Fair Value Measurements

3 Months Ended

Mar. 31, 2024

FAIR VALUE MEASUREMENTS

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type are presented in the following table:


	March 31, 2024
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds(1)	$	186,744	$	—	$	—	$	186,744
U.S. Treasury securities	31,812		—		—		31,812
Commercial paper	—		30,828		—		30,828
Corporate debt securities	—		25,490		—		25,490
Government-related debt securities	—		23,604		—		23,604
Common stock in LianBio	46		—		—		46

Total assets measured at fair value	$	218,602	$	79,922	$	—	$	298,524
(1) This balance includes cash requirements settled on a nightly basis.


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds(1)	$	224,947	$	—	$	—	$	224,947



Government-related debt securities	—		2,495		—		2,495
Common stock in LianBio	631		—		—		631
Equity warrants (for LianBio shares)	—		—		225		225
Total assets measured at fair value	$	225,578	$	2,495	$	225	$	228,298
(1) This balance includes cash requirements settled on a nightly basis.

Money Market Funds and U.S. Treasury Securities

Money market funds and U.S. Treasury securities are highly liquid investments and are actively traded with readily-available market prices that are publicly observable and independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

Commercial Paper, Corporate Debt Securities and Government-related Debt Securities

Commercial paper, corporate debt securities and government-related debt securities were valued using Level 2 inputs that utilized industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. The Company reviews trading activity and pricing for these investments as of each measurement date.

LianBio Common Stock and Equity Warrants

In March 2021, contemporaneous with the China Out-License transaction, the Company and LianBio, executed a warrant agreement for the Company to purchase, in three tranches, common shares in LianBio at an exercise price equal to common stock par value, which converted into warrants of the parent company of LianBio (a pharmaceutical company focused on the Greater China and other Asian markets; Nasdaq: LIAN; any references to common stock or warrants of LianBio shall refer to common stock or warrants of the publicly-traded parent of LianBio) in connection with LianBio's previous Initial Public Offering. The first two tranches were vested exercised, and converted into 156,746 shares of LianBio common stock as of December 31, 2022 and are recognized at fair value within long-term investments in the Condensed Balance Sheets as of March 31, 2024 and December 31, 2023.

On February 13, 2024, LianBio announced its plan to wind down its operations. On March 14, 2024, LianBio's Board of Directors made a special cash dividend payment to the Company for $0.7 million (equivalent to $4.80 per share), which was recorded to other income (expense) in the Condensed Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024, and cash and cash equivalents in the Condensed Balance Sheets as of March 31, 2024. LianBio was delisted from NASDAQ in March 2024 and now trades on the over-the-counter markets. As of March 31, 2024 and December 31, 2023, LianBio common stock is classified within Level 1 of the fair value hierarchy, given its publicly reported price.

On March 26, 2024, the Company executed an agreement with LianBio to terminate the unvested third warrant tranche (the "Warrant Termination Agreement") for a cancellation payment of $0.4 million (see Note 8). Upon execution of the Warrant Termination Agreement the Company recorded the final change in fair value of the equity warrant to other income (expense) in the Condensed Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024, and removed the equity warrant from other assets in the Condensed Balance Sheet as of March 31, 2024. The third tranche of the equity warrant was classified as Level 3 in the fair value hierarchy and presented within other assets in the accompanying Condensed Balance Sheets as of December 31, 2023. The most significant assumptions used in the option pricing valuation model as of each balance sheet date to determine its fair value included observable and unobservable inputs: LianBio common stock volatility (based on the historical volatility of similar companies); the probability of regulatory milestone achievement for vesting; and the application of an assumed discount rate.

The estimated fair value of the equity warrants were remeasured each reporting period with adjustments reported within other income (expense) on the accompanying Condensed Statements of Operations and Comprehensive Loss, until exercised, expired or terminated. These equity warrants are valued in the accompanying Condensed Financial Statements as follows:


	Value of equity warrants
Fair value as of December 31, 2023	$	225
Remeasurement of equity warrants prior to termination	(201)
Termination of equity warrants	(24)
Fair value as of March 31, 2024	$	—


	Value of equity warrants
Fair value as of December 31, 2022	$	108

Remeasurement of equity warrants	(17)
Fair value as of March 31, 2023	$	91

The fair value and amortized cost of cash equivalents and available-for-sale investments by major security type are presented in the following table:


	March 31, 2024
	Amortized cost		Unrealized gains		Unrealized losses		Estimated fair value
Cash equivalents:
Money market funds(1)	$	186,744	$	—	$	—	$	186,744
U.S. Treasury securities	3,484		—		—		3,484

Commercial paper	3,478		—		(1)		3,477
Total cash equivalents	$	193,706	$	—	$	(1)	$	193,705

Marketable securities:
U.S. Treasury securities	$	28,341	$	—	$	(13)	$	28,328
Commercial paper	27,374		—		(23)		27,351
Corporate debt securities	25,509		—		(19)		25,490
Government-related debt securities	23,613		4		(13)		23,604
Common stock in LianBio	1,108		—		(1,062)		46
Total marketable securities	$	105,945	$	4	$	(1,130)	$	104,819

(1) This balance includes cash requirements settled on a nightly basis.


	December 31, 2023
	Amortized cost		Unrealized gains		Unrealized losses		Estimated fair value
Cash equivalents:
Money market funds(1)	$	224,947	$	—	$	—	$	224,947


Total cash equivalents	$	224,947	$	—	$	—	$	224,947

Marketable securities:



Government-related debt securities	$	2,496	$	—	$	(1)	$	2,495
Total marketable securities	$	2,496	$	—	$	(1)	$	2,495

Long-term investments:
Common stock in LianBio	$	1,108	$	—	$	(477)	$	631
Total long-term investments	$	1,108	$	—	$	(477)	$	631

(1 ) This balance includes cash requirements settled on a nightly basis.

As of March 31, 2024, substantially all available-for-sale debt securities had a maturity of 12 months or less. Four securities have a contractual maturity between one and two years, with an estimated fair market value of $20.6 million and amortized cost of $20.6 million. As of December 31, 2023, all available-for-sale debt securities had a maturity of 12 months or less. As of March 31, 2024 and December 31, 2023, the Company had twenty-six available-for-sale debt securities and one available-for-sale debt security, respectively, in a continuous gross unrealized loss position for less than one year. As of March 31, 2024 and December 31, 2023, unrealized credit losses on these securities were not material. Further, the Company does not intend to sell these investments prior to maturity and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis. Accordingly, the Company did not recognize any other-than-temporary impairment losses.

- 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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