Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.21.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 4: Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term investments, warrants, and contingent consideration. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company has classified assets and liabilities measured at fair value on a recurring basis as follows:

 

 

 

Fair value measurements at reporting date using

 

 

 

Quoted prices
in active
markets for
identical
assets
(Level 1)

 

 

Significant
other
observable
inputs
(Level 2) 

 

 

Significant
unobservable
inputs
(Level 3)

 

At June 30, 2021:

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (See Note 5)

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

17,386

 

 

$

—

 

 

$

—

 

Commercial paper

 

 

—

 

 

 

4,879

 

 

 

—

 

Total cash equivalents

 

$

17,386

 

 

$

4,879

 

 

$

—

 

Short-term investments (See Note 5)

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

—

 

 

 

12,147

 

 

 

—

 

Total financial assets

 

$

17,386

 

 

$

17,026

 

 

$

—

 

Liabilities:

 

 

 

 

 

 

 

 

 

Warrants (See Note 13(c))

 

$

—

 

 

$

—

 

 

$

24

 

Contingent consideration (See Note 12(b))

 

 

—

 

 

 

—

 

 

 

62,896

 

 

$

—

 

 

$

—

 

 

$

62,920

 

 

 

 

 

 

 

 

 

 

At December 31, 2020:

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (See Note 5)

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

24,210

 

 

$

—

 

 

$

—

 

Commercial paper

 

 

—

 

 

 

4,500

 

 

 

—

 

Total cash equivalents

 

$

24,210

 

 

$

4,500

 

 

$

—

 

Liabilities:

 

 

 

 

 

 

 

 

 

Warrants (See Note 13(c))

 

$

—

 

 

$

—

 

 

$

65

 

Contingent consideration (See Note 12(b))

 

 

—

 

 

 

—

 

 

 

65,043

 

 

$

—

 

 

$

—

 

 

$

65,108

 

 

The reconciliation of the warrant liability and contingent consideration measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

 

 

 

Warrants

 

 

Contingent
Consideration

 

Balance at December 31, 2019

 

$

—

 

 

$

66,358

 

Additions

 

 

8,111

 

 

 

—

 

Exercise of warrants

 

 

(2,922

)

 

 

—

 

Payment of contingent consideration

 

 

—

 

 

 

(3,560

)

Remeasurement

 

 

16,734

 

 

 

2,245

 

Reclassification to equity upon warrant exchange

 

 

(21,858

)

 

 

—

 

Balance at December 31, 2020

 

$

65

 

 

$

65,043

 

Payment of contingent consideration

 

 

—

 

 

 

(7,869

)

Remeasurement

 

 

(41

)

 

 

5,722

 

Total at June 30, 2021

 

$

24

 

 

$

62,896

 

 

 

 

 

 

 

Current portion as of June 30, 2021

 

$

—

 

 

$

6,098

 

Long-term portion as of June 30, 2021

 

 

24

 

 

 

56,798

 

 

 

See Note 13(c) for the significant assumptions and inputs used to determine the fair value of liability classified warrants.

Based on the amended terms of the Alkermes agreement (see Note 12(b)), the remaining contingent consideration payments include the second components, which became payable upon regulatory approval, and includes remaining payments of $45,000 payable in seven equal annual payments of approximately $6,400 of which the first payment was made in February 2021, the first anniversary of such approval. The third component consists of three potential payments, based on the achievement of specified annual revenue targets, the last of which represents over 60% of these milestone payments and currently does not have a fair value assigned to its achievement. The fourth component consists of a royalty payment between 10% and 12% (subject to a 30% reduction when no longer covered by patent) for a defined term on future injectable meloxicam net sales. The fair value of the remaining second consideration component is estimated by applying a risk-adjusted discount rate to the scheduled remaining payments. The fair value of the third contingent consideration component is estimated using the Monte Carlo simulation method and applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections based upon the expected revenue target attainment dates. The fair value of the fourth contingent consideration component is estimated by applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections and the defined royalty percentage. As of June 30, 2021, the fair value calculations used discount rates in the range of 17.53% to 36.44%, with a weighted average of 27.36%.

The fair value of the contingent consideration liability is measured using inputs and assumptions as of the date of the financial statements. The current portion of the contingent consideration represents the estimated probability-adjusted fair value that is expected to become payable within one year as of June 30, 2021. Events and circumstances impacting the fair value of the liability that occur after the balance sheet date, but before the date that the financial statements are available to be issued, are adjusted in the period during which such events and circumstances occur.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value through the results of operations.

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments”, for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of June 30, 2021, the financial assets and liabilities recorded on the Consolidated Balance Sheets that are not measured at fair value on a recurring basis include accounts receivable, accounts payable and accrued expenses, which approximate fair value due to the short-term nature of these instruments. The fair value of debt, where a quoted market price is not available, is evaluated based on, among other factors, interest rates currently available to the Company for debt with similar terms, remaining payments and considerations of the Company’s creditworthiness. The Company determined that the recorded book value of debt approximated fair value at June 30, 2021 due to the fact that the debt arrangements reflect market terms from recent transactions.