Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2023

Fair Value of Financial Instruments

Fair Value of Financial Instruments

5.        Fair Value of Financial Instruments

As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The Company’s cash equivalents are classified within Level I of the fair value hierarchy.

As of December 31, 2023 and 2022, the fair values of cash and cash equivalents, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The Company’s short-term investments consist of Level I securities which are comprised of highly liquid mutual funds. The estimated fair value of the short-term investments was based on quoted market prices. There were no transfers between fair value hierarchy levels during the years ended December 31, 2023 or 2022.

The fair value of financial instruments measured on a recurring basis is as follows:

	As of December 31, 2023
Description	Total		Level 1			Level 2	Level 3
Assets:
Short-term investments	$	2,206,555	$	2,206,555	$	—	$	—
Contingent consideration receivable, related party	$	268,000	$	—	$	—	$	268,000
Contingent earn-out receivable, related party	$	1,720,000	$	—	$	—	$	1,720,000

	As of December 31, 2022
Description	Total			Level 1		Level 2	Level 3
Assets:
Short-term investments	$	35,837,309	$	35,837,309	$	—	$	—
Liabilities:
Contingent consideration	$	12,224,614	$	—	$	—	$	12,224,614

The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the year ended December 31, 2023:

	Contingent Consideration		Consideration Earn-out
	Receivable, Related Party		Receivable, Related Party
Balance at December 31, 2022	$	—	$	—
Sale of Elusys Therapeutics, Inc.		268,000		1,720,000
Change in fair value		—		—
Balance at December 31, 2023	$	268,000	$	1,720,000
			Elusys Contingent
Elusys Contingent Consideration:			Consideration
Balance at December 31, 2021			$	—
Acquisition of Elusys Therapeutics				39,853,685
Payment of receivable consideration				(20,784,571)
Payment of inventory consideration				(4,735,000)
Payment of deferred cash consideration				(2,000,000)
Change in fair value				(109,500)
Balance at December 31, 2022 (in liabilities from discontinued operations)			$	12,224,614
Payment of contingent consideration				(7,507,260)
Change in fair value				(107,354)
Divestiture of Elusys Therapeutics				(4,610,000)
Balance at December 31, 2023			$	—
				Pelican Contingent Consideration
Balance at December 31, 2021			$	3,342,515
Change in fair value				(3,342,515)
Balance at December 31, 2022			$	—

The change in the fair value of the contingent consideration of ($0.1) million and ($0.1) million for the years ending December 31, 2023 and 2022, respectively, was primarily due to the change in timing and amount of the contract deferred consideration. The reclassification of ($4.6) million of contingent consideration for the year ending December 31, 2023 is due to the divestiture of Elusys Therapeutics, Inc. Therefore, the Company has separately reported the financial results of Elusys as discontinued operations in our consolidated statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022, respectively, and presented the related assets and liabilities as of discontinued operations in the consolidated balance sheet as of December 31, 2022.

The change in fair value of contingent earn-out receivable, related party of $1.7 million for the year ended December 31, 2023 represents the fair value of contingent future royalty payments from Elusys Holdings, Inc. on potential future sales generated by Elusys Therapeutics, Inc., as part of the divestiture agreement.

The change in the fair value of the contingent consideration of ($3.3) million for the year ended December 31, 2022 was primarily due to the effect of the change in discount rate, probability of achieving milestones, passage of time on the fair

value measurement and discontinuation of the PTX-35 trial, thus leading to the write-off of the Pelican contingent consideration. Adjustments associated with the change in fair value of contingent consideration are included in the Company’s consolidated statement of operations and comprehensive loss.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of contingent consideration classified as Level 3 (which have now been reclassified to current liabilities of discontinued operations in our consolidated balance sheets) as of December 31, 2023 and December 31, 2022:

	As of December 31, 2023
	Valuation Methodology		Significant Unobservable Input		Weighted Average (range, if applicable)
Contingent consideration receivable, related party		Discounted Cash Flow Analysis
				Maturity Term		1 year
				Market interest rate		14.7%
				Principal amount	$	2.25 million
	Valuation Methodology		Significant Unobservable Input		Weighted Average (range, if applicable)
Contingent earn-out receivable, related party		Discounted Cash Flow Analysis
				Timing of expected payments		2026-2029
				Discount rate		15.0%
				Future revenue projections	$	141.4 million
				Minimum earn-out payment		3% or $5.0 million
				Earn-out term through		December 31, 2028
	As of December 31, 2022
	Valuation Methodology		Significant Unobservable Input		Weighted Average (range, if applicable)
Elusys revenue earn-out		Discounted Cash Flow Analysis
				Timing of expected payments		2025-2036
				Discount rate		24.5%
				Future revenue projections	$	325.9 million
Elusys deferred contract consideration		Discounted Cash Flow Analysis
				Timing of expected payments		2023
				Discount rate		15.5%
				Future revenue projections	$	7.6 million

The Company records certain non-financial assets on a non-recurring basis, including goodwill and in-process R&D. This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.