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Fair value of financial instruments and marketable securities

3 Months Ended

Mar. 31, 2024

Fair Value Disclosures [Abstract]

Fair value of financial instruments and marketable securities

4. Fair value of financial instruments and marketable securities

The Company follows the fair value measurement rules, which provideguidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

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Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.

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Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

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Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Cash equivalents and marketable securities are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and accounts payable and accrued expenses approximates fair value due to the short-term nature of those instruments.

The Company owns common stock in ClearPoint Neuro, Inc. (“ClearPoint”) (formerly MRI Interventions, Inc.), a publicly traded medical device company. The ClearPoint equity investments (collectively, the “ClearPoint Equity Investments”) represent financial instruments, and therefore, are recorded at fair value, which is readily determinable. The ClearPoint Equity Investments are components of prepaids and other current assets on the consolidated balance sheet as of March 31, 2024 and December 31, 2023. The Company classifies the ClearPoint Equity Investments as Level 1 assets within the fair value hierarchy, as the value is based on a quoted market price in an active market, which is not adjusted.

In January 2020, the Company purchased a $10.0 million convertible note from ClearPoint that the Company can convert into ClearPoint shares at a conversion rate of $6.00 per share at any point throughout the term of the loan, which matures five years from the purchase date. The Company determined that the convertible note represents an available for sale debt security and the Company has elected to record it at fair value under ASC 825. The Company classifies its ClearPoint convertible debt security as a Level 2 asset within the fair value hierarchy, as the value is based on inputs other than quoted prices that are observable. The fair value of the ClearPoint convertible debt security is determined at each reporting period by utilizing a Black-Scholes option pricing model, as well as a present value of expected cash flows from the debt security utilizing the risk free rate and the estimated credit spread as of the valuation date as the discount rate. The convertible debt security is included as a component of prepaids and other current assets on the consolidated balance sheet as of March 31,

2024 and as a component of deposits and other assets as of December 31, 2023. Other than the ClearPoint Equity Investments and the ClearPoint convertible debt security, no other items included in prepaids and other current assets on the consolidated balance sheets are fair valued.

The Company has investments in mutual funds, including one that is denominated in a foreign currency. All of these are equity investments and are classified as marketable securities on the Company’s consolidated balance sheets. These equity investments are reported at fair value, as they are readily available, and as such are classified as Level 1 assets. Unrealized holding gains and losses for these equity investments are included as components of other expense, net within the consolidated statement of operations.

The table presented below is a summary of changes in the fair value for the Company’s marketable securities – equity investments, ClearPoint Equity Investments, and ClearPoint convertible debt security for the three months ended March 31, 2024 and March 31, 2023:


		Ending						Foreign									Ending
		Balance at						Currency									Balance at
		December 31,			Unrealized			Unrealized			Investments			Redemptions/			March 31,
		2023			Gain			Loss			Purchased			Sale			2024
Marketable securities - equity investments		$	22,634			710			(823)			9,065			(1,207)		$	30,379
ClearPoint Equity Investments			6,074			9			—			—			—			6,083
ClearPoint convertible debt security			12,553			166			—			—			—			12,719
Total Fair Value		$	41,261		$	885		$	(823)		$	9,065		$	(1,207)		$	49,181


		Ending						Foreign									Ending
		Balance at						Currency									Balance at
		December 31,			Unrealized			Unrealized			Investments			Redemptions/			March 31,
		2022			Gain/(Loss)			Gain			Purchased			Sale			2023
Marketable securities - equity investments		$	108,261			2,166			328			—			(2,196)		$	108,559
ClearPoint Equity Investments			10,965			(39)			—			—			—			10,926
ClearPoint convertible debt security			15,231			59			—			—			—			15,290
Total Fair Value		$	134,457		$	2,186		$	328		$	—		$	(2,196)		$	134,775

Fair value of marketable securities that are classified as available for sale debt securities is based upon market prices using quoted prices in active markets for identical assets quoted on the last day of the period. In establishing the estimated fair value of the remaining available for sale debt securities, the Company used the fair value as determined by its investment advisors using observable inputs other than quoted prices.

