Axsome Therapeutics, Inc. Fair Value Disclosure
Note 7. Fair Value of Financial Instruments
In connection with the Acquisition, the Company pays 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 $10.0 million and non-current contingent consideration liability of $77.5 million in the consolidated balance sheet as of December 31, 2025.
The fair value of financial instruments measured on a recurring basis is as follows:
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December 31, 2025 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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Cash and cash equivalents - money market funds |
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$ |
173,111 |
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$ |
— |
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$ |
— |
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$ |
173,111 |
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Liabilities: |
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Contingent consideration |
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$ |
— |
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$ |
— |
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$ |
87,552 |
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$ |
87,552 |
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December 31, 2024 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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Cash and cash equivalents - money market funds |
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$ |
244,097 |
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$ |
— |
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$ |
— |
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$ |
244,097 |
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Liabilities: |
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Contingent consideration |
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$ |
— |
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$ |
— |
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|
$ |
99,965 |
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|
$ |
99,965 |
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Contingent Consideration Liabilities
The fair value of the contingent consideration liabilities is marked-to-market at each reporting period and was remeasured at December 31, 2025. Changes in fair value of the contingent consideration liabilities as of December 31, 2025 are as follows:
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Contingent consideration |
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Balance at December 31, 2024 |
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$ |
99,965 |
|
Adjustment to fair value |
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(2,473 |
) |
Payments |
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(9,940 |
) |
Balance at December 31, 2025 (Level 3) |
|
$ |
87,552 |
|
The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:
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As of December 31, 2025 |
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As of December 31, 2024 |
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Valuation methodology |
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Significant unobservable input |
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Weighted average (range, if applicable) |
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Weighted average (range, if applicable) |
Contingent consideration |
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Probability weighted income approach |
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Discount rate |
|
14.9% |
|
12.0% |
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Revenue discount rate |
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17.2% - 20.2% |
|
17.6% - 20.6% |
The Company’s fair value measurement of contingent consideration liabilities has been classified as Level 3 as its valuation requires substantial 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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 15, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 7, 2017 | |
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.