Aurinia Pharmaceuticals Inc.AUPH

Aurinia Pharmaceuticals Inc. Fair Value Disclosure

10-KFiled Feb 15, 20243 min read
Fair Value Measurement
The Company's financial instruments consist primarily of cash and cash equivalents, investments, accounts receivable, accounts payable and accrued liabilities. The carrying value of accounts receivable, accounts payable and accrued liabilities approximate their fair values because of their short-term nature. Estimated fair values of available-for-sale debt securities are generally based on prices obtained from commercial pricing services.
In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
•Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3 - Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the financial assets (cash, cash equivalents, restricted cash and investments) measured at fair value on a recurring basis:
December 31, 2023
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash, cash equivalents and restricted cash$48,875 $— $— $48,875 
U.S. agency security— — — — 
Corporate bond— 33,781 — 33,781 
Commercial paper— 39,304 — 39,304 
Treasury bill— 122,806 — 122,806 
Treasury bond— 105,924 — 105,924 
Total financial assets$48,875 $301,815 $— $350,690 
December 31, 2022
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash, cash equivalents and restricted cash$94,172 $— $— $94,172 
U.S. agency security— 4,948 — 4,948 
Corporate bond— 104,080 — 104,080 
Commercial paper— 125,187 — 125,187 
Treasury bill— 12,282 — 12,282 
Treasury bond— 42,220 — 42,220 
Yankee bond— 6,501 — 6,501 
Total financial assets$94,172 $295,218 $— $389,390 
The Company's Level 1 instruments include cash, cash equivalents and restricted cash that are valued using quoted market prices. Aurinia estimates the fair values of our investments in corporate debt securities, government and government related securities and certificates of deposits by taking into consideration valuations obtained from third-party pricing services. The fair value of the Company's investments classified within Level 2 is based upon observable inputs that may include benchmark yield curves, reported trades, issuer spreads, benchmark securities and reference data including market research publications. Additionally, at December 31, 2023 and December 31, 2022, the weighted average remaining contractual maturities of Aurinia's Level 2 investments were approximately 7 months for both periods. It is the Company's intent for these investments to have an overall rating of A-1, or higher, by Standard & Poor’s, or an equivalent rating by Moody’s or Fitch.

No credit loss allowance was recorded as of December 31, 2023 and December 31, 2022, as we do not believe the unrealized loss is a result of a credit loss due to the nature of our investments. We also considered the current and expected future economic and market conditions and determined that the estimate of credit losses was not significantly impacted.

Refer to Note 4, “Cash, Cash Equivalents and Restricted Cash and Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.
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Historical Timeline

Fiscal YearFiled
2023Feb 15, 2024Showing above
2022Feb 28, 2023
2021Feb 28, 2022
2020Feb 24, 2021

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

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