Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the fair value of liabilities related to certain outstanding warrants, certain embedded conversion features associated with convertible debt and the contingent payable to Cognate BioServices on a recurring basis to determine the fair value of these liabilities. ASC 820 establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

Level 1 - Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date.

Level 2 - Quoted prices in markets that are not active or inputs which are either directly or indirectly observable.

Level 3 - Unobservable inputs for the instrument requiring the development of assumptions by the Company.

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2023 and December 31, 2022 (in thousands):

	Fair value measured at June 30, 2023
			Quoted prices in active		Significant other		Significant
	Fair value at		markets		observable inputs		unobservable inputs
	June 30, 2023		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	1,083	$	—	$	—	$	1,083
Contingent payable derivative liability		8,706		—		—		8,706
Share liability		223		—		—		223
Total fair value	$	10,012	$	—	$	—	$	10,012

	Fair value measured at December 31, 2022
			Quoted prices in active		Significant other		Significant
	Fair value at		markets		observable inputs		unobservable inputs
	December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	80,559	$	—	$	—	$	80,559
Embedded redemption option		807		—		—		807
Contingent payable derivative liability		8,668		—		—		8,668
Share liability		678		—		—		678
Total fair value	$	90,712	$	—	$	—	$	90,712

There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2023.

The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

	Warrant			Embedded		Contingent Payable		Share
	Liability			Redemption Option		Derivative Liability		Liability		Total
Balance - January 1, 2023	$	80,559		$	807	$	8,668	$	678	$	90,712
Additional share liability		—			—		—		663		663
Redemption of share liability		—			—		—		(1,071)		(1,071)
Reclassification of warrant liabilities		(76,258)			—		—		—		(76,258)
Change in fair value		(3,218)			(807)		38		(47)		(4,034)
Balance - June 30, 2023	$	1,083	(1)	$	—	$	8,706	$	223	$	10,012

(1) The remaining balance of $1.1 million in warrant liability as of June 30, 2023 was related to certain conditional rights to independently purchase shares from the Company in a future raise of capital (the “Piggy-back Rights”). The Company accounted for the Piggy-back Rights as a freestanding financial instrument, which was classified as a liability at fair value on the Condensed Consolidated Balance Sheet

On January 9, 2023, the Company reclassified the fair value of the warrant liability of $76.3 million into the additional paid-in capital. The change in fair value of the common stock warrant liability of $2.3 million between December 31, 2022 and January 9, 2023 is reflected in “Change in fair value of derivative liabilities” in the accompanying condensed consolidated statements of comprehensive loss for the six months ended June 30, 2023.

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2023, January 9, 2023 (the reclassification date) and December 31, 2022 is as follows:

	As of June 30, 2023						As of January 9, 2023
	Share			Contingent Payable			Warrant
	Liability			Derivative Liability			Liability
Strike price	$	0.60		$	0.57	*	$	0.31
Contractual term (years)		0.07			1.24			1.46
Volatility (annual)		60	%		61	%		87	%
Risk-free rate		4.3	%		5.5	%		4.3	%
Dividend yield (per share)		0	%		0	%		0	%

	As of December 31, 2022
	Warrant			Share			Contingent Payable
	Liability			Liability			Derivative Liability
Strike price	$	0.31		$	0.78	*	$	0.78	*
Contractual term (years)		1.5			0.1			0.6
Volatility (annual)		86	%		76	%		77	%
Risk-free rate		4.3	%		2.0	%		4.8	%
Dividend yield (per share)		0	%		0	%		0	%

* The strike price assumes the current stock price as of June 30, 2023 and December 31, 2022

The key unobservable inputs for Piggy-back rights that was included in the warrant liability as of June 30, 2023 and December 31, 2022 was the assumption of the estimated remaining life which was based on the estimate of the next qualified financing.