


	December 31, 2021
	Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
			Level 1		Level 2		Level 3
Assets:
Commercial paper	$	100,860,000	$	—	$	100,860,000	$	—
Corporate notes/bonds	125,181,000		—		125,181,000		—
Securities of government sponsored entities	—		—		—		—
Total investments:	$	226,041,000	$	—	$	226,041,000	$	—
Money market funds	$	11,126,000	$	11,126,000	$	—	$	—
Liabilities:
Contingent consideration	$	9,066,000	$	—	$	—	$	9,066,000

Money Market Funds are classified as cash equivalents on the balance sheet.

Contingent consideration relates to the acquisitions of BioDiscovery and Purigen. The outcome of the milestone consideration for all contingent consideration liabilities is binary, meaning the milestones are either achieved or not achieved, and the only other variable factor is the timing of when the milestones are achieved. The fair value measurement of the contingent consideration liabilities is based on significant inputs not observed in the market (Level 3 inputs). These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect the Company’s assumptions in measuring fair value.

The fair value of the BioDiscovery contingent consideration liability is reassessed on a quarterly basis using a probability weighted model. Assumptions used to estimate the acquisition date fair value of the contingent consideration related to the acquisition of BioDiscovery include the probability of achieving, or changes in timing, of certain milestones, and a discount rate. During the years ended December 31, 2022 and December 31, 2021, a discount rate of 3% was used. The Company determined the fair value of the BioDiscovery milestone consideration using a scenario-based technique, as the trigger for

payment is event driven. The Company determined it is highly likely that the milestone related to the BioDiscovery acquisition will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration. The change in fair value of the contingent consideration during the years ended December 31, 2022 and December 31, 2021 was due to the passage of time. During the year ended December 31, 2022, the milestone consideration liability related to the BioDiscovery acquisition was reclassified from non-current liabilities to current liabilities.

Contingent consideration liabilities related to the Purigen milestones are related to the achievement of two independent milestones with aggregate possible milestone payments totaling $32.0 million.

The fair value of the Purigen milestones are reassessed on a quarterly basis using a probability weighted model and a Monte Carlo Simulation. Assumptions used to estimate the acquisition date fair value of the milestones using a probability weighted model include the probability of achieving, or changes in timing, of independent milestones, and a discount rate of 15.3%. The Company determined the fair value of this milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The Company determined the likelihood of each independent milestone and used probability factors ranging from 20% to 80% which were applied to the individual payments. A Monte Carlo Simulation was performed to determine the likelihood that the milestone will be achieved and was applied to the milestone consideration payment.

Changes in estimated fair value of contingent consideration liability in the year ended December 31, 2022 is as follows:


	Contingent Consideration Liability (Level 3 Measurement)
Balance as of December 31, 2021	$	9,066,000
Liability recorded as a result of current period acquisition	12,970,000
Change in estimated fair value, recorded in selling, general and administrative expenses	316,000
Cash payments	—
Balance as of December 31, 2022	$	22,352,000

Changes in estimated fair value of contingent consideration liability in the year ended December 31, 2021 is as follows:


	Contingent Consideration Liability (Level 3 Measurement)
Balance as of December 31, 2020	$	—
Liability recorded as a result of current period acquisition	9,000,000
Change in estimated fair value, recorded in selling, general and administrative expenses	66,000
Cash payments	—
Balance as of December 31, 2021	$	9,066,000

As of December 31, 2022, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:


	Commercial Paper				Corporate Notes/Bonds				Securities of Government Sponsored Entities
	Amortized Cost		Unrealized Gain (Loss)		Amortized Cost		Unrealized Gain (Loss)		Amortized Cost		Unrealized Gain (Loss)
Less than 1 year	$	20,093,000	$	(73,000)	$	72,823,000	$	(910,000)	$	1,998,000	$	(16,000)
Due after one year through five years	—		—		14,268,000		(88,000)		—		—
Total	$	20,093,000	$	(73,000)	$	87,091,000	$	(998,000)	$	1,998,000	$	(16,000)

As of December 31, 2021, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:


	Commercial Paper				Corporate Notes/Bonds				Securities of Government Sponsored Entities
	Amortized Cost		Unrealized Gain (Loss)		Amortized Cost		Unrealized Gain (Loss)		Amortized Cost		Unrealized Gain (Loss)
Less than 1 year	$	100,929,000	$	(69,000)	$	41,173,000	$	(61,000)	$	—	$	—
Due after one year through five years	—		—		84,478,000		(409,000)		—		—
Total	$	100,929,000	$	(69,000)	$	125,651,000	$	(470,000)	$	—	$	—

As of December 31, 2022, the following table summarizes available-for-sale securities in an unrealized loss position:


	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Commercial paper	$	20,020,000	$	(73,000)	$	—	$	—	$	20,020,000	$	(73,000)
Corporate Notes/Bonds	9,661,000		(27,000)		74,452,000		(971,000)		84,113,000		(998,000)
Securities of Government Sponsored Entities	1,981,000		(16,000)		—		—		1,981,000		(16,000)
Total	$	31,662,000	$	(116,000)	$	74,452,000	$	(971,000)	$	106,114,000	$	(1,087,000)

As of December 31, 2021, the following table summarizes available-for-sale securities in an unrealized loss position:


	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Commercial paper	$	100,860,000	$	(69,000)	$	—	$	—	$	100,860,000	$	(69,000)
Corporate Notes/Bonds	125,181,000		(470,000)		—		—		125,181,000		(470,000)
Securities of Government Sponsored Entities	—		—		—		—		—		—
Total	$	226,041,000	$	(539,000)	$	—	$	—	$	226,041,000	$	(539,000)

As of December 31, 2022, the Company held 16 securities which have been in an unrealized loss position for a period of less than 12 months. As of December 31, 2022, the Company held 24 securities which have been in an unrealized loss position for a period of greater than 12 months. As of December 31, 2021, the Company held 57 securities which had been in an unrealized loss position for a period of less than 12 months. There were no securities in an unrealized loss position for a period greater than 12 months as of December 31, 2021.

As of December 31, 2022 and December 31, 2021, the Company did not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. The credit ratings of the securities held remain of high quality, and the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. As such, the Company has not recognized any impairment in its financial statements related to its available for sale investment securities.

During the year ended December 31, 2022, the Company received proceeds of $22.8 million relating to sales of its available for sale securities, and recognized a loss of $0.1 million in other income relating to the sale of these securities. During the year ended December 31, 2021, the Company recognized a loss of $0.01 million in other income relating to the maturity of its securities. Amounts are reclassified out of accumulated other comprehensive income into earnings using the specific identification method.

Included in interest income for the year ended December 31, 2022 was interest income related to the Company’s available for sale securities of $1.5 million. Included in interest income for the year ended December 31, 2021 was interest income related to the Company’s available for sale securities of $0.4 million. All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.

- 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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