Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.20.4
Fair Value Measurements
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
 
ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market
participants on the measurement date. The fair value standard also establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
•Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
 
•Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model‑derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. 
•Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
 
The following tables present, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets and liabilities from continuing operations that are measured at fair value on a recurring basis: 
  December 31, 2020
Fair Value Measurements Using
Quoted prices in Significant other Significant
active markets for observable unobservable
identical assets inputs inputs
(Level 1) (Level 2) (Level 3)
Assets               
Investments in money market funds* $ 17,503,371  $ —  $ — 

  December 31, 2019
Fair Value Measurements Using
Quoted prices in Significant other Significant
active markets for observable unobservable
identical assets inputs inputs
(Level 1) (Level 2) (Level 3)
Assets               
Investments in money market funds* $ 2,240,230  $ —  $ — 
Investment in Aytu $ —  $ 7,628,947  $ — 

*Investments in money market funds are reflected in cash and cash equivalents on the accompanying consolidated balance sheets.

As of December 31, 2020 and 2019, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts receivable, other receivables, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities. The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.

Level 2 Valuation

As part of the consideration for the Aytu Divestiture, Aytu issued to Cerecor 9,805,845 shares of Aytu Series G Convertible Preferred Stock at a price of $1.2747 per share, which comprised the Investment in Aytu.

Upon the close of the Aytu Divestiture on November 1, 2019, the Company recognized $7.6 million as the estimated fair value of the Investment in Aytu on that date, which was calculated using Aytu's stock price close on November 1, 2019 of $1.03 per share and offset by an estimated discount for lack of marketability of 25% calculated using guideline public company volatility for comparable companies. Subsequent to the initial measurement, at each reporting period, the Investment in Aytu was remeasured at the current fair value with the change in fair value recorded to other income, net in the accompanying statements of operations and comprehensive loss.
As of December 31, 2019, the Investment of Aytu was $7.6 million, which was calculated using Aytu's closing stock price on December 31, 2019 of $0.9725 per share and offset by an estimated discount for lack of marketability of 20%. In April 2020, Cerecor was permitted to convert the Investment in Aytu into 9,805,845 shares of Aytu’s common stock, and subsequently sold all of these Aytu Common Shares in a series of transactions in April, pursuant to an effective registration statement, which generated net proceeds of approximately $12.8 million. The sale resulted in a realized gain of $5.2 million, which was recognized in change in fair value of Investment in Aytu within the accompanying consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

Level 3 Valuation

The Company's historical business acquisition of TRx involved the potential for future payment of consideration that was contingent upon the achievement of operational and commercial milestones related to the Ulesfia product. The fair value of contingent consideration was $1.3 million as of December 31, 2018. During the second quarter of 2019, the Company entered into a settlement agreement related to the Ulesfia product, which released the Company from the potential contingent payments related to the TRx Acquisition, reducing the fair value down to $0 as of December 31, 2019. This represented a gain on the change of fair value of contingent consideration of $1.3 million for the year ended December 31, 2019. There was no contingent consideration as of December 31, 2020 and no change in contingent consideration for the year ended December 31, 2020.

Effective upon the consummation of the Aevi Merger during the first quarter of 2020, Cerecor entered into an employment agreement with Aevi's Chief Executive Officer, Mike Cola, for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi's Chief Scientific Officer, Dr. Garry Neil, for him to serve as Cerecor's Chief Medical Officer and as Chief Scientific Officer in connection with a subsequent promotion. Additionally, the Company extended employment to seven other individuals who were previously employed by Aevi. As a result, the Company recognized an assembled workforce intangible asset of $0.9 million which is a Level 3 non-recurring fair value measurement. The Company utilized the replacement cost method to estimate the fair value of the assembled workforce, which considers the costs Cerecor would have incurred to replace a comparable workforce to the workforce acquired from Aevi. Such costs include, but are not limited to, recruiting costs, training costs and cost of lost productivity. The replacement costs were estimated based on a percentage of each employee's salary. The assembled workforce intangible asset will be amortized over a useful life of two years.
No other changes in valuation techniques or inputs occurred during the years ended December 31, 2020 and 2019. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the years ended December 31, 2020 and 2019.