Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities

3. Fair Value of Financial Assets and Liabilities

As of June 30, 2024 and December 31, 2023, the Company’s highly liquid money market funds included within cash equivalents, restricted cash and U.S. treasury securities are valued using Level 1 inputs. The Company classifies its federal agency securities as Level 2. There were no transfers in or out of Level 1 and Level 2 during the periods presented. U.S. treasury securities are bonds issued by the U.S. government and are fully backed by the U.S. government. Given the frequency at which U.S. treasury securities trade and the accessibility of observable, quoted prices for such assets in active markets, they are recognized as Level 1 assets. Federal agency securities are bonds and notes issued by government-sponsored enterprises, including Fannie Mae, Freddie Mac and the Federal Home Loan Bank. Since Federal agency securities typically do not trade as frequently as U.S. government agency securities and no exchange exists to price such investments, they are recognized as Level 2 assets.

The Company had $1.0 million and $0.9 million in contingent consideration liabilities as of June 30, 2024 and December 31, 2023, respectively, related to the Myst Merger Agreement. The contingent consideration balances are comprised of one potential milestone payment and is measured at fair value (see Note 7—Asset Acquisition for additional information). The fair value of the contingent consideration is estimated based on the monetary value of the milestone discounted for the likelihood of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. The value for the contingent consideration balance is based on significant inputs not observable in the market which represents a Level 3 measurement within the fair value hierarchy. There were no transfers in or out of Level 3 during the periods presented.

The following tables represent a summary of the financial assets and liabilities that are measured on a recurring basis at fair value (in thousands):

	June 30, 2024
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	7,125	$	—	$	—	$	7,125
Restricted cash(1)		116		—		—		116
U.S. government securities(2)		44,997		—		—		44,997
Total financial assets	$	52,238	$	—	$	—	$	52,238
Financial liabilities:
Contingent consideration(3)	$	—	$	—	$	1,024	$	1,024
Total financial liabilities	$	—	$	—	$	1,024	$	1,024

	December 31, 2023
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	15,635	$	—	$	—	$	15,635
Restricted cash(1)		116		—		—		116
U.S. government securities(2)		76,979		—		—		76,979
Total financial assets	$	92,730	$	—	$	—	$	92,730
Financial liabilities:
Contingent consideration(3)	$	—	$	—	$	916	$	916
Total financial liabilities	$	—	$	—	$	916	$	916

(1)Restricted cash serves as deposits for the Company’s San Diego office lease.

(2)Included in short-term investments on the unaudited condensed consolidated balance sheets and are classified as available-for sale debt securities.

(3)Contingent consideration related to the Myst Merger Agreement.

The following significant unobservable inputs were used in the valuation of the contingent consideration payable to the sole common stockholder of Myst Therapeutics, Inc. ("Myst") pursuant to the Myst Merger Agreement:

	Fair Value as of
Contingent Consideration Liability	June 30, 2024		Valuation Technique	Unobservable Input	Amount
	(in thousands)
'Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information)	$	1,024	Discounted cash flow	Likelihood of occurrence	10%
				Discount rate	25%
				Expected term (in years)	3.0
	Fair Value as of
Contingent Consideration Liability	December 31, 2023		Valuation Technique	Unobservable Input	Amount
	(in thousands)
'Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information)	$	916	Discounted cash flow	Likelihood of occurrence	10%
				Discount rate	25%
				Expected term (in years)	3.5

The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):

Contingent consideration at December 31, 2023	$	916
Changes in the fair value of contingent consideration		108
Contingent consideration at June 30, 2024	$	1,024

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category (in thousands):

	June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Level 1: Money market funds	$	7,125	$	—	$	—		$	7,125
Restricted cash		116		—		—			116
U.S. government securities		45,021		—		(24	)		44,997
Total financial assets	$	52,262	$	—	$	(24	)	$	52,238
Classified as:
Cash and cash equivalents								$	7,125
Restricted cash									116
Short-term investments									44,997
								$	52,238

	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	15,635	$	—	$	—	$	15,635
Restricted cash		116		—		—		116
U.S. government securities		76,875		104		—		76,979
Total financial assets	$	92,626	$	104	$	—	$	92,730
Classified as:
Cash and cash equivalents							$	15,635
Restricted cash								116
Short-term investments								76,979
							$	92,730

As of June 30, 2024, 16 of 18 of our available-for-sale debt securities were in a gross unrealized loss position of $0.0 million with an aggregate fair value of $42.0 million. As of December 31, 2023, none out of 28 of our available-for-sale debt securities were in a gross unrealized loss position. While short-term investments are available-for-sale, it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. All short-term investments currently held have maturities of less than one year.

The Company reviews short-term investments for impairment during each reporting period. Credit losses are recognized up to the amount equal to the difference between the fair value and the amortized cost basis and recorded as an allowance for credit losses in the unaudited condensed consolidated balance sheets with a corresponding adjustment to earnings. Unrealized losses that are not related to credit losses are recognized in accumulated other comprehensive loss. Unrealized losses were not significant for the investments held in the Company’s portfolio as of June 30, 2024 and Company considered the decline in market value for these securities to be primarily attributable to economic and market conditions rather than credit-related factors. There were no unrealized losses in the Company's investment portfolio at December 31, 2023. The Company considered the risk-profile of the counterparties under ASC 326, noting that any credit risk associated with such entities is either zero or near zero. There were no impairment losses or expected credit losses related to its short-term investments during the three and six months ended June 30, 2024 and 2023.