Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2023

Fair Value of Financial Instruments

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are classified on a three-tier hierarchy as follows:

● Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;

● Level 2 inputs: Inputs, other than quoted prices, that are observable either directly or indirectly; and

● Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these level 1 instruments.

As a result of the acquisition of VCN the Company acquired interest-free or below-market interest rates loans extended by Spanish government. The carrying value of the loans payable approximate fair value and are classified under level 2.

In connection with the Acquisition of VCN, the Company will be required pay up to $70.2 million in additional consideration upon the achievement of certain milestones, including regulatory filings completed noted in Note 3. In September 2022, the Company received approval from the FDA to proceed with the Phase 2 clinical trial of VCN-01 in PDAC. Due to this approval the Company paid Grifols Innovation and New Technologies Limited (“Grifols”) $3.0 million in Q4 2022. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The fair value of the contingent consideration was $10.8 million as of June 30, 2023 and is reflected as current accrued contingent consideration of $5.0 million and non-current contingent consideration liability of $5.8 million in the consolidated balance sheet. During the three and six months ended June 30, 2023 the Company recognized in operating expense a $432,000 and $568,000, respectively, fair value adjustment increase to contingent consideration. During the three months ended June 30, 2022 the Company recognized in operating expense a $432,000 fair value adjustment decrease to contingent consideration. There were no transfers in or out of the level 3 liabilities during the three and six months ended June 30, 2023 and 2022.

The fair value of financial instruments measured on a recurring basis is as follows:

	As of June 30, 2023
Description	Total			Level 1		Level 2	Level 3
Liabilities:
Contingent consideration	$	10,751	$	—	$	—	$	10,751
Loans payable		220		—		220		—
Total liabilities	$	10,971	$	—	$	220	$	10,751

	As of December 31, 2022
Description	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration	$	10,184	$	—	$	—	$	10,184
Loans payable		278		—		278		—
Total liabilities	$	10,462	$	—	$	278	$	10,184

5. Fair Value of Financial Instruments – (continued)

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

	As of June 30, 2023
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)
Contingent Consideration	Discounted Cash Flows	Milestone dates	2023-2028
		Discount rate	12.2% to 13.4%
		Weighted Average Discount rate	12.05%
		Probability of Occurrence (periodic for each Milestone)	11.7% to 95.0%
		Probability of occurrence (cumulative through each Milestone)	6.9% to 95.0%

	As of December 31, 2022
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)
Contingent Consideration	Discounted Cash Flows	Milestone dates	2023-2028
		Discount rate	13.4% to 14.1%
		Weighted Average Discount rate	13.6%
		Probability of Occurrence (periodic for each Milestone)	11.7% to 95.0%
		Probability of occurrence (cumulative through each Milestone)	6.9% to 95.0%