v3.25.2
Fair Value Measurements and Financial Instruments
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments Fair Value Measurements and Financial Instruments
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

As of June 30, 2025As of December 31, 2024
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Money market funds(1)
$151,083 $— $— $151,083 $568,317 $— $— $568,317 
Available for sale debt securities(2)
— — 13,200 13,200 — — 58,200 58,200 
Total current assets$151,083 $— $13,200 $164,283 $568,317 $— $58,200 $626,517 
Equity securities(3)
108,288 — 2,241 110,529 184,719 — 2,241 186,960 
Available for sale debt securities(2)
— — 271,900 271,900 — — 693,500 693,500 
Cytokinetics R&D Funding Derivative(4)
— — 9,000 9,000 — — 12,000 12,000 
Royalty at fair value(3)
— — 5,323 5,323 — — 5,323 5,323 
Total non-current assets$108,288 $— $288,464 $396,752 $184,719 $— $713,064 $897,783 
Liabilities:
Cytokinetics Funding Commitments— — (27,200)(27,200)— — (12,080)(12,080)
Employee EPAs(5)
— — (467,143)(467,143)— — — — 
Total non-current liabilities$— $— $(494,343)$(494,343)$— $— $(12,080)$(12,080)
(1)Recorded within Cash and cash equivalents on the condensed consolidated balance sheets.
(2)Related to the funded Cytokinetics Funding Arrangements as of respective balance sheet dates. As of December 31, 2024, amount also included the MorphoSys Development Funding Bonds, which were sold in January 2025.
(3)The amounts reflected within Level 3 are related to equity securities and a revenue participation right acquired from ApiJect Holdings, Inc. (“ApiJect”), a private company. We estimated the fair values related to both instruments using a discounted cash flow with Level 3 inputs, including forecasted cash flows and the weighted average cost of capital. The revenue participation right was recorded within Other assets on the condensed consolidated balance sheets. See Note 10–Non-Consolidated Affiliates for additional discussion.
(4)Recorded within Other assets on the condensed consolidated balance sheets. See definition below.
(5)Recorded within Accrued compensation liabilities on the condensed consolidated balance sheet. See Note 4–Share-Based Compensation for additional discussion.
For the second quarter and first six months of 2025, we recognized losses of $30.6 million and $76.4 million, respectively, on equity securities still held as of June 30, 2025. For the second quarter and first six months of 2024, we recognized losses of $46.1 million and $15.0 million, respectively, on equity securities still held as of June 30, 2025.

The tables presented below summarize the change in the combined fair value (current and non-current) of Level 3 financial instruments (in thousands):

For the Three Months Ended June 30, 2025
Equity SecuritiesDebt SecuritiesFunding Commitments
Derivative Instrument
Royalty at Fair Value
Employee EPAs
Balance at the beginning of the period$2,241 $231,100 $(17,900)$11,000 $5,323 $— 
Purchases— 75,000 — — — — 
Initial recognition(1)
— — — — — 422,479 
Changes in fair value(2)
— (18,120)(10,200)(2,000)— 38,457 
Vested
— — — — — 7,275 
Settled(3)
— — — — — (1,068)
Settlement of forward(4)
— — 900 — — — 
Redemption(5)
— (2,880)— — — — 
Balance at the end of the period$2,241 $285,100 $(27,200)$9,000 $5,323 $467,143 
(1)Amount reflects the portion of the Employee EPAs attributable to service rendered prior to the Internalization, recognized in connection with the Internalization, see Note 3–Internalization for additional discussion.
(2)Change in fair value of the Employee EPAs is recorded within General and administrative expenses in the condensed consolidated statement of operations. Changes in fair value of all other financial instruments are recorded within their respective financial statement line items in the Other (income)/expense section of the condensed consolidated statements of operations.
(3)The Employee EPAs are generally settled partially in shares and partially through periodic cash distributions required for tax advances.
(4)Amount reflects the fair value attributable to the required draw under tranche four of the Cytokinetics Commercial Launch Funding that was settled upon funding.
(5)Amount relates to the quarterly repayment on the Cytokinetics Commercial Launch Funding.

