Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

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 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 is required to pay up to $70.2 million in additional consideration upon the achievement of certain milestones, including regulatory filings completed. 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 in the fourth quarter 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 $6.5 million as of March 31, 2024 and is all reflected as non-current contingent consideration liability. During the three months ended March 31, 2024 and 2023, the Company recognized in operating expense a $202,000 and $135,000, respectfully, fair value adjustment increase to contingent consideration. There were no transfers in or out of the level 3 liabilities during the three months ended March 31, 2024 and 2023.

The following table summarizes the change in the fair value as determined by Level 3 inputs for the contingent consideration liabilities as of March 31, 2024:

	(in thousands)
Balance at December 31, 2022	$	10,184
Payment of contingent consideration		(3,250)
Change in fair value		(660)
Balance at December 31, 2023	$	6,274
Contingent consideration, current portion	$	—
Contingent consideration, net of current portion		6,274
Balance at December 31, 2023	$	6,274

5. Fair Value of Financial Instruments – (continued)

	(in thousands)
Balance at December 31, 2023	$	6,274
Change in fair value		202
Balance at March 31, 2024	$	6,476
Contingent consideration, current portion	$	—
Contingent consideration, net of current portion		6,476
Balance at March 31, 2024	$	6,476

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

	As of March 31, 2024
Description	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration	$	6,476	$	—	$	—	$	6,476
Total liabilities	$	6,476	$	—	$	—	$	6,476

	As of December 31, 2023
Description	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration	$	6,274	$	—	$	—	$	6,274
Total liabilities	$	6,274	$	—	$	—	$	6,274

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

	As of March 31, 2024
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)
Contingent Consideration	Discounted Cash Flows	Milestone dates	2025-2028
		Discount rate	12.8% to 13.5%
		Weighted Average Discount rate	13.13%
		Probability of Occurrence (periodic for each Milestone)	11.7% to 92.0%
		Probability of occurrence (cumulative through each Milestone)	5.3% to 48.8%

	As of December 31, 2023
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)
Contingent Consideration	Discounted Cash Flows	Milestone dates	2025-2028
		Discount rate	12.9% to 13.6%
		Weighted Average Discount rate	13.16%
		Probability of Occurrence (periodic for each Milestone)	11.7% to 92.0%
		Probability of occurrence (cumulative through each Milestone)	5.3% to 48.8%