INSMED IncINSM
INSMED Inc Fair Value Disclosure
3. Fair Value Measurements
The Company categorizes its financial assets and liabilities measured and reported at fair value in the financial statements on a recurring basis based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities, are as follows:
•Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
•Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
•Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Each major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1 generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.
The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):
As of December 31, 2025 | ||||||||||||||||||||||||||
| Fair Value | ||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 510.4 | $ | 510.4 | $ | — | $ | — | ||||||||||||||||||
| Marketable securities | $ | 919.6 | $ | 919.6 | $ | — | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Contingent consideration | $ | 372.1 | $ | — | $ | — | $ | 372.1 | ||||||||||||||||||
As of December 31, 2024 | ||||||||||||||||||||||||||
| Fair Value | ||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 555.0 | $ | 555.0 | $ | — | $ | — | ||||||||||||||||||
| Marketable securities | $ | 878.8 | $ | 878.8 | $ | — | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Contingent consideration | $ | 168.9 | $ | — | $ | — | $ | 168.9 | ||||||||||||||||||
During the year ended December 31, 2025, $2.1 billion of marketable securities were purchased and $2.1 billion of marketable securities matured, each consisting of US Treasury Bills.
As of December 31, 2025, the Company held $919.6 million of available-for-sale securities, including an unrealized gain of $0.4 million recorded in accumulated other comprehensive gain (loss). As of December 31, 2024, the Company held $878.8 million of available-for-sale securities, including an unrealized gain of $0.3 million in accumulated other comprehensive gain (loss).
The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the years ended December 31, 2025 and 2024. During the year ended December 31, 2025, new Level 1 assets were added in connection with the Company's purchase of available-for-sale securities.
The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the security was rated below investment grade; (3) failure of the issuer to make scheduled interest or principal payments; and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to recover. The Company has determined that there were no other-than-temporary impairments during the year ended December 31, 2025.
Contingent Consideration Liabilities
The contingent consideration liabilities arose from the Business Acquisition in August 2021. The contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone, and net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated to issue to Motus equityholders up to 4,979,705 shares of the Company's common stock in the aggregate and AlgaeneX equityholders up to 368,867 shares of the Company's common stock in the aggregate as of December 31, 2025. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach. The weighted average probability of success of the remaining development and regulatory milestones was 39% as of December 31, 2025. The development and regulatory milestones, if achieved, will be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation. During the third quarter of 2025, a development milestone in connection with the Motus acquisition was achieved, resulting in the issuance of 364,566 shares of the Company's common stock in October 2025.
If the Company were to receive a priority review voucher from the FDA, the Company would be obligated to pay to the Motus equityholders a portion of the value of the priority review voucher, subject to certain reductions. The potential payout would be either 50% of the after-tax net proceeds received by the Company from a sale of the priority review voucher or 50% of the average of the sales prices for the last three publicly disclosed priority review voucher sales, less certain adjustments. The fair value of the priority review voucher milestone is estimated utilizing a probability-adjusted discounted cash flow approach. This obligation would be settled in cash. On December 20, 2024, the FDA's priority review voucher program expired. As of December 31, 2025 and 2024, the Company determined that the likelihood of receiving a priority review voucher was remote and the milestone had no fair value.
The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte Carlo simulation. As of December 31, 2025, the fair value of these net sales milestones were deemed immaterial to the overall fair value of the contingent consideration.
The contingent consideration liabilities have been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the inputs to the valuation approach, the estimated fair value could be significantly different than the fair value the Company determined. Contingent consideration liabilities expected to be settled within twelve months are classified as a current liability within accounts payable and accrued liabilities in the consolidated balance sheet. Contingent consideration expected to be settled in more than twelve months is classified as a non-current liability. As of December 31, 2025, the fair value of the current and non-current contingent consideration was $57.8 million and $314.3 million, respectively.
A valuation of the contingent consideration liabilities is performed quarterly with gains and losses included within change in fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as of December 31, 2025 and 2024:
| Contingent Consideration Liabilities | Fair Value as of December 31, 2025 (in millions) | Valuation Technique | Unobservable Inputs | Values | ||||||||||
| Development and regulatory milestones | $366.9 | Probability-adjusted | Probabilities of success | 14% - 90% | ||||||||||
| Contingent Consideration Liabilities | Fair Value as of December 31, 2024 (in millions) | Valuation Technique | Unobservable Inputs | Values | ||||||||||
| Development and regulatory milestones | $166.7 | Probability-adjusted | Probabilities of success | 14% - 97% | ||||||||||
A rollforward of the Company's valuations for the contingent consideration liabilities for the years ended December 31, 2025 and 2024 follows (in thousands):
| Contingent Consideration (Level 3 Liabilities) | ||||||||
| Balance as of December 31, 2023 | $ | 84,600 | ||||||
| Additions | — | |||||||
| Change in fair value | 84,300 | |||||||
| Payments | — | |||||||
| Balance as of December 31, 2024 | 168,900 | |||||||
| Additions | — | |||||||
| Change in fair value | 251,993 | |||||||
| Payments | (48,754) | |||||||
| Balance as of December 31, 2025 | $ | 372,139 | ||||||
The change in fair value of contingent consideration liabilities are due to changes in factors such as the probability of achieving milestones, the Company's stock price, or certain other estimated assumptions. Payments are made in shares of the Company's common stock.
Royalty Financing Agreement
The fair value of the Royalty Financing Agreement at the time of the transaction was based on the Company’s estimates of future royalties expected to be paid to OrbiMed over the life of the arrangement, which was determined using forecasts from market data sources, which are considered Level 3 inputs. This liability is being amortized using the effective interest method over the life of the arrangement, in accordance with ASC 470, Debt and ASC 835, Interest. The Company will utilize the prospective method to account for subsequent changes in the estimated future payments to be made to OrbiMed and will update the effective interest rate on a quarterly basis. The carrying value of the Royalty Financing Agreement approximates fair value. See Note - 11 Royalty Financing Agreement for further details.
Secured Senior Term Loan
The carrying value of the Term Loans are measured at amortized cost using the effective interest method and the carrying value approximates fair value. See Note - 10 Debt for further details.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
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.