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Fair value measurements
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair value measurements

4. Fair value measurements

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):

 

Description

 

Total

 

 

Quoted

prices in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

216,001

 

 

$

209,309

 

 

$

6,692

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

580,022

 

 

 

 

 

 

580,022

 

 

 

 

Certificates of deposit

 

 

3,846

 

 

 

 

 

 

3,846

 

 

 

 

Total assets

 

$

799,869

 

 

$

209,309

 

 

$

590,560

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

9,189

 

 

$

 

 

$

 

 

$

9,189

 

Total liabilities

 

$

9,189

 

 

$

 

 

$

 

 

$

9,189

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

278,887

 

 

$

278,887

 

 

$

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

599,460

 

 

 

 

 

 

599,460

 

 

 

 

Certificates of deposit

 

 

6,483

 

 

 

 

 

 

6,483

 

 

 

 

Total assets

 

$

884,830

 

 

$

278,887

 

 

$

605,943

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

7,756

 

 

$

 

 

$

 

 

$

7,756

 

Total liabilities

 

$

7,756

 

 

$

 

 

$

 

 

$

7,756

 

 

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. As of March 31, 2017, cash and cash equivalents comprise funds in cash, money market accounts, federally insured deposits and U.S. Treasury securities. As of December 31, 2016, cash and cash equivalents comprise funds in cash, money market accounts and federally insured deposits.

Marketable securities

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At March 31, 2017 and December 31, 2016, the balance in the Company’s accumulated other comprehensive loss was composed primarily of activity related to the Company’s available-for-sale marketable securities. There were no realized gains on the sale or maturity of available-for-sale securities during the three months ended March 31, 2017, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss for the same period.

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of March 31, 2017 and December 31, 2016 was $494.2 million and $376.1 million, respectively. As of March 31, 2017 and December 31, 2016, there were $53.3 million and $95.5 million in securities held by the Company in an unrealized loss position for more than twelve months. The Company has the intent and ability to hold such securities until recovery. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with any other-than-temporary impairment as of March 31, 2017 and December 31, 2016.

Contingent consideration

On June 30, 2014, the Company acquired Pregenen.  In connection with the acquisition, the Company recorded contingent consideration pertaining to the amounts potentially payable to Pregenen’s former equityholders pursuant to the Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, Pregenen and Pregenen’s former equityholders. Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of operations and comprehensive loss.

Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market and internal data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market and internal assumptions and/or different valuation techniques could result in materially different fair value estimates.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of preclinical, clinical and commercial milestones, the period in which these milestones are expected to be achieved ranging from 2017 to 2026 and discount rates ranging from 13.2% to 15.4%. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in these other inputs would result in a significantly lower or higher fair value measurement, respectively.

The table below provides a roll-forward of fair value of the Company’s contingent consideration obligations, which include Level 3 inputs (in thousands):

 

 

Three Months Ended

 

 

March 31, 2017

 

Beginning balance

$

7,756

 

Additions

 

 

Changes in fair value

 

1,433

 

Payments

 

 

Ending balance

$

9,189

 

 

The Company may be required to make up to $129.0 million in remaining future contingent cash payments to the former equityholders of Pregenen upon the achievement of certain milestones related to the Pregenen technology, of which $9.0 million relates to preclinical milestones, $20.1 million relates to clinical milestones, and $99.9 million relates to commercial milestones. The milestone achievement end date for the remaining preclinical milestones is June 30, 2017, with other milestone achievement end dates occurring between 2021 and 2028. As of March 31, 2017, $6.1 million of the fair value of the Company’s total contingent consideration obligations was reflected as a component of accrued expenses and other current liabilities within the condensed consolidated balance sheets, with the remaining balance of $3.1 million reflected as a non-current liability.