Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2024

Fair Value of Financial Assets and Liabilities

Fair Value of Financial Assets and Liabilities

6. Fair Value of Financial Assets and Liabilities

As of June 30, 2024 and December 31, 2023, the carrying amount of cash and cash equivalents and short-term investments was $319,130 and $275,846 respectively, which approximates fair value. Cash and cash equivalents and short-term investments includes investments in U.S. treasury securities and money market funds that invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1.  The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade corporations.

The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair value:

	Fair Value Measurements as of
	June 30, 2024 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Commercial Paper	$	—	$	51,230	$	—	$	51,230
Money market funds	$	98,254	$	—	$	—	$	98,254
Marketable securities:
Corporate debt securities and commercial paper		—		157,461		—		157,461
Total	$	98,254	$	208,691	$	—	$	306,945
Liabilities:
Derivative liability	$	—	$	—	$	360	$	360
Total	$	—	$	—	$	360	$	360

	Fair Value Measurements as of
	December 31, 2023 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Commercial paper	$	—	$	—	$	—	$	—
Money market funds		40,868		4,979		—		45,847
Marketable securities:
Corporate debt securities and commercial paper		—		215,765		—		215,765
Total	$	40,868	$	220,744	$	—	$	261,612
Liabilities:
Derivative liability	$	—	$	—	$	1,150	$	1,150
Total	$	—	$	—	$	1,150	$	1,150

The estimated fair value of the derivative liability relates to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty Partners was determined using Level 3 inputs. The fair value measurement of the derivative liability is sensitive to changes in the unobservable inputs used to value the financial instrument. Changes in the inputs could result in changes to the fair value of each financial instrument.

The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 13, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation on the condensed consolidated balance sheets. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other (expense) income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of IMCIVREE, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument.

The forward contract associated with our Series A Convertible Preferred Stock, as discussed further in Note 10, “Series A Preferred Stock”, is measured at fair value. In order to value the forward contract, a binomial lattice model was used to determine the fair value of the Series A Preferred Stock.  The fair value of the forward contract was measured as the difference between the consideration payable of $150,000 and the fair value of the Series A Preferred Stock. The fair value of the forward contract was determined to be $0 at initial issuance and the change in the fair value from initial issuance to settlement of $8,900 was recognized as other income in the condensed consolidated statements of operation for the three and six months ended June 30, 2024. The assumptions used in the binomial lattice model include: (1) the Company’s common stock price on the issuance and settlement dates; (2) the Conversion Price as of $48.00 as per the

Agreement; (3) a 20-year term to maturity; (4) an estimate of the Company’s credit risk-adjusted discount rate; and (5) volatility.

	Six months ended
	June 30,
	2024		2023
Beginning aggregate estimated fair value of Level 3 liabilities	$	1,150	$	1,340
Change in fair value of embedded derivative		(790)		(20)
Fair value of forward contract - Series A Convertible Preferred Stock		8,900		—
Settlement of forward contract		(8,900)		—
Ending aggregate estimated fair value of Level 3 liabilities	$	360	$	1,320

Marketable Securities

The following tables summarize the Company's marketable securities:

	June 30, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	157,565	$	10	$	(115)	$	157,460
	$	157,565	$	10	$	(115)	$	157,460

	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	215,490	$	282	$	(7)	$	215,765
	$	215,490	$	282	$	(7)	$	215,765