Annual report [Section 13 and 15(d), not S-K Item 405]

Fair Value Measurements

v3.25.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 4. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

December 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

66,720

 

 

$

—

 

 

$

—

 

 

$

66,720

 

Total assets measured at fair value

 

$

66,720

 

 

$

—

 

 

$

—

 

 

$

66,720

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities – royalty agreement

 

$

—

 

 

$

—

 

 

$

1,647

 

 

$

1,647

 

Derivative liabilities – contingent value right liability

 

 

—

 

 

 

—

 

 

 

1,978

 

 

 

1,978

 

Total liabilities measured at fair value

 

$

—

 

 

$

—

 

 

$

3,625

 

 

$

3,625

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

7,203

 

 

$

—

 

 

$

—

 

 

$

7,203

 

Total assets measured at fair value

 

$

7,203

 

 

$

—

 

 

$

—

 

 

$

7,203

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities – royalty agreement

 

$

—

 

 

$

—

 

 

$

1,014

 

 

$

1,014

 

Total liabilities measured at fair value

 

$

—

 

 

$

—

 

 

$

1,014

 

 

$

1,014

 

 

Money market funds are highly liquid investments and are actively traded. The pricing information on the Company’s money market funds is based on quoted prices in active markets for identical securities. This approach results in a classification of these securities as Level 1 of the fair value hierarchy. Money market funds are cash equivalents and are included in cash and cash equivalents on the Company’s consolidated balance sheets as of December 31, 2024 and 2023.

Assumptions Used in Determining Fair Value of Derivative Liabilities

The key assumptions used to determine the fair value of the derivative liabilities – royalty agreement at December 31, 2024 and 2023 are as follows:

 

 

 

December 31,

 

 

 

2024

 



2023

 

Discount rate

 

 

20.0

%

 

 

25.0

%

Probability rate of achieving FDA approval of a product

 

 

56.6

%

 

 

50.0

%

Expected term to FDA regulatory approval of a product

 

2.5 years

 



3.5 years

 

 

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table provides a reconciliation of the liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

 

Derivative Liabilities – Royalty Agreement

 

 

 

2024

 

 

2023

 

Derivative liabilities - royalty agreement

 

 

 

 

 

 

Balance at January 1

 

$

1,014

 

 

$

1,499

 

Fair value adjustments on derivative liabilities

 

 

633

 

 

 

(485

)

Balance at December 31

 

$

1,647

 

 

$

1,014

 

 

The derivative liabilities – royalty agreement is classified as long term on the Company’s consolidated balance sheets according to the estimated timing of the occurrence of the potential payments.

As discussed in Note 5 below, the Amended Ligand Agreement was initially measured at its estimated fair value. This nonrecurring fair value measurement was based upon Level 3 inputs. The Company estimated the fair value of the royalty agreement liability on the amendment date using a Monte Carlo valuation model. The Company derived risk-adjusted quarterly net sales forecasts by applying a net sales discount rate of 21% to its forecasted net sales over the royalty term, and then simulated the risk-adjusted net sales using a Monte Carlo simulation. Based on the simulated net sales, the Company estimated the royalty payments within each simulation path based on the contractual royalty rates, and then present valued the royalty payments using a discount rate of 22%, which was based on its estimated discrete weighted average cost of capital of 24.5% as of the amendment date, adjusted to reflect the continuously compounded nature of the analysis. The Company then averaged across all simulation paths to derive the fair value of the royalty agreement liability on the date of amendment of $7.8 million.

Derivative Liabilities – Contingent Value Right Liability

 

 

 

2024

 

 

2023

 

Derivative liabilities - contingent value rights

 

 

 

 

 

 

Balance at January 1

 

$

—

 

 

$

—

 

Fair value adjustments on derivative liabilities

 

 

1,978

 

 

 

—

 

Balance at December 31

 

$

1,978

 

 

$

—

 

The derivative liabilities – contingent value rights is classified as short term on the Company’s consolidated balance sheets according to the estimated timing of the occurrence of the potential payments.

The Company applies a scenario-based method and weighs them based on the possible likelihood of certain contingencies triggering payments due under the CVR for the liability recognized. The fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, Fair Value Measurement. The estimated value of the CVR is based upon available information and certain assumptions, which the Company's management believes are reasonable under the circumstances.