The following represents the fair value using the hierarchy described above for the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:


		March 31, 2024
					Quoted prices			Significant
					in active			other			Significant
					markets for			observable			unobservable
					identical assets			inputs			inputs
		Total			(level 1)			(level 2)			(level 3)
Marketable securities - available for sale		$	306,079		$	—		$	306,079		$	—
Marketable securities - equity investments		$	30,379		$	30,379		$	—		$	—
ClearPoint Equity Investments		$	6,083		$	6,083		$	—		$	—
ClearPoint convertible debt security		$	12,719		$	—		$	12,719		$	—
Contingent consideration payable- development and regulatory milestones		$	26,900		$	—		$	—		$	26,900
Contingent consideration payable- net sales milestones		$	9,300		$	—		$	—		$	9,300


		December 31, 2023
					Quoted prices			Significant
					in active			other			Significant
					markets for			observable			unobservable
					identical assets			inputs			inputs
		Total			(level 1)			(level 2)			(level 3)
Marketable securities - available for sale		$	260,104		$	—		$	260,104		$	—
Marketable securities - equity investments		$	22,634		$	22,634		$	—		$	—
ClearPoint Equity Investments		$	6,074		$	6,074		$	—		$	—
ClearPoint convertible debt security		$	12,553		$	—		$	12,553		$	—
Contingent consideration payable- development and regulatory milestones		$	26,600		$	—		$	—		$	26,600
Contingent consideration payable- net sales milestones and royalties		$	9,700		$	—		$	—		$	9,700

No transfers of assets between Level 1, Level 2, or Level 3 of the fair value measurement hierarchy occurred during the periods ended March 31, 2024 and December 31, 2023.

The following is a summary of marketable securities accounted for as available for sale debt securities at March 31, 2024 and December 31, 2023:


		March 31, 2024
		Amortized			Gross Unrealized
		Cost			Gains			Losses			Fair Value
Commercial paper		$	132,080		$	26		$	(121)		$	131,985
Government Obligations			174,118			41			(65)			174,094
Total		$	306,198		$	67		$	(186)		$	306,079


		December 31, 2023
		Amortized			Gross Unrealized
		Cost			Gains			Losses			Fair Value
Commercial paper		$	117,044		$	128		$	(12)		$	117,160
Corporate debt securities			1,650			—			(2)			1,648
Government Obligations			141,084			212			—			141,296
Total		$	259,778		$	340		$	(14)		$	260,104

For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. For the three months ended March 31, 2024 and 2023, no write downs occurred. The Company does not intend to sell the 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, which may be maturity. The Company also reviews its available for sale debt securities in an unrealized loss position and evaluates whether the decline in fair value has resulted from credit losses or other factors. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. For the three months ended March 31, 2024 and 2023, no allowance was recorded for credit losses. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ deficit.

For the three months ended March 31, 2024 and 2023, the Company did not have any realized gains or losses from the sale of available for sale debt securities. Realized gains and losses are reported as a component of interest expense, net in the consolidated statement of operations. Reclassified amounts from other comprehensive items were determined using the actual realized gains and losses from the sales of marketable securities.

The unrealized losses and fair values of available for sale debt securities that have been in an unrealized loss position for a period of less than and greater than or equal to 12 months as of March 31, 2024 are as follows:


		March 31, 2024
		Securities in an unrealized loss						Securities in an unrealized loss
		position less than 12 months						position greater than or equal to 12 months						Total
		Unrealized losses			Fair Value			Unrealized losses			Fair Value			Unrealized losses			Fair Value
Commercial paper		$	(121)			73,250			—			—			(121)			73,250
Government bonds		$	(65)			40,302			—			—			(65)		$	40,302
Total		$	(186)		$	113,552		$	—		$	—		$	(186)		$	113,552

The unrealized losses and fair values of available for sale debt securities that have been in an unrealized loss position for a period of less than and greater than or equal to 12 months as of December 31, 2023 are as follows:


		December 31, 2023
		Securities in an unrealized loss						Securities in an unrealized loss
		position less than 12 months						position greater than or equal to 12 months						Total
		Unrealized losses			Fair Value			Unrealized losses			Fair Value			Unrealized losses			Fair Value
Commercial paper		$	(12)			44,446			—			—			(12)			44,446
Corporate debt securities		$	—			—			(2)			1,648			(2)		$	1,648
Total		$	(12)		$	44,446		$	(2)		$	1,648		$	(14)		$	46,094

Available for sale debt securities at March 31, 2024 and December 31, 2023 mature as follows:


		March 31, 2024
		Less Than			More Than
		12 Months			12 Months
Commercial paper		$	131,985		$	—
Government obligations			174,094			—
Total		$	306,079		$	—


		December 31, 2023
		Less Than			More Than
		12 Months			12 Months
Commercial paper		$	117,160		$	—
Corporate debt securities			1,648			—
Government obligations			141,296			—
Total		$	260,104		$	—

The Company classifies all of its marketable securities as current as they are all either available for sale debt securities or equity investments and are available for current operations.

