Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Fair Value Measurements

2.Fair Value Measurements

The Company uses various valuation approaches in determining the fair value of its assets and liabilities. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 –	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 –	Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3 –	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

Fair Value Measured on a Recurring Basis

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of June 30, 2022 and December 31, 2021 (amounts in thousands):

	As of June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	389,374	$	—	$	—	$	389,374
Liabilities:
Short-term contingent consideration	$	—	$	—	$	17,046	$	17,046
Long-term contingent consideration	$	—	$	—	$	67,897	$	67,897
	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	460,936	$	—	$	—	$	460,936
Liabilities:
Long-term contingent consideration	$	—	$	—	$	94,238	$	94,238

Cash and cash equivalents

As of June 30, 2022 and December 31, 2021, cash and cash equivalents on the Company's consolidated balance sheets included $389.4 million and $460.9 million, respectively, in money market accounts. These funds are valued on a recurring basis using Level 1 inputs.

Contingent Consideration – Earnout

On September 20, 2021, the Company completed the acquisition of Avitide, Inc. ("Avitide") (the "Avitide Acquisition"), a privately-held affinity ligand discovery and development company headquartered in Lebanon, New Hampshire. The transaction consisted of upfront payments of $150.0 million, comprised of cash and the Company's common stock, and up to an additional $125.0 million (undiscounted) in contingent consideration for performance-based earnout payments made equally in cash and the Company's common stock over a three-year performance period beginning January 1, 2022 and ending December 31, 2024. See Note 3, "Acquisitions" below for additional information.

During 2022, there was a shift in revenue and volume projections, due to the expected timing of achievement over the three-year performance period, and an increase in risk-free interest rates that are used to calculate the discount rate, that resulted in a material change in amounts reported as of June 30, 2022. A reconciliation of the change in the fair value of contingent consideration - earnout is included in the following table (amounts in thousands):

Balance as of December 31, 2021	$	94,238
Contingent consideration earnouts		(9,295	)
Balance as of June 30, 2022	$	84,943

The recurring Level 3 fair value measurement of our contingent consideration earnout that we expect to be required to settle include the following significant unobservable inputs (amounts in thousands, except percent data):

Contingent Consideration Earnout	Fair Value as of  June 30, 2022		Valuation Technique	Unobservable Input	Range	Weighted Average(1)
				Probability of
Commercialization-based			Monte Carlo	Success	100%	100%
payments	$	28,390	Simulation	Earnout Discount Rate	4.5%-5.8%	5.1%
				Volatility	23.7%	23.7%
Revenue and Volume-			Monte Carlo	Revenue & Volume
based payments	$	56,553	Simulation	Discount Rate	7.4%	7.4%
				Earnout Discount Rate	4.5%-5.8%	5.1%

(1)Unobservable inputs were weighted by the relative fair value of the contingent consideration liability.

The Company estimates the fair value of the contingent consideration earnouts at each subsequent reporting period using a Monte Carlo simulation. Changes in the projected performance of the acquired business could result in a higher or lower contingent consideration obligation in the future.

Fair Value Measured on a Nonrecurring Basis

During the three and six months ended June 30, 2022, there were no re-measurements to fair value of financial assets and liabilities that are measured at fair value on a nonrecurring basis.

Convertible Senior Notes

In July 2019, the Company issued $287.5 million aggregate principal amount of the 2019 Notes. Interest is payable semi-annually in arrears on January 15 and July 15 of each year. The 2019 Notes will mature on July 15, 2024, unless earlier converted or repurchased in accordance with their terms. At June 30, 2022 and December 31, 2021, the carrying value of the 2019 Notes was $283.7 million and $255.3 million, respectively, net of unamortized discount and issuance costs, and the fair value of the 2019 Notes was $432.3 million and $678.5 million, respectively. The fair value of the 2019 Notes is a Level 1 valuation and was determined based on the most recent trade activity of the 2019 Notes as of June 30, 2022. The 2019 Notes are discussed in more detail in Note 7, “Convertible Senior Notes” to this report.