Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.22.2.2
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2022
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

ASC 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Cash, Cash Equivalents, Marketable Securities, and Restricted Cash

The following table presents fair value of the Company’s cash, cash equivalents, marketable securities, and restricted cash as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

    

Adjusted 

Unrealized

Unrealized

Cash and Cash

Restricted

Marketable

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

$

17,584

$

$

$

17,584

$

15,027

$

2,557

$

Level 1 (1):

 

 

  

 

  

 

  

 

 

  

 

  

Money market funds

 

3,424

 

 

 

3,424

 

3,424

 

 

U.S. treasury securities

 

21,970

 

 

(28)

 

21,942

 

3,980

 

 

17,961

Subtotal

 

25,394

 

 

(28)

 

25,366

 

7,404

 

 

17,961

Total

$

42,978

$

$

(28)

$

42,950

$

22,431

$

2,557

$

17,961

December 31, 2021

Adjusted 

Unrealized

Unrealized

Cash and Cash

Restricted

Marketable

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

$

9,459

$

$

$

9,459

$

8,148

$

1,311

$

Level 1 (1):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Money market funds

 

58,775

 

 

 

58,775

 

58,775

 

 

Subtotal

 

58,775

 

 

 

58,775

 

58,775

 

 

Total

$

68,234

$

$

$

68,234

$

66,923

$

1,311

$

(1) The fair value of Level 1 securities is estimated based on quoted prices in active markets for identical assets or liabilities.

The Company maintains $0.5 million as collateral under a letter of credit for the Company’s facility lease obligations in Chesterbrook, Pennsylvania. The Company has recorded this deposit and accumulated interest thereon as restricted cash on its consolidated balance sheet.

In April 2022, the Company placed $2.0 million into an interest reserve account in connection with the royalty-based loan agreement (the “Loan Agreement”) with R-Bridge Investment Four Pte. Ltd. (“R-Bridge”). Payments of interest under the Loan Agreement are made quarterly from certain royalties on the Company’s net sales of OLINVYK in the United States and proceeds from royalties from the Company’s license agreement with Jiangsu Nhwa Pharmaceuticals Co. Ltd., or Nhwa. On each interest payment date, if the royalty payments received do not equal the total interest due for the respective quarter, the interest payment due will be paid from the interest reserve account. This

interest reserve account is classified as restricted cash in the Company’s consolidated balance sheet at September 30, 2022.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2022, or the year ended December 31, 2021.