Convertible senior notes

In September 2019, the Company issued $287.5 million of 1.50% convertible senior notes due September 15, 2026 (the “2026 Convertible Notes,”). The fair value of the 2026 Convertible Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the 2026 Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the 2026 Convertible Notes at March 31, 2024 and December 31, 2023 was $267.7 million and $265.3 million, respectively.

Level 3 valuation

The contingent consideration payable is fair valued each reporting period with the change in fair value recorded as a gain or loss within the change in the fair value of contingent consideration on the consolidated statements of operations. The fair value of the development and regulatory milestones is estimated utilizing a probability adjusted, discounted cash flow

approach. The discount rates are estimated utilizing Corporate B rated bonds maturing in the years of expected payments based on the Company’s estimated development timelines for the acquired product candidate. The fair value of the net sales milestones is determined utilizing a valuation framework that estimates net sales volatility to simulate a range of possible payment scenarios. The average of the payments in these scenarios is then discounted to calculate present fair value. As of March 31, 2024, the contingent consideration balance, consisting solely of the Upstaza intangible asset, is $36.2 million.

As of March 31, 2024, the weighted average discount rate for the Upstaza development and regulatory milestones was 6.0% and the weighted average probability of success was 90%. As of March 31, 2024, the weighted average discount rate for the Upstaza net sales milestones was 13.5% and the weighted average probability of success for the net sales milestones was 93%.

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the contingent consideration payable for the periods ended March 31, 2024 and March 31, 2023:


		Level 3 liabilities
		Contingent consideration payable-			Contingent consideration payable-
		development and regulatory			net sales milestones and royalties
		milestones
Beginning balance as of December 31, 2023		$	26,600		$	9,700
Additions			—			—
Change in fair value			300			(400)
Payments			—			—
Ending balance as of March 31, 2024		$	26,900		$	9,300


		Level 3 liabilities
		Contingent consideration payable-			Contingent consideration payable-
		development and regulatory			net sales milestones and royalties
		milestones
Beginning balance as of December 31, 2022		$	82,500		$	81,500
Additions			—			—
Change in fair value			3,000			(600)
Payments			—			—
Ending balance as of March 31, 2023		$	85,500		$	80,900

The following significant unobservable inputs were used in the valuation of the contingent consideration payable for the periods ended March 31, 2024 and December 31, 2023:


		March 31, 2024
		Fair Value		Valuation Technique		Unobservable Input		Range
Contingent consideration payable- development and regulatory milestones		$26,900		Probability-adjusted discounted cash flow		Potential development and regulatory milestones Probabilities of success Discount rates Projected years of payments		$0 - $31 million 85% - 92% 5.9% - 6.2% 2024 - 2026
Contingent considerable payable- net sales milestones and royalties		$9,300		Option-pricing model with Monte Carlo simulation		Potential net sales milestones Probabilities of success Potential percentage of net sales for royalties Discount rate Projected years of payments		$0 - $50 million 85% - 100% 0% 13.5% 2026 - 2034


		December 31, 2023
		Fair Value		Valuation Technique		Unobservable Input		Range
Contingent consideration payable- development and regulatory milestones		$26,600		Probability-adjusted discounted cash flow		Potential development and regulatory milestones Probabilities of success Discount rates Projected years of payments		$0 - $31 million 85% - 92% 5.8% - 6.1% 2024 - 2026
Contingent considerable payable- net sales milestones and royalties		$9,700		Option-pricing model with Monte Carlo simulation		Potential net sales milestones Probabilities of success Potential percentage of net sales for royalties Discount rate Projected years of payments		$0 - $50 million 85% - 100% 0% 11% 2026 - 2034

The contingent consideration payables are classified Level 3 liabilities as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approaches, including but not limited to, assumptions involving probability adjusted sales estimates for the gene therapy platform and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.

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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