Quarterly report pursuant to Section 13 or 15(d)

Fair Value Disclosures

v3.23.3
Fair Value Disclosures
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Disclosures Fair Value DisclosuresFair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction to a third party under current market conditions at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs
used in measuring fair value. In connection with historical acquisitions, additional consideration may be paid related to the achievement of certain milestones and such contingent consideration is required by U.S. GAAP to be presented at fair value. The following table provides information for liabilities measured at fair value on a recurring basis using Level 3 inputs:
September 30, 2023 December 31, 2022
Contingent Consideration:
Current $ 495,000  $ 322,385 
Non-current 5,002,505  3,309,175 
Total Contingent Consideration $ 5,497,505  $ 3,631,560 
The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows for certain milestones. Key assumptions used to estimate the fair value of contingent consideration include projected financial information, market data and the probability and timing of achieving the specific milestones.
After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using the following unobservable Level 3 inputs:
Valuation Technique Unobservable Inputs September 30, 2023 December 31, 2022
Discounted cash flow Payment discount rate 13.6  % 14.7  %
Bayon Payment period 2023 - 2028 2023 - 2028
Panoptes Payment period 2025 - 2028 2024 - 2028
Jade Payment period 2027 2026
Bayon Probability of success for payment
42% - 100%
17% - 67%
Panoptes Probability of success for payment
30% - 33%
17% - 36%
Jade Probability of success for payment 56  % 56  %
Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the above table is adjusted quarterly based upon the passage of time or the anticipated success or failure of achieving certain milestones. The change in fair value of contingent consideration of $1.5 million for the three months ended September 30, 2023, was primarily driven by an increase in the estimated probability of success for the Bayon milestones due to the addition of two new disease indications for KIO-301, specifically Choroideremia and Stargardt disease and the increased probability of the Panoptes milestone due to the addition of KIO-104 in Posterior Non-infectious Uveitis. The change in fair value of contingent consideration of $1.9 million for the nine months ended September 30, 2022 was primarily driven by these same factors. The change in fair value of contingent consideration is recorded within operating expenses on the accompanying condensed consolidated statements of operation and comprehensive loss.
The Company records in-process R&D projects acquired in asset acquisitions that have not reached technological feasibility and which have no alternative future use. For in-process R&D projects acquired in business combinations, the Company capitalizes the in-process R&D project as an indefinite-lived intangible asset and evaluates this asset annually for impairment until the R&D process has been completed. Once the R&D process is complete, the Company amortizes the R&D asset over its remaining useful life.
ASC 350 allows an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. If it is more likely than not that the asset is impaired, the entity must calculate the fair value of the asset and record an impairment charge if the carrying amount exceeds fair value. If an entity concludes that it is not more likely than not that the asset is impaired, no further action is required. An indefinite-
lived intangible asset should be tested for impairment if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If such events or changes have occurred, a quantitative assessment is required.

If an entity bypasses the qualitative assessment or determines from its qualitative assessment that an indefinite-lived intangible asset is more likely than not impaired, a quantitative impairment test should be performed. The quantitative impairment test compares the fair value of an indefinite-lived intangible asset with the asset’s carrying amount. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss should be recognized in an amount equal to the difference in accordance with ASC 350-30-35-19.
The Company values in-process R&D related to asset acquisitions using the Income Approach which measures the value of an asset by the present value of its future economic benefits. These benefits can include interest and principal payments, earnings, cost savings, tax deductions, or proceeds from its disposition. Value indications are developed by discounting expected cash flows at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation, and risks associated with the particular investment. The selected discount rate is generally based on rates of return available from alternative investments of similar type and quality.
The Company engaged a third-party valuation firm to complete a quantitative assessment of in-process R&D as of August 31, 2023 which includes the following unobservable Level 3 inputs:
Valuation Technique Unobservable Inputs Input Discount Rate
KIO-101 Relief from Royalty Method Probability of success for next development phase 17  % 30  %
KIO-104 Multi-Period Excess Earnings Method Probability of success for next development phase
17% to 36%
 25  %
KIO-201 Relief from Royalty Method Probability of success for next development phase
17% to 46%
 30  %
KIO-301 Multi-Period Excess Earnings Method Probability of success for next development phase
17% to 67%
 25  %