v3.26.3
Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 6. Fair Value of Financial Instruments

In connection with the Acquisition, the Company pays a royalty on U.S. net sales of SUNOSI to Jazz. 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 is reflected as current accrued contingent consideration of $11.2 million and non-current contingent consideration liability of $63.6 million in the consolidated balance sheet as of September 30, 2026.

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

 

 

September 30, 2026

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - money market funds

 

$

156,950

 

 

$

—

 

 

$

—

 

 

$

156,950

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

—

 

 

$

—

 

 

$

74,835

 

 

$

74,835

 

 

 

 

December 31, 2025

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - money market funds

 

$

173,111

 

 

$

—

 

 

$

—

 

 

$

173,111

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

—

 

 

$

—

 

 

$

87,552

 

 

$

87,552

 

Contingent Consideration Liabilities

The fair value of the contingent consideration liabilities is marked-to-market at each reporting period and was remeasured at September 30, 2026. Changes in fair value of the contingent consideration liabilities as of September 30, 2026 are as follows:

 

 

Contingent consideration

 

Balance at December 31, 2025

 

$

87,552

 

Adjustment to fair value

 

 

(3,286

)

Payments

 

 

(9,431

)

Balance at September 30, 2026 (Level 3)

 

$

74,835

 

 

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, 2026

 

As of December 31, 2025

 

 

Valuation methodology

 

Significant unobservable input

 

Weighted average (range, if applicable)

 

Weighted average (range, if applicable)

Contingent consideration

 

Probability weighted income approach

 

Discount rate

 

20.2%

 

14.9%

 

 

 

 

Revenue discount rate

 

17.6% - 20.6%

 

17.2% - 20.2%

The Company’s fair value measurement of contingent consideration liabilities has been classified as Level 3 as its valuation requires judgment and estimation of factors which requires use of unobservable inputs. The fair value of contingent consideration liabilities is estimated by using the probability weighted income approach using significant assumptions including estimated future sales of SUNOSI in current and future indications, timing of regulatory and commercial milestone achievements, probability of technical and regulatory success rates, and discount rates. If significant changes are made to one or more of these assumptions, the estimated fair value of contingent consideration liabilities may result in a significantly higher or lower fair value measurement.