Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2024

Schedule of Assets and Liabilities Measured at Fair Value

The following table presents the hierarchy for our assets and liabilities measured at fair value (in thousands):


	June 30, 2024								December 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Short-term investments, excluding Viking(1)	$	10,107	$	145,676	$	—	$	155,783	$	7,291	$	107,879	$	—	$	115,170
Investment in Viking common stock	53,010		—		—		53,010		32,185		—		—		32,185
Derivative assets(2)	—		—		54,646		54,646		—		—		3,531		3,531
Total assets	$	63,117	$	145,676	$	54,646	$	263,439	$	39,476	$	107,879	$	3,531	$	150,886
Liabilities:
Contingent liabilities - CyDex	$	—	$	—	$	264	$	264	$	—	$	—	$	320	$	320
Contingent liabilities - Metabasis(3)	—		3,934		—		3,934		—		2,878		—		2,878
Total liabilities	$	—	$	3,934	$	264	$	4,198	$	—	$	2,878	$	320	$	3,198

(1) Excluding our investment in Viking, corporate equity securities, and US government securities, our short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management's intentions and are at level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Short-term investments in bond funds are valued at their net asset value (NAV) on the last day of the period. We have classified marketable securities with original maturities of greater than one year as short-term investments based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations. In addition, we had investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and were at level 3 of the fair value hierarchy, based on Black-Scholes value estimated by management on the last day of the period. This investment in warrants expired in January 2024.

(2) Derivative assets include instruments used for risk-management purposes, and other instruments. Derivative assets which are not used for risk management purposes include: (a) acquired rights in future milestone and royalty payments from Agenus Partnered Programs, (b) Agenus Warrant, (c) Upsize Option, and (d) rights to receive from Primrose Bio 50% of milestones on two contracts previously entered into by Primordial Genetics. The considerations were recognized as derivative assets included under Current derivative assets and Long-term derivative assets in our condensed consolidated balance sheet. They are recognized as derivative assets under ASC 815, Derivatives and Hedging. The fair value of the Agenus Partnered Programs and the Primrose Bio derivative assets was determined using a discounted cash flow approach, utilizing the mostly-likely cash flows which considered the probability of success for the underlying clinical programs and discount rates ranging between 13% and 25%, which contemplates the underlying credit and business risk of the partnered programs. The fair value of the Agenus Warrant was determined using a Black-Scholes-Merton model. The fair value of the Upsize Option was determined using a binomial option pricing model.

(3) In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by us from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. The liability for the CVRs is determined using quoted prices in a market that is not active for the underlying CVR. The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability. Several of the Metabasis drug development programs have been outlicensed to Viking, including VK2809. VK2809 is a novel selective TR-β agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia, NASH, and X-ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10 million payment upon initiation of a Phase 3 clinical trial. During the three and six months ended June 30, 2024, we adjusted the balance of the Metabasis CVR liability by increasing $1.1 million and $1.1 million, respectively, to mark to market.

Schedule of Reconciliation of Level 3 Financial Instruments

A reconciliation of the level 3 financial instruments as of June 30, 2024 is as follows (in thousands):


Assets
Fair value of level 3 financial instruments as of December 31, 2023	$	3,531
Additions to derivative assets	34,185
Fair value adjustments to derivative assets	16,930
Fair value of level 3 financial instruments as of June 30, 2024	$	54,646

Liabilities
Fair value of level 3 financial instruments as of December 31, 2023	$	320
Payments to CVR holders and other contingent payments	(200)
Fair value adjustments to contingent liabilities	144
Fair value of level 3 financial instruments as of June 30, 2024	$	264