Baudax Bio, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value of Financial Instruments

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

(6)	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 and the 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:

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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

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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 December 31, 2018:
Liabilities:
Contingent consideration (See Note 4)	$	—	$	—	$	90,912
	$	—	$	—	$	90,912
At December 31, 2019:
Assets:
Cash equivalents
Money market mutual funds (See Note 7)	$	16,514	$	—	$	—
Total cash equivalents	$	16,514	$	—	$	—
Liabilities:
Contingent consideration (See Note 4)	$	—	$	—	$	66,358
	$	—	$	—	$	66,358

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

	Contingent Consideration
Balance at December 31, 2017	$	82,413
Remeasurement		8,499
Balance at December 31, 2018	$	90,912

Payment of contingent consideration		(10,000	)
Remeasurement		(14,554	)
Total at December 31, 2019	$	66,358

Current portion as of December 31, 2019		3,592
Long-term portion as of December 31, 2019	$	62,766

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 December 31, 2019 (see Note 4 for additional information). The Company plans to reevaluate this classification as it progresses discussions with the FDA regarding the December 2019 resubmission of its NDA and approaches the new PDUFA date of February 20, 2020.

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of December 31, 2019, the financial assets and liabilities recorded on the Consolidated and Combined Balance Sheets that are not measured at fair value on a recurring basis include accounts payable and accrued expenses and approximate fair value due to the short-term nature of these instruments.

- 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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