Note 12 - Fair Value

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 12. Fair Value

Cash, cash equivalents, and marketable securities are carried at fair value. Financial instruments, including accounts receivable, accounts payable, and accrued expenses are carried at cost, which approximates fair value given their short-term nature. Our remaining fair value measures are discussed below.

Financial Instruments with Fair Value Measurements on a Recurring Basis

The fair value hierarchy for financial instruments measured at fair value on a recurring basis as of March 31, 2024 is as follows:

	March 31, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents:
U.S. Treasury securities	$	—	$	12,191	$	—	$	12,191
Money market funds		5,660		—		—		5,660
Marketable securities:
U.S. Treasury securities		—		6,178		—		6,178
Common stock warrant liabilities		—		—		2,790		2,790
Clene Nanomedicine contingent earn-out liability		—		—		22		22
Initial Stockholders contingent earn-out liability		—		—		3		3

The fair value hierarchy for financial instruments measured at fair value on a recurring basis as of December 31, 2023 is as follows:

	December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents:
U.S. Treasury securities	$	—	$	19,884	$	—	$	19,884
Money market funds		5,113		—		—		5,113
Marketable securities:
U.S. Treasury securities		—		6,179		—		6,179
Common stock warrant liabilities		—		—		1,481		1,481
Clene Nanomedicine contingent earn-out liability		—		—		75		75
Initial Stockholders contingent earn-out liability		—		—		10		10

There were no transfers between Level 1, Level 2, or Level 3 during any of the periods above.

Changes in the fair value of our Level 3 financial instruments for the three months ended March 31, 2024 were as follows:

(in thousands)	Common Stock Warrant Liabilities		Clene Nanomedicine Contingent Earn-out			Initial Stockholders Contingent Earn-out
Balance – December 31, 2023	$	1,481	$	75		$	10
Change in fair value		1,309		(53	)		(7	)
Balance – March 31, 2024	$	2,790	$	22		$	3

Changes in the fair value of our Level 3 financial instruments for the three months ended March 31, 2023 were as follows:

(in thousands)	Clene Nanomedicine Contingent Earn-out		Initial Stockholders Contingent Earn-out
Balance – December 31, 2022	$	2,264	$	291
Change in fair value		55		7
Balance – March 31, 2023	$	2,319	$	298

Valuation of Notes Payable and Convertible Notes Payable

The 2019 MD Loan and the 2019 Cecil Loan are carried at the greater of principal plus accrued interest or the value of the Phantom Shares (see Note 8), which approximates fair value. The 2021 Avenue Loan, the 2022 MD Loan, and the 2022 DHCD Loan are carried at amortized cost, which approximates fair value due to our credit risk and market interest rates. Our notes payable and convertible notes payable are categorized within Level 3 of the fair value hierarchy.

Valuation of the Common Stock Warrant Liabilities

The New Avenue Warrant is classified as a liability and carried at fair value. We estimate the fair value using a Black-Scholes option-pricing model with probability weights for the occurrence of the following events: (i) settlement of the instrument upon a change of control transaction, (ii) dissolution of the Company, or (iii) another outcome outside of (i)-(ii). These estimates require significant judgment. The carrying amount may fluctuate significantly and the actual settlement amount  may be materially different from the estimated fair value. The unobservable inputs to the Black-Scholes option pricing model were as follows:

	March 31,			December 31,
	2024			2023
Expected stock price volatility		105.00% – 120.00	%		105.00% – 110.00	%
Risk-free interest rate		4.28% – 5.38	%		3.88% – 5.03	%
Expected dividend yield		0.00	%		0.00	%
Expected term (in years)		0.50 – 4.25			0.75 – 4.50
Probability of change of control		20.00	%		25.00	%
Probability of dissolution		50.00	%		50.00	%
Probability of other outcome		30.00	%		25.00	%

The Tranche A Warrants are classified as a liability and carried at fair value (the Tranche B Warrants qualified for equity classification at issuance). We estimate the fair value using a Black-Scholes option-pricing model with probability weights for the occurrence of the following events: (i) FDA acceptance of an NDA for CNM-Au8, (ii) settlement upon a fundamental transaction, (iii) dissolution of the Company, and (iv) another outcome outside of (i)-(iii). These estimates require significant judgment. The carrying amount may fluctuate significantly and the actual settlement amount may be materially different from the estimated fair value. The unobservable inputs to the Black-Scholes option pricing model were as follows:

	March 31,			December 31,
	2024			2023
Expected stock price volatility		100.00% – 105.00	%		100.00% – 110.00	%
Risk-free interest rate		4.55% – 5.15	%		4.13% – 4.74	%
Expected dividend yield		0.00	%		0.00	%
Expected term (in years)		0.83 – 2.21			1.08 – 2.46
Probability of NDA acceptance		20.00	%		20.00	%
Probability of fundamental transaction		20.00	%		25.00	%
Probability of dissolution		50.00	%		50.00	%
Probability of other outcome		10.00	%		5.00	%

Valuation of the Contingent Earn-Out Liabilities

The Contingent Earn-outs are carried at fair value, determined using a Monte Carlo valuation model in order to simulate the future path of our stock price over the earn-out periods. The carrying amount of the liabilities may fluctuate significantly and actual amounts paid may be materially different from the liabilities’ estimated value. The unobservable inputs to the Monte Carlo valuation model were as follows:

	March 31,			December 31,
	2024			2023
Expected stock price volatility		97.50	%		115.00	%
Risk-free interest rate		4.70	%		4.20	%
Expected dividend yield		0.00	%		0.00	%
Expected term (in years)		1.75			2.00