Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement (Tables)

v3.20.4
Fair Value Measurement (Tables)
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Schedule of Assets and Liabilities Measured on Recurring Basis
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020 and 2019 (in thousands):

Fair Value Measurements at Reporting Date Using
December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total (Level 1) (Level 2) (Level 3)
Assets:
Short-term investments (1)
$ 324,478  $ 3,438  $ 320,647  $ 393 
Investment in Viking common stock 32,763  32,763  —  — 
Investment in Viking warrants (2)
6,326  6,326  —  — 
     Total assets $ 363,567  $ 42,527  $ 320,647  $ 393 
Liabilities:
Contingent liabilities - Crystal (3)
$ 800  $ —  $ —  $ 800 
Contingent liabilities - Cydex
508  —  —  508 
Contingent liabilities - Metabasis (4)
3,821  —  3,821  — 
Contingent liabilities - Icagen (5)
6,404  —  —  6,404 
Contingent liabilities - Pfenex (6)
37,600  —  —  37,600 
Liability for amounts owed to a former licensor
60  60  —  — 
     Total liabilities $ 49,193  $ 60  $ 3,821  $ 45,312 

Fair Value Measurements at Reporting Date Using
December 31, 2019
Quoted Prices in
Active Markets
for Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total (Level 1) (Level 2) (Level 3)
Assets:
Short-term investments (1)
$ 939,989  $ 3,073  $ 936,791  $ 125 
Investment in Viking common stock 48,425  48,425  —  — 
Investment in Viking warrants (2)
9,910  9,910  —  — 
     Total assets $ 998,324  $ 61,408  $ 936,791  $ 125 
Liabilities:
Contingent liabilities - Crystal (3)
$ 2,659  $ —  $ —  $ 2,659 
Contingent liabilities - Cydex 348  —  —  348 
Contingent liabilities - Metabasis (4)
5,935  —  5,935  — 
Liability for amounts owed to a former licensor 75  75  —  — 
     Total liabilities $ 9,017  $ 75  $ 5,935  $ 3,007 


(1) Excluding our investment in Viking, 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 mutual 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 have investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on Black Scholes value estimated by management on the last day of the period.

(2) Investment in Viking warrants, which we received as a result of Viking’s partial repayment of the Viking note receivable and our purchase of Viking common stock and warrants in April 2016, is classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. The change of the fair value is recorded in “gain (loss) from short-term investments” in our consolidated statement of operations. See further discussion in “Note (3), Short-term Investments: Investment in Viking.

(3) The fair value of Crystal contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on development or regulatory milestones as defined in the merger agreement with Crystal. The fair value is subjective and is affected by changes in inputs to the
valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. During the twelve months ended December 31, 2020, we paid $1.8 million contingent liability on development milestones to former Crystal shareholders.

(4) 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 differ 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 $375.0 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10.0 million payment upon initiation of a Phase 3 clinical trial.

(5) The fair value of Icagen contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on certain revenue milestones as defined in the asset purchase agreement with Icagen. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. Changes in these estimates may materially affect the fair value. During the third quarter of 2020, we paid a $0.5 million contingent liability based on revenue milestones to Icagen.

(6) The fair value of the CVR liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of the Company.
Schedule of Reconciliation of Level 3 Financial Instruments
A reconciliation of the level 3 financial instruments as of December 31, 2020 is as follows (in thousands):

Liabilities
Fair value of level 3 financial instruments as of December 31, 2019 $ 3,007 
Payments to CVR holders and other contingency payments (2,325)
Fair value adjustments to contingent liabilities 2,830 
Contingent liabilities due to acquisitions 41,800 
Fair value of level 3 financial instruments as of December 31, 2020 $ 45,312