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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2022
Fair Value of Financial Instruments |
Fair Value of Financial Instruments | 4. Fair Value of Financial Instruments Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
| ● | Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
4. Fair Value of Financial Instruments – (continued)
| ● | Level 2 inputs: Inputs, other than quoted prices, included in Level 1 that are observable either directly or indirectly; and
| ● | Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments. In connection with the Acquisition of VCN, the Company will be required pay up to $70.2 million in additional consideration upon the achievement of certain milestones, including regulatory filings completed noted in Note 3. In September 2022 the trial received “safe to proceed” from the FDA for its phase 2 clinical trial of VCN-01. Due to this approval the company will pay Grifols $3.0 million in Q4 2022. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. As of the March 10, 2022 acquisition date, the contingent consideration had a fair value of $12.2 million. The fair value of the contingent consideration was $11.9 million as of September 30, 2022 and is reflected as current accrued contingent consideration of $9.5 million and non-current contingent consideration liability of $2.4 million in the consolidated balance sheet. During the three months ended September 30, 2022 the Company recognized in operating expense a $226,000 fair value adjustment increase to contingent consideration. During the nine months ended September 30, 2022 the Company recognized in operating expense a $257,000 fair value adjustment decrease to contingent consideration. The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | As of March 10, 2022
Description |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Liabilities: |  | ​ |  |  |  |  |  |  | ​ |
Contingent consideration | ​ | $ | 12,159 |  | — |  | — | ​ | $ | 12,159
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | As of September 30, 2022
Description |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Liabilities: |  | ​ |  |  |  |  |  |  | ​ |
Contingent consideration | ​ | $ | 11,902 |  | — |  | — | ​ | $ | 11,902
​ The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the nine months ended September 30, 2022 (in thousands): ​
​ | ​ | ​ | ​
​ |  | Contingent
​ | ​ | Consideration
Balance at March 10, 2022 | ​ | $ | 12,159
Change in fair value | ​ |  | (257)
Balance at September 30, 2022 | ​ | $ | 11,902
​ 4. Fair Value of Financial Instruments – (continued) The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of March 10, 2022 |
​ | ​ | Valuation | ​ | Significant | ​ | Weighted Average |
​ |  | Methodology |  | Unobservable Input |  | (range, if applicable) |
Contingent Consideration |  | Probability weighted |  | Milestone dates |  | 2022-2027 | ​
​ |  | income approach | ​ | ​ | ​ | ​ | ​
​ |  |  |  | Discount rate |  | 7.3% to 8.6% | ​
​ |  |  |  | Weighted Average Discount rate |  | 7.77% | ​
​ |  |  |  | Probability of Occurrence (periodic for each Milestone) |  | 9.9% to 82.4% | ​
​ |  |  |  | Probability of occurrence (cumulative through each Milestone) |  | 5.1% to 62.8% | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | As of September 30, 2022 |
​ | ​ | Valuation | ​ | Significant | ​ | Weighted Average |
​ |  | Methodology |  | Unobservable Input |  | (range, if applicable) |
Contingent Consideration |  | Probability weighted |  | Milestone dates |  | 2022-2027 | ​
​ | ​ | income approach | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | Discount rate | ​ | 12.4% to 13.6% | ​
​ | ​ | ​ | ​ | Weighted Average Discount rate | ​ | 13.0% | ​
​ | ​ | ​ | ​ | Probability of Occurrence (periodic for each Milestone) | ​ | 9.9% to 82.4% | ​
​ |  | ​ |  | Probability of occurrence (cumulative through each Milestone) | ​ | 5.1% to 62.8% | ​
​

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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