For the Three Months Ended June 30, 2024
Equity SecuritiesDebt SecuritiesFunding Commitments
Derivative Instrument
Royalty at Fair Value
Balance at the beginning of the period$— $502,700 $(3,220)$— $— 
Purchases46,500 150,000 — 18,000 — 
Gains/(losses) on initial recognition(1)
— 5,000 (5,000)— — 
Changes in fair value(2)
5,822 13,580 (13,780)— 5,323 
Redemptions(3)
— (2,880)— — — 
Balance at the end of the period$52,322 $668,400 $(22,000)$18,000 $5,323 
(1)Represents purchase price allocation to arrive at the appropriate fair value on initial recognition.
(2)Changes in fair value of the financial instruments are recorded within their respective financial statement line items in the Other (income)/expense section of the condensed consolidated statements of operations.
(3)Amount relates to the quarterly repayment on the Cytokinetics Commercial Launch Funding.
For the Six Months Ended June 30, 2025
Equity SecuritiesDebt SecuritiesFunding Commitments
Derivative Instrument
Royalty at Fair Value
Employee EPAs
Balance at the beginning of the period$2,241 $751,700 $(12,080)$12,000 $5,323 $— 
Purchases— 75,000 — — — — 
Initial recognition(1)
— — — — — 422,479 
Changes in fair value(2)
— (15,581)(15,920)(3,000)— 38,457 
Vested
— — — — — 7,275 
Settled(3)
— — — — — (1,068)
Sales(4)
— (510,553)— — — — 
Settlement of forward(5)
— — 800 — — — 
Redemptions(6)
— (15,466)— — — — 
Balance at the end of the period$2,241 $285,100 $(27,200)$9,000 $5,323 $467,143 
(1)Amount reflects the Employee EPAs attributable to service rendered prior to the Internalization, recognized in connection with the Internalization, see Note 3–Internalization for additional discussion.
(2)Change in fair value of the Employee EPAs is recorded within General and administrative expenses in the condensed consolidated statement of operations. Changes in the fair value of all other financial instruments are recorded within their respective financial statement line items in the Other (income)/expense section of the condensed consolidated statements of operations.
(3)The Employee EPAs are generally settled partially in shares and partially through periodic cash distributions required for tax advances.
(4)The MorphoSys Development Funding Bonds were sold in January 2025.
(5)Amount reflects the fair value attributable to the required draw under tranche four of the Cytokinetics Commercial Launch Funding that was settled upon funding.
(6)Amount relates to the quarterly repayments on the MorphoSys Development Funding Bonds prior to the sale and on the Cytokinetics Commercial Launch Funding.

For the Six Months Ended June 30, 2024
Equity SecuritiesDebt SecuritiesFunding Commitments
Derivative Instrument
Royalty at Fair Value
Balance at the beginning of the period$297 $455,400 $(900)$— $1,778 
Purchases46,500 150,000 — 18,000 — 
Gains/(losses) on initial recognition(1)
— 5,000 (5,000)— — 
Changes in fair value(2)
5,525 62,320 (16,100)— 3,545 
Redemptions(3)
— (4,320)— — — 
Balance at the end of the period$52,322 $668,400 $(22,000)$18,000 $5,323 
(1)Represents purchase price allocation to arrive at the appropriate fair value on initial recognition.
(2)Changes in fair value of the financial instruments are recorded within their respective financial statement line items in the Other (income)/expense section of the condensed consolidated statement of operations.
(3)Amount relates to the quarterly repayments on the Cytokinetics Commercial Launch Funding.

Below is a discussion of the valuation inputs used for financial instruments classified as Level 3 measurement as of June 30, 2025 and December 31, 2024 in the fair value hierarchy. As of June 30, 2025 and December 31, 2024, we did not have any financial instruments recorded at fair value using Level 2 inputs.

Cytokinetics Research & Development (“R&D”) Funding Derivative

In May 2024, we funded $50 million upfront in exchange for a royalty on CK-586. We have an option to fund up to an additional $150 million for which we would be eligible to receive milestone payments of up to $150 million upon regulatory approvals and an incremental royalty on CK-586. Upon a change of control event, we have the option to cause Cytokinetics to pay us 1.5 times the initial and additional funding amounts in a lump sum to terminate our rights to receive royalties and milestone payments. Our funding arrangement on CK-586 is accounted for as a derivative instrument and is recorded at fair value (“Cytokinetics R&D Funding Derivative”).
We estimated the fair value of the Cytokinetics R&D Funding Derivative as of June 30, 2025 and December 31, 2024 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including the probabilities of us exercising the additional funding option, regulatory approvals and the occurrence of a change of control event during the duration of the arrangement. As of June 30, 2025 and December 31, 2024, we also assumed a risk-adjusted discount rate of 13.7% and 11.1%, respectively. Our estimate of expectation of timing and probabilities of us exercising the additional funding option, regulatory approvals and a change of control event, the risk-adjusted discount rate and the interest rate volatility could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

Cytokinetics Funding Arrangements and Cytokinetics Funding Commitments

We estimated the fair values of the funded Cytokinetics Funding Arrangements as of June 30, 2025 and December 31, 2024 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including an estimated risk-adjusted discount rate and the probability that there will be a change of control event, which would result in accelerated payments. Developing a risk-adjusted discount rate and assessing the probability that there will be a change of control event over the duration of the Cytokinetics Funding Arrangements require significant judgement. Our estimate of the risk-adjusted discount rate could reasonably be different than the discount rate selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date.

