Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2024

Fair Value of Financial Assets and Liabilities

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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


	Fair Value Measurements as of September 30, 2024 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market funds and U.S. Treasury bills	$	68,734	$	7,993	$	—	$	76,727
Marketable securities— U.S. Treasury notes, U.S. Treasury bills, and federal government agency notes	—		37,565		—		37,565
	$	68,734	$	45,558	$	—	$	114,292
Liabilities:
Embedded derivative liability	$	—	$	—	$	10	$	10
Class C warrant liability	—		—		11,087		11,087
	$	—	$	—	$	11,097	$	11,097


	Fair Value Measurements as of December 31, 2023 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market funds and U.S. Treasury bills	$	76,856	$	4,985	$	—	$	81,841
Marketable securities—U.S. Treasury notes, U.S. Treasury bills, and federal government agency notes	—		15,000		—		15,000
	$	76,856	$	19,985	$	—	$	96,841
Liabilities:
Embedded derivative liability	$	—	$	—	$	10	$	10
Class C warrant liability	—		—		15,683		15,683
	$	—	$	—	$	15,693	$	15,693

All marketable securities are classified as short-term investments as all are due within one year and include investments in U.S. Treasury notes, U.S. Treasury bills and federal government agency notes. The Company evaluated each marketable security for impairment that is other-than-temporary and concluded that no marketable security was impaired as of September 30, 2024.

The Company’s cash equivalents consisted of money market funds invested in U.S. Treasury securities and direct investments in U.S. Treasury securities. The money market funds were valued based on quoted prices in active markets for identical assets, which represents a Level 1 measurement. U.S. Treasury securities were valued by using inputs observable in active markets for similar securities, which represents a Level 2 measurement in the fair value hierarchy.

The following table provides amortized cost, unrealized gains and losses and the carrying amount of available-for-sale debt marketable securities as of September 30, 2024:


(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	4,193	$	3	$	—	$	4,196
Federal Government agency securities	33,367		21		(19)		33,369
Total available-for-sale debt securities	$	37,560	$	24	$	(19)	$	37,565

The following table provides a roll-forward for the nine months ended September 30, 2024, of the aggregate fair values financial instruments for which fair values are determined using Level 3 inputs:


(in thousands)	Embedded Derivative Liability		Class C Warrant Liability		Total
Balance as of December 31, 2023	$	10	$	15,683	$	15,693

Change in fair value	—		(4,596)		(4,596)

Balance as of September 30, 2024	$	10	$	11,087	$	11,097

Valuation of Embedded Derivative Liability— The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 10), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which were prepared based on a discounted cash flow model that considered the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 17%.

Class C Warrant Liability— In December 2022, the Company issued Class C Warrants for the purchase of shares of its common stock in a public offering. The Class C Warrants are accounted for as a liability on the consolidated balance sheet and are adjusted to fair value at period end through “other (expense) income” on the condensed consolidated statements of operations and comprehensive (loss) income.

The Company calculated the fair value of the Class C Warrants using the Black-Scholes option pricing model, which represents a Level 3 measurement within the fair value hierarchy, with the following inputs:


	September 30, 2024		December 31, 2023
Common stock price	$0.67		$0.84
Risk-free interest rate	3.6	%	3.9	%
Expected term (in years)	3.2		3.9
Expected volatility	103.5	%	96.2	%
Expected dividend yield	—	%	—	%

- 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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