Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1:Observable inputs such as quoted prices in active markets;

Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, notes receivable and other current assets, accounts payable and accrued liabilities, convertible senior notes and contingent consideration liability, and are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are carried at cost which approximates their respective fair values because of the short-term nature of these financial instruments. See Note 6 for further information regarding the amortized cost of our financial assets.

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

	March 31, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	38,974	$	—	$	—	$	38,974
Certificate of deposits	—		1,500		—		1,500
Commercial paper	—		18,996		—		$	18,996
Marketable securities:
U.S. Treasury securities	—		26,930		—		26,930
Certificate of deposits	—		55,283		—		55,283
Commercial debt securities	—		233,419		—		233,419
Commercial paper	—		27,059		—		27,059
U.S. Government-sponsored enterprises debt securities	—		6,214		—		6,214
Total(1)	$	38,974	$	369,401	$	—	$	408,375
Liabilities:
Contingent consideration	$	—	$	—	$	43,000	$	43,000

	December 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
U.S. Treasuries	$	—	$	13,799	$	—	$	13,799
Money market funds	39,536		—		—		39,536
Certificate of deposits	—		3,008		—		3,008
Commercial paper	—		21,648		—		21,648
Marketable securities:
U.S. Treasuries	—		27,896		—		27,896
Commercial paper	—		101,951		—		101,951
U.S. Government-sponsored enterprises debt securities	—		6,219		—		6,219
Corporate debt securities	—		50,357		—		50,357
Certificate of deposits	—		41,284		—		41,284
Total(1)	$	39,536	$	266,162	$	—	$	305,698
Liabilities:
Contingent consideration	$	—	$	—	$	42,400	$	42,400

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(1)Fair value is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.

Contingent Consideration Liability

As of March 31, 2021, our contingent consideration liability consisted of sales-based milestones for Fintepla, which resulted from our 2014 acquisition of Brabant. The maximum amount of future contingent consideration (undiscounted) that we could be required to pay was $45.0 million.

The following table provides a reconciliation of our contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended March 31,
	2021		2020
Balance at beginning of period	$	42,400	$	63,800
Change in fair value	600		(7,900)
Balance at end of period	$	43,000	$	55,900

For the three months ended March 31, 2021, the $0.6 million increase to the estimated fair value of the contingent consideration liability reflects the interest component of contingent consideration related to the passage of time. For the three months ended March 31, 2020, the $7.9 million was primarily due to changes to our probability-weighted estimates for achieving regulatory/commercial milestones and the use of a higher discount rate to reflect an increase in credit-adjusted interest rates.

The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of March 31, 2021.

Fair Value as of March 31, 2021 (in thousands)	Valuation Technique	Unobservable Input	Range	Weighted Average(1)
$43,000	Discounted cash flow	Discount rate	1.9% — 3.0%	2.5%
		Probability of payment	100%	100%
		Projected year of payment	2021 — 2030	2022

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(1)Unobservable inputs were weighted by the relative fair value of each sales-based milestone payment.

Convertible Senior Notes

As of March 31, 2021 and December 31, 2020, the estimated fair value of our convertible senior notes due 2027 was approximately $259.8 million and $260.5 million, respectively, and was determined based on a binomial lattice model with Level 2 inputs. When determining the estimated fair value of our Notes, we utilize a binomial lattice model which incorporates the terms and conditions of our convertible senior notes and market-based risk measurements that are indirectly observable, such as credit risk. The lattice model produces an estimated fair value based on changes in the price of the underlying common stock price over successive periods of time. An estimated yield based on comparable non-convertible debt instruments in the market is used to discount the cash flows.