Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

Fair Value of Financial Instruments

Fair Value of Financial Instruments

6. 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 rate 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 to pay up to $70.2 million in additional consideration upon the achievement of certain milestones, including regulatory filings completed noted in Note 4. 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 $3.0 million in the fourth quarter 2022. In August 2023, the Company initiated patient dosing in the U.S. in its Phase 2 clinical trial of VCN-01 in PDAC. As a result, payment was made subsequent to September 30, 2023 in the amount of $3.25 million. 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 $5.9 million as of September 30, 2023 and is all reflected as non-current contingent consideration liability. There were no transfers in or out of the level 3 liabilities during the three and nine months ended September 30, 2023 and 2022 , with the exception of the reclassification of $3.25 million related to the milestone that was met in the current period and reclassified to accrued expenses.

The following table summarizes the change in the fair value as determined by Level 3 inputs for the contingent consideration liabilities for the three and nine months ended September 30, 2023:

	(in thousands)
Balance at March 10, 2022	$	12,158
Change in fair value		(1,506)
Balance at June 30, 2022	$	10,652
Change in fair value		199
Balance at September 30, 2022	$	10,851
Contingent consideration, current portion	$	8,614
Contingent consideration, net of current portion		2,237
Balance at September 30, 2022	$	10,851

6. Fair Value of Financial Instruments – (continued)

	(in thousands)
Balance at December 31, 2022	$	10,184
Change in fair value		135
Balance at March 30, 2023		10,319
Change in fair value		432
Balance at June 30, 2023	$	10,751
Change in fair value		(1,566)
Reclassification of amounts to accrued expenses due to milestone being achieved		(3,250)
Balance at September 30, 2023	$	5,935
Contingent consideration, current portion	$	—
Contingent consideration, net of current portion		5,935
Balance at September 30, 2023	$	5,935

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

	As of September 30, 2023
Description	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration	$	5,935	$	—	$	—	$	5,935
Loans payable		215		—		215		—
Total liabilities	$	6,150	$	—	$	215	$	5,935

	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

6. 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 September 30, 2023
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)
Contingent Consideration	Discounted Cash Flows	Milestone dates	2025-2028
		Discount rate	13.8% to 14.4%
		Weighted Average Discount rate	14.09%
		Probability of Occurrence (periodic for each Milestone)	11.7% to 92.0%
		Probability of occurrence (cumulative through each Milestone)	6.9% to 24.6%

	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%