Fair Value Measurements

9 Months Ended

Sep. 30, 2019

(3) Fair Value Measurements

The following tables set forth the Company’s financial assets and liabilities subject to fair value measurements:


	As of
	September 30, 2019		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Money market funds and cash equivalents	$	11,549		—	$	11,549		—
Marketable securities		56,332		—		56,332		—
	$	67,881		—	$	67,881		—
Liabilities:
Kolltan acquisition contingent consideration	$	12,167		—		—	$	12,167
	$	12,167		—		—	$	12,167


	As of
	December 31, 2018		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Money market funds and cash equivalents	$	15,755		—	$	15,755		—
Marketable securities		69,712		—		69,712		—
	$	85,467		—	$	85,467		—
Liabilities:
Kolltan acquisition contingent consideration	$	13,779		—		—	$	13,779
	$	13,779		—		—	$	13,779

The Company’s financial assets consist mainly of money market funds, cash equivalents and marketable securities and are classified as Level 2 within the valuation hierarchy. The Company values its marketable securities utilizing independent pricing services which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based on significant observable transactions. At each balance sheet date, observable market inputs may include trade information, broker or dealer quotes, bids, offers or a combination of these data sources.

The following table reflects the activity for the Company’s contingent consideration liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2019 (in thousands):


	Other Liabilities:
	Contingent
	Consideration
Balance at December 31, 2018	$	13,779
Fair value adjustments included in operating expenses		(1,612)
Balance at September 30, 2019	$	12,167

The valuation technique used to measure fair value of the Company’s Level 3 liabilities, which consist of contingent consideration related to the acquisition of Kolltan in 2016, was primarily an income approach. The Company may be required to pay future consideration of up to $127.5 million that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. The significant unobservable inputs used in the fair value measurement of the contingent consideration are estimates including probability of success, discount rates and amount of time until the conditions of the milestone payments are met.

During the three and nine months ended September 30, 2019, the Company recorded a $2.1 million and $1.6 million gain on fair value remeasurement of contingent consideration, respectively, primarily due to changes in discount rates, the passage of time and updated assumptions for the varlilumab program. During the three and nine months ended September 30, 2018, the Company recorded a $6.9 million and $28.0 million gain on fair value remeasurement of contingent consideration, respectively, primarily due to discontinuation of the glembatumumab vedotin (“Glemba”) and CDX-014 programs, updated assumptions for the varlilumab program, and lower probability that milestones related to our anti-KIT program would be triggered by the Company’s current anti-KIT program development.

The Company did not have any transfers of assets or liabilities between the fair value measurement classifications during the nine months ended September 30, 2019.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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