FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, restricted cash, prepaid expenses and other current assets, and accounts payable on the Company’s consolidated balance sheets approximated their fair values as of December 31, 2019 and 2018 due to their short-term nature.

Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that prioritizes the inputs used to measure fair value. This fair value hierarchy prioritizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


Level 1:	Inputs are quoted prices for identical instruments in active markets,


Level 2:	Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.


Level 3:	Inputs are unobservable and reflect the Company’s own assumptions, based on the best information available, including the Company’s own data.

The following tables set forth the carrying amounts and fair values of the Company's financial instruments measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):



	December 31, 2019
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices in Active Markets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalents)	$	31,146	$	31,146	$	31,146	$	—	$	—
Liabilities:
Contingent consideration	$	120,020	$	120,020	$	—	$	—	$	120,020



	December 31, 2018
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices in Active Markets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalents)	$	40,365	$	40,365	$	40,365	$	—	$	—
Liabilities:
Contingent consideration	$	48,400	$	48,400	$	—	$	—	$	48,400

The Company evaluates transfers between fair value levels at the end of each reporting period. There were no transfers of assets or liabilities between fair value levels during the year ended December 31, 2019.

Contingent Consideration

The estimated fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium forecasted for the United States, Europe, Japan and other potential markets and discount rates ranging from 5.6% to 11.8% as of December 31, 2019 and 6.6% to 13.7% as of December 31, 2018. There have been no changes to the valuation methods utilized during the year ended December 31, 2019.

The following table sets forth a summary by quarter of the change in the fair value of the Company's contingent consideration liability, measured on a recurring basis at each reporting period, for the year ended December 31, 2019 (in thousands):



Balance at December 31, 2018	$	48,400
Change in fair value included in loss	(1,000		)
Balance at March 31, 2019	47,400
Change in fair value included in loss⁽¹⁾	44,000
Balance at June 30, 2019	91,400
Change in fair value included in loss⁽²⁾	3,600
Balance at September 30, 2019	95,000
Change in fair value included in loss⁽³⁾	25,020
Balance at December 31, 2019	$	120,020

⁽¹⁾During the quarter ended June 30, 2019, management reassessed the total addressable global market for high-risk NMIBC and determined that both the global market size and the estimated potential Vicinium commercial sales within the global market were likely higher than the Company’s previous estimates. Specific drivers of the increased revenue estimates include the expectation that Vicinium could achieve peak market penetration earlier than previously estimated and the expectation that Vicinium sales outside the United States could be two to three times the expected sales volumes in the United States. As contingent consideration incorporates a royalty rate of 2% on all commercial net sales of Vicinium through December 2033, an increase in expected future net sales correlated to a $44.0 million increase in the estimated fair value of the Company’s contingent consideration as of June 30, 2019.

⁽²⁾The $3.6 million increase in the estimated fair value of contingent consideration was primarily attributable to a slightly lower discount rate, based on prevailing market conditions as of September 30, 2019, applicable to the earnout royalty payments potentially payable to Viventia's shareholders under the Share Purchase Agreement.

⁽³⁾The $25.0 million increase in the estimated fair value of contingent consideration was primarily attributable to increases in management's assumptions for both the estimated United States market share for Vicinium for the treatment of high-risk NMIBC, if approved, and the probability of success for achieving marketing approval by the FDA, based on expert commentary from a December 2019 public hearing of the FDA's Oncologic Drugs Advisory Committee during a review a competitor's product.