Fair Value Measurements and Financial Instruments

9 Months Ended

Sep. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements and Financial Instruments

3. Fair Value Measurements and Financial Instruments

For a description of the fair value hierarchy and the Company’s fair value methodology, see Note 2 – Summary of Significant Accounting Policies in the Annual Report. There were no significant changes in these methodologies during the nine months ended September 30, 2024. As of September 30, 2024, the Company’s highly liquid money market funds are included within cash equivalents.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):

	September 30, 2024
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds(1)	$	3,183	$	—	$	—	$	3,183
Long-term receivable from GCBP		—		—		4,900		4,900
Total financial assets	$	3,183	$	—	$	4,900	$	8,083
Financial liabilities:
CVR derivative liability, noncurrent	$	—	$	—	$	4,900	$	4,900
Warrant liability, noncurrent		—		—		5,862		5,862
Total financial liabilities	$	—	$	—	$	10,762	$	10,762

	December 31, 2023
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds(1)	$	5,860	$	—	$	—	$	5,860
Long-term receivable from GCBP		—		—		4,722		4,722
Total financial assets	$	5,860	$	—	$	4,722	$	10,582
Financial liabilities:
CVR derivative liability	$	—	$	—	$	4,722	$	4,722
Warrant liability, noncurrent		—		—		12,835		12,835
Total financial liabilities	$	—	$	—	$	17,557	$	17,557

(1)Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

The carrying amounts of cash, accounts and note receivables, net, other receivables, accounts payable, due to related parties, CVR excess closing cash payable, and accrued liabilities approximate their fair values due to the short-term maturity of these instruments.

During the nine months ended September 30, 2024 and the year ended December 31, 2023, there were no transfers of fair value measurement between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and liabilities.

Long-term Receivables and Derivative Liabilities

Concurrent with the signing of the Business Combination Agreement on December 26, 2022, Catalyst and the Rights Agent (as defined in the CVR Agreement) executed a contingent value rights agreement (the “CVR Agreement”), as amended on March 29, 2023, pursuant to which each holder of Catalyst common stock as of January 5, 2023 (each, a “CVR Holder”), excluding GNI Japan and GNI Hong Kong Limited (“GNI HK”), received one contractual CVR for each share of Catalyst common stock held by such holder. Each CVR entitles the holder thereof to receive certain cash payments in the future.

The long-term receivable and the corresponding CVR derivative liability, noncurrent relate to the asset purchase agreement with GC Biopharma Corp. (“GCBP”). The fair value of this long-term receivable and derivative liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The estimated fair value of the long-term receivable and CVR derivative liability, noncurrent was determined based on the anticipated amount and timing of projected cash flows to be received from GCBP pursuant to the GCBP asset purchase agreement discounted to their present values using an estimated discount rate of 5.05%. As of September 30, 2024, the Company expects to receive a $5.0 million hold-back payment from GCBP in the first quarter of 2025, which will be distributed, net of expenses, to the CVR Holders. The change in fair value of the long-term receivable from GCBP and the corresponding CVR derivative liability, noncurrent was recorded in interest and other income, net on the condensed consolidated statement of operations and comprehensive income.

Warrant Liability

In October 2023, Catalyst entered into a Securities Purchase Agreement for a private placement with GNI USA (the “Private Placement”). The Private Placement closed immediately following the Contributions, on October 30, 2023. Upon closing of the Private Placement, the Company issued 811 shares of Series X Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”), and warrants to purchase up to 811 shares of Convertible Preferred Stock (the “Preferred Stock Warrants”) to GNI USA for an aggregate purchase price of approximately $5.0 million. The Preferred Stock Warrants are immediately exercisable at an exercise price of $4,915.00 per share of Convertible Preferred Stock and expire on October 30, 2033. The number of shares of common stock issuable upon exercise and conversion of the Preferred Stock Warrants is 540,666. The Company accounted for the Private Placement as a non-arm’s length transaction. The Preferred Stock Warrants were initially recognized at fair value upon issuance and the remaining proceeds from the Private Placement were allocated to the Convertible Preferred Stock.

The Preferred Stock Warrants are freestanding financial instruments classified as a warrant liability on the Company’s condensed consolidated balance sheet. The Preferred Stock Warrants are revalued in each reporting period with the change in fair value recorded as change in fair value of warrant liability in other income (expense), net on the condensed consolidated statement of operations and comprehensive income.

The fair value of the warrant liability is estimated based on the Black-Scholes option pricing model using the following weighted-average assumptions:

	September 30, 2024			December 31, 2023
Share price	$	12.54		$	25.70
Exercise price	$	4,915.00		$	4,915.00
Dividend yield		—	%		—	%
Risk-free interest		3.70	%		3.88	%
Term (years)		9.08			9.83
Expected volatility		82.00	%		84.00	%

The following table sets forth the changes in the estimated fair value of the Company’s Level 3 financial assets and liabilities (in thousands):

	Long-term receivable		CVR derivative		Warrant
	from GCBP		liability, noncurrent		liability
Balance at December 31, 2023	$	4,722	$	4,722	$	12,835
Changes in fair value		178		178		(6,973	)
Balance at September 30, 2024	$	4,900	$	4,900	$	5,862

Financial Instruments

Cash equivalents consisted of the following (in thousands):

September 30, 2024	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Money market funds (cash equivalents)	$	3,183	$	—	$	—	$	3,183
Total financial assets	$	3,183	$	—	$	—	$	3,183
Classified as:
Cash and cash equivalents							$	3,183
Total financial assets							$	3,183

December 31, 2023	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Money market funds (cash equivalents)	$	5,860	$	—	$	—	$	5,860
Total financial assets	$	5,860	$	—	$	—	$	5,860
Classified as:
Cash and cash equivalents							$	5,860
Total financial assets							$	5,860