Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

Note 3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company applies the guidance in ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis.  Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

● Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2, and 3 during the nine months ended September 30, 2022.

The table below presents the assets and liabilities measured and recorded in the condensed consolidated financial statements at fair value on a recurring basis at September 30, 2022 and December 31, 2021 categorized by the level of inputs used in the valuation of each asset and liability.

	September 30, 2022
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	4,680	$	4,680	$	—	$	—
Cash equivalents – money market funds		22,115		22,115		—		—
Total assets	$	26,795	$	26,795	$	—	$	—
Liabilities
Warrant liability	$	3,750	$	—	$	—	$	3,750
Series X preferred stock liability		20,400		—		—		20,400
Total liabilities	$	24,150	$	—	$	—	$	24,150
	December 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	250	$	250	$	—	$	—
Cash equivalents – money market funds		32,295		32,295		—		—
Total assets	$	32,545	$	32,545	$	—	$	—

The Level 1 assets consist of money market funds, which are actively traded daily.

There was no significant change in the fair value of the Series X preferred stock liability from the date of issuance on September 28,2022 to September 30, 2022. A reconciliation of the change in the fair value of the warrant liability for the three and nine months ended September 30, 2022 is as follows:

(In thousands)
Balance, December 31, 2021	$	—
Issuance in connection with Acquisition of Aceragen		3,866
Change in fair value		(116)
Balance, September 30, 2022	$	3,750

The fair value of the Series X preferred stock represents the present value of estimated future payments, including royalty payments, as well as estimated payments that are contingent upon the achievement of specified milestones. The fair value of the Series X preferred stock liability is based on the cumulative probability of the various estimated payments. The fair value measurement is based on significant Level 3 unobservable inputs such

as the probability of achieving the milestones, anticipated timelines, probability and timing of an early redemption of all obligations under the agreement and discount rate. Any changes in the fair value of the liability are recognized in the consolidated statement of operations until it is settled.