Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 4. Fair Value of Financial Instruments

The carrying value of the Company’s cash, cash equivalents and accounts payable, approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

•Level I — Unadjusted quoted prices in active markets for identical assets or liabilities;

•Level II — Inputs other than quoted prices included within Level I that are observable, unadjusted 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 related assets or liabilities; and

•Level III — Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The fair value of marketable securities, which are Level 2 financial instruments, is based upon market prices quoted on the last day of the fiscal period or other observable market inputs. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, bids and/or offers. Marketable securities, all of which are classified as available-for-sale securities, consisted of the following at June 30, 2024 (in thousands):

	June 30, 2024
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
U.S. Treasury securities	$	237,732	$	-	$	(151	)	$	237,581
Total	$	237,732	$	-	$	(151	)	$	237,581

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	Fair Value Measurements at June 30, 2024
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	39,829	$	39,829	$	-	$	-
Total cash equivalents	$	39,829	$	39,829	$	—	$	—
Marketable securities:
U.S. Treasury securities		237,581		—		237,581		—
Total marketable securities	$	237,581	$	—	$	237,581	$	—
Total assets	$	277,410	$	39,829	$	237,581	$	—
Liabilities
Essentialis purchase price contingency liability	$	13,587	$	—	$	—	$	13,587
Total liabilities	$	13,587	$	—	$	—	$	13,587

	Fair Value Measurements at December 31, 2023
	Total		Level 1		Level 2		Level 3
Liabilities
Essentialis purchase price contingency liability	$	11,549	$	—	$	—	$	11,549
Total liabilities	$	11,549	$	—	$	—	$	11,549

Based on the terms of the Company’s completed merger with Essentialis on March 7, 2017, the Company is obligated to make cash earnout payments of up to a maximum of $21.2 million to the former Essentialis stockholders. The fair value of the Essentialis purchase price contingent liability is estimated using scenario-based methods based upon the Company’s analysis of the likelihood of obtaining specified approvals from the U.S. Food and Drug Administration (FDA) as well as achieving two commercial sales milestones of $100 million and $200 million in cumulative revenue. The Level 3 estimates are based, in part, on subjective assumptions. In determining the likelihood of this occurring, the analysis relied on published research relating to clinical development success rates. Based on management’s assessment, an 88% probability of achieving all three milestones was determined to be reasonable as of both June 30, 2024 and December 31, 2023. During the periods presented, the Company has not changed the manner in which it values its Essentialis purchase price contingent liability.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between levels within the hierarchy during the periods presented.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 liabilities for the six months ended June 30, 2024 and 2023 (dollars in thousands):

						Purchase Price
						Contingent Liability
Balance at January 1, 2024						$	11,549
Change in value of contingent liability							2,038
Balance at June 30, 2024						$	13,587
	2018 PIPE Warrants					Purchase Price
	Number of Warrants		Liability			Contingent Liability
Balance at January 1, 2023		34,241	$	1		$	8,835
Change in value of 2018 PIPE Warrants		—		(1	)
Change in value of contingent liability		—		—			612
Balance at June 30, 2023		34,241	$	—		$	9,447