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Fair Value Measurements

6 Months Ended

Jun. 30, 2024

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The following tables set forth the fair value of the Company’s financial assets and liabilities at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):


	June 30, 2024
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	43,377	$	—	$	—	$	43,377
U.S. government treasury securities	136,857		—		—		136,857
U.S. government agency securities	—		92,566		—		92,566
Commercial paper	—		119,716		—		119,716
Corporate bonds	—		31,712		—		31,712
Total financial assets	$	180,234	$	243,994	$	—	$	424,228

Liabilities:
Parapyre Option Obligation	$	—	$	6,889	$	—	$	6,889
CVR liability	—		—		42,200		42,200
Total liabilities	$	—	$	6,889	$	42,200	$	49,089


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	150,648	$	—	$	—	$	150,648
U.S. government treasury securities	32,843		—		—		32,843
U.S. government agency securities	—		16,257		—		16,257
Commercial paper	—		104,141		—		104,141
Corporate bonds	—		33,064		—		33,064
Total financial assets	$	183,491	$	153,462	$	—	$	336,953

Liabilities:


CVR liability	$	—	$	—	$	42,700	$	42,700
Total liabilities	$	—	$	—	$	42,700	$	42,700

The Company measures the fair value of money market funds and U.S. government treasury securities on quoted prices in active markets for identical assets or liabilities. The Level 2 assets include U.S. government agency securities, commercial paper and corporate bonds, and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1, Level 2, or Level 3 during the periods presented.

Parapyre Option Obligation

Under the Paragon Agreement, the Company is obligated to issue Parapyre Holding LLC ("Parapyre") an annual equity grant of warrants, on the last business day of each of the years ended December 31, 2023 and December 31, 2024, to purchase 1% of the then outstanding shares of the Company’s Common Stock, on a fully diluted basis, during the term of the Paragon Agreement (the "Parapyre Option Obligation"). The Company determined that the 2023 and 2024 grants are two separate grants, as there would be no obligation for the 2024 grant had the Company exercised or terminated all of the options under the Paragon Agreement prior to December 31, 2023. The service inception period for the grant precedes the grant date, with the full award

being vested as of the grant date with no post-grant date service requirement. Accordingly, a liability related to the Parapyre Option Obligation is recorded pursuant to the Paragon Agreement during interim periods. On December 31, 2023, the Company settled its 2023 obligation under the Parapyre Option Obligation by issuing Parapyre 684,407 warrants to purchase the Company's Common Stock, with a $21.52 per share exercise price for each warrant.

The Parapyre Option Obligation is considered a Level 2 liability based on observable market data for substantially the full term of the liability. The Parapyre Option Obligation is measured each period using a Black-Scholes model to estimate the fair value of the option grant. Changes in the fair value of the Parapyre Option Obligation are recorded as stock-based compensation within Research and development expenses for non-employees who provided pre-clinical development services.

CVR Liability

In connection with the Asset Acquisition, a non-transferable CVR was distributed to the Legacy Stockholders, but was not distributed to holders of shares of Common Stock or Series A Preferred Stock issued to the June 2023 Investors or former stockholders of Pre-Merger Spyre in connection with the Transactions. Holders of the CVR will be entitled to receive certain cash payments from proceeds received by the Company for a three-year period, if any, related to the disposition or monetization of the Company’s legacy assets for a period of one year following the closing of the Asset Acquisition.

The fair value of the CVR liability was determined using the probability weighted discounted cash flow method to estimate future cash flows associated with the sale of the legacy assets. Analogous to a dividend being declared/approved in one period and paid out in another, the liability was recorded at the date of approval, June 22, 2023, as a Common Stock dividend, returning capital to the Legacy Stockholders. Changes in fair value of the liability will be recognized as a component of Other income (expense) in the consolidated statement of operations and comprehensive loss in each reporting period. The liability value is based on significant inputs not observable in the market such as estimated cash flows, estimated probabilities of regulatory success, and discount rates, which represent a Level 3 measurement within the fair value hierarchy.

The significant inputs used to estimate the fair value of the CVR liability were as follows:


			June 30, 2024
Estimated cash flow dates			02/15/25 - 06/22/26
Estimated probability of success			39% - 100%
Estimated reimbursement rate compared to reimbursement target			81% - 100%
Risk-adjusted discount rates			6.47% - 6.71%

The change in fair value between December 31, 2023 and June 30, 2024 was a $0.9 million increase, and was primarily driven by changes in the risk-adjusted discount rates and the time value of money.

The following table presents changes in the CVR liability for the periods presented (in thousands):


	CVR Liability
Beginning balance as of December 31, 2023	$	42,700
Changes in the fair value of the CVR liability	930
Payments	(1,430)
Ending Balance as of June 30, 2024	$	42,200

Forward Contract Liability

In connection with the Asset Acquisition, the Company entered into a contract for the issuance of 364,887 shares of Series A Preferred Stock as part of the consideration transferred. This forward contract was classified as a liability because the underlying preferred shares were contingently redeemable. The forward contract was carried at fair value on the balance sheet, with changes in fair value between the acquisition date and June 30, 2023 recorded in earnings. The liability was settled with the issuance of the Series A Preferred Stock on July 7, 2023.

The fair value of the forward contract as of the acquisition date, June 22, 2023, was $106.2 million. The fair value of the forward contract on June 30, 2023 was $164.4 million. The $58.2 million change in fair value of the forward contract liability between the acquisition date and June 30, 2023, was recorded as Other Income (Expense) in the consolidated statements of operations for the three and six months ended June 30, 2023.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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