Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

12. Fair Value Measurements

The Company is required to disclose information on the fair value of financial instruments and inputs that enable an assessment of the fair value. The three levels of the fair value hierarchy prioritize valuation inputs based upon the observable nature of those inputs as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly;

Level 3 – Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. 

The following table presents the fair value of financial instruments recorded originally at amortized cost or fair value and not re-measured on a recurring basis (in thousands):

		December 31, 2021
Balance Sheet Classification:	Type of Instrument	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:	Money market funds	$	598,833	$	—	$	—	$	598,833
Total Financial Assets		$	598,833	$	—	$	—	$	598,833
		December 31, 2020
Balance Sheet Classification:	Type of Instrument	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:	Money market funds	$	427,515	$	—	$	—	$	427,515
	Bank certificates of deposit		43,577		—		—		43,577
Total Financial Assets		$	471,092	$	—	$	—	$	471,092

The Company’s Convertible Notes are Level 1 category within the fair value level hierarchy at December 31, 2021 due to the adoption of ASU 2020- 06. The fair value of the Convertible Notes was $290.7 million at December 31, 2021. At December 31, 2020, the Company’s Convertible Notes were Level 2 category within the fair value level hierarchy. At December 31, 2020, the fair value of debt was determined using broker quotes in a non-active market for valuation. As of December 31, 2020, the fair value of the debt

component of the Company's Convertible Notes was $676.2 million. The Convertible Notes accrue a semi-annual coupon at an annual rate of 3.5%, which was included in accrued expenses in the consolidated balance sheets at December 31, 2021 and 2020.

The following table presents the fair value of financial instruments recorded at fair value at inception and remeasured on a recurring basis (in thousands):

		December 31, 2021
Balance Sheet Classification:	Type of Instrument	Level 1		Level 2		Level 3		Total
Financial Assets:
Marketable securities:	US government obligations		60,358		—		—		60,358
Total Financial Assets		$	60,358	$	—	$	—	$	60,358
		December 31, 2020
Balance Sheet Classification:	Type of Instrument	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:	US government obligations	$	89,990	$	—	$	—	$	89,990
Marketable securities:	US government obligations		311,869		—		—		311,869
Total Financial Assets		$	401,859	$	—	$	—	$	401,859
Financial Liabilities:
Development derivative liability	Development derivative liability	$	—	$	—	$	257,868	$	257,868
Total Financial Liabilities		$	—	$	—	$	257,868	$	257,868

Prior to Regulatory Approval obtained on December 15, 2021, the fair value of the SFJ agreement was presented as a development derivative liability based on Level 3 inputs. The Company remeasured the development derivative liability on December 15, 2021 and reclassified it from development derivative liability to development liability. The derivative was valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The analysis is calibrated such that the value of the derivative as of the date of the SFJ agreement was consistent with an arm’s-length transaction. Key inputs to the Level 3 fair value model include (i) the probability and timing of achieving stated development milestones to receive the next tranches of funding, (ii) the probability and timing of achieving EMA approval, (iii) SFJ’s cost of borrowing, and (iv) the Company’s cost of borrowing.

SFJ’s implied cost of borrowing was 8.0% as of December 15, 2021 and December 31, 2020, and the Company’s implied cost of borrowing was 7.91% as of December 15, 2021 and 12.65% as of December 31, 2020. These implied costs of borrowing were determined assuming the SFJ agreement was initially executed with arm’s-length terms.