We estimated the fair value of the Cytokinetics Funding Commitments as of June 30, 2025 and December 31, 2024 using a Monte Carlo simulation methodology that includes simulating the interest rate movements using a Geometric Brownian Motion-based pricing model. This methodology simulates the likelihood of future discount rates exceeding the counterparty’s assumed cost of debt, which would impact Cytokinetics’ decision to exercise its option to draw on each respective tranche. As of June 30, 2025 and December 31, 2024, this methodology incorporates Level 3 inputs, including the probability of a change of control event occurring during the investment term, an assumed interest rate volatility of 40.0% as of each date and an assumed risk-adjusted discount rate of 13.7% and 11.1%, respectively. We also assumed probabilities for the occurrence of each regulatory or clinical milestone, which impacts the availability of each future tranche of funding. Our estimate of expectation of the probability and timing of the occurrence of a change of control event, the risk-adjusted discount rate, the interest rate volatility and the probabilities of each underlying milestone could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

MorphoSys Development Funding Bonds

We estimated the fair value of the MorphoSys Development Funding Bonds as of December 31, 2024 based on a discounted cash flow calculation using estimated risk-adjusted discount rates, which are Level 3 inputs. Our estimate of the risk adjusted discount rates could reasonably be different than the discount rates selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. The MorphoSys Development Funding Bonds were sold in January 2025.

Employee EPAs

In connection with the Internalization, we recognized a liability related to the fair value of the Employee EPAs for the portion of the share-based compensation arrangement attributable to services rendered prior to the Internalization. We will increase the liability as we recognize share-based compensation for the remaining Employee EPAs attributable to the post-Internalization service-based vesting period. We remeasure the liability at fair value at each reporting date with changes recognized in share-based compensation expense. We estimated the fair value of the Employee EPAs as of the date of the Internalization and as of June 30, 2025 by using a Monte Carlo simulation under the option pricing framework, which is derived from the fair value of all of the underlying investments within the respective portfolio. The Monte-Carlo model also simulates the probability of satisfying the performance and return thresholds required for EPAs. See below for additional description of the Monte Carlo methodology.
Fair Value Disclosure of Financial Assets Not Measured at Fair Value

Financial royalty assets are not measured at fair value. Instead, they are measured and carried at amortized cost using the effective interest method on the condensed consolidated balance sheets. Financial royalty assets do not include our entire portfolio of investments, and specifically exclude the following:

1.development-stage product candidates where the funding was (i) expensed as upfront R&D upon acquisition (e.g., Trodelvy and Nurtec ODT), (ii) expensed as ongoing R&D (e.g., our funding arrangement for litifilimab with Biogen) or (iii) treated as a derivative instrument (e.g., CK-586); and
2.contractual funding arrangements (e.g., the MorphoSys Development Funding Bonds and the Cytokinetics Funding Arrangements), which are accounted for as available for sale debt securities.

We used a Monte Carlo simulation under the option pricing framework to calculate the fair value of our portfolio of financial royalty assets for disclosure as of June 30, 2025 and December 31, 2024. In 2024, we refined our methodology to calculate the fair value given the growing complexity of our royalty investments, which may include features such as milestone payments, royalty tiers, caps, and floors that could alter the cash flows based on future commercial, clinical or regulatory outcomes.

The Monte Carlo model allows us to simulate a range of different outcomes based on various inputs, primarily the underlying projected product sales of each royalty bearing product, to project the cash flows, including royalty receipts and milestone payments, based on each of the simulated sales scenarios. The Monte Carlo methodology also takes volatility at the sales level into consideration. The fair value of financial royalty assets disclosed herein is classified as Level 3 within the fair value hierarchy since it is determined based on inputs that are both significant and unobservable.

As of June 30, 2025, the estimated fair values of the current and non-current portions of financial royalty assets were $0.8 billion and $21.4 billion, respectively. As of June 30, 2025, approximately 11% of the current portion and 8% of the non-current portion of the financial royalty assets was attributable to the legacy non-controlling interests.

As of December 31, 2024, the estimated fair values of the current and non-current portions of financial royalty assets were $0.8 billion and $21.4 billion, respectively. As of December 31, 2024, approximately 9% of the current portion and 8% of the non-current portion of the financial royalty assets was attributable to the legacy non-controlling interests.