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Risks and Fair Value

12 Months Ended

Dec. 31, 2024

11. Risks and Fair Value

Concentration of Credit Risk and of Significant Suppliers and Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has its cash and cash equivalents balances at two accredited financial institutions, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on a small number of third-party manufacturers to supply products for research and development activities in its preclinical and clinical programs and for sales of its products. The Company’s development programs as well as revenue from future product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

Three specialty distributor customers accounted for the following percentages of the Company’s total revenue:


	Year Ended December 31,

	2024			2023			2022
Customer 1		44	%		49	%		44	%
Customer 2		23			25			25
Customer 3		10			11			17

Three specialty distributor customers accounted for the following percentages of the Company’s accounts receivables:


	As of
	December 31,		December 31,
	2024		2023
Customer 1	46	%	50	%
Customer 2	28		28
Customer 3	8		11

Change in Fair Value of Derivative Liabilities

Other income (expenses) from the change in the fair values of derivative liabilities as presented on the Company’s consolidated statements of operations and comprehensive loss includes the following:


	Year Ended
	December 31,
	2024		2023		2022
Change in the fair value of the Conversion Option Derivative Liability	$	2,598	$	(4,502)	$	13,841
Change in the fair value of Royalty Fee Derivative Liability		(857)		215		—
Barings Royalty Fee		(2,221)		(901)		—
Total	$	(480)	$	(5,188)		13,841

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2024 and 2023 and indicate the level of the fair value hierarchy utilized to determine such fair value:


	Fair Value Measurements as of
	December 31, 2024 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	378,112	$	—	$	—	$	378,112

Liability:
Derivative liability	$	—	$	—	$	13,246	$	13,246


	Fair Value Measurements as of
	December 31, 2023 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	187,951	$	—	$	—	$	187,951

Liability:
Derivative liabilities	$	—	$	—	$	29,987	$	29,987

During the years ended December 31, 2024 and 2023, there were no transfers between levels of the fair value hierarchy.

The carrying value of accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities.

Barings Credit Agreement and Royalty Fee Derivative Liability

At December 31, 2024, the Barings Credit Facility, net of the Royalty Fee Derivative Liability, was carried at amortized cost totaling $69,097, comprised of the $68,505 non-current liability (Note 9) and $592 accrued interest (Note 8). The estimated fair value of the Barings Credit Facility, without the Royalty Fee Derivative Liability, was $73,608 at December 31, 2024. At December 31, 2023, the Barings Credit Facility, net of the Royalty Fee Derivative Liability, was carried at amortized cost totaling $66,590 comprised of the $65,787 non-current liability (Note 9) and $803 accrued interest (Note 8). The estimated fair value of the Barings Credit Facility, without the Royalty Fee Derivative Liability, was $72,295 at December 31, 2023.

The fair value of the Royalty Fee Derivative Liability is estimated using a Monte Carlo simulation. The use of this approach requires the use of Level 3 unobservable inputs. The main inputs when determining the fair value of the Royalty Fee Derivative Liability are the amount and timing of the expected future revenue of the Company, the estimated volatility of these revenues, and the discount rate corresponding to the risk of revenue. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value.

The main inputs to valuing the Royalty Fee Derivative Liability are as follows:


	As of
	December 31,			December 31,
	2024			2023
Revenue volatility		64.0	%		67.0	%
Revenue discount rate		16.0	%		15.8	%

The main inputs to valuing the Royalty Fee Derivative Liability as of the Closing Date were revenue volatility of 61.0%, and a revenue discount rate of 15.8%.

Convertible Notes and Conversion Option Derivative Liability

At December 31, 2023, the Convertible Notes, net of the Conversion Option Derivative Liability, were carried at amortized cost totaling $20,024, comprised of the $9,138 non-current liability (Note 9) and $10,886 accrued interest (Note 8). The estimated fair value of the Convertible Notes, without the Conversion Option Derivative Liability, was $22,665 at December 31, 2023.

The fair value of the Convertible Notes with and without the conversion option as of December 31, 2023 and previous periods was estimated using a binomial lattice approach. The use of this approach required the use of Level 3 unobservable inputs. The main input when determining the fair value of the Convertible Notes was the bond yield that pertained to the host instrument without the conversion option. The significant assumption used in determining the bond yield was the market yield movements of a comparable instrument issued as of the valuation date, which was assessed and updated each period. The main input when determining the fair value for disclosure purposes was the bond yield which was updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The estimated fair value presented was not necessarily indicative of an amount that could have been realized in a current market exchange. The fair value of the Conversion Option Derivative Liability immediately before the Conversion was determined based on the intrinsic value of the separated conversion option.

The main inputs to valuing the Convertible Notes with the conversion option are as follows:


	As of
	December 31,
	2023
Company's stock price	$	4.46
Volatility		88.4	%
Bond yield		20.8	%

The bond yield was derived by making the fair value of the Convertible Notes equal to the face value on the issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs would result in a significantly higher or lower fair value.