Fair Value Measurements and Marketable Securities

12 Months Ended

Dec. 31, 2023

Fair Value Measurements and Marketable Securities

3. Fair Value Measurements and Marketable Securities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements at December 31, 2023 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	75,628	$	—	$	75,628
Total cash equivalents		—		75,628		—		75,628


	Fair Value Measurements at December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents:
Money market funds	$	—	$	108,227	$	—	$	108,227
Total cash equivalents		—		108,227		—		108,227

Excluded from the tables above is cash of $0.7 million and $0.9 million as of December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3 categories.

Embedded Derivative

Liability related to change of control

In connection with the termination of the Revenue Interest Financing Agreement (“Revenue Interest Agreement”) with HealthCare Royalty Management, LLC (“HCR”), the Company recorded a derivative liability on its condensed consolidated balance sheet because of an embedded feature that represented a conditional obligation to pay HCR an additional cash amount upon a change of control. The Company remeasured the derivative liability to fair value at each reporting date until it expired on December 31, 2022, and at that time the fair value of the derivative liability was reduced to zero. The Company valued the change of control provision under the Revenue Interest Termination Agreement, dated June 7, 2022, by and between the Company and HCR, using a series of Black-Scholes-Merton option pricing models. The assumptions used in the valuation model include (1) the Company's estimates of the probability of a change of control event occurring prior to or as of December 31, 2022, (2) the Company's common stock closing stock price as of June 7, 2022, (3) the Company's fully-diluted number of shares of common stock outstanding as of June 7, 2022, (4) volatility, (5) risk-free rate, and (6) the Company's credit-risk-adjusted discount rate.

Liability related to the sale of future royalties

During the year ended December 31, 2021, in connection with the liability related to the sale of future royalties, the Company recorded a derivative liability on its consolidated balance sheet at inception of its Revenue Interest Agreement because there were embedded instruments that represented a conditional obligation to pay HCR the final payment. The Revenue Interest Agreement was terminated on June 7, 2022, and as such, the fair value of this derivative liability was reduced to zero.

The fair value for the liability related to the sale of future royalties at the time of the initial transaction was based on the Company's current estimates of future royalties expected to be paid to HCR over the remaining patent life of the product, which were considered Level 3 inputs.

- 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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