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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

4. Fair Value Measurements

The following tables present information about the Company’s assets and liabilities that are regularly measured and carried at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, which is described further within Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Financial assets and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):


	September 30, 2023
	Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	66,805	$	—	$	—
U.S. Treasury notes		—		187,281		—
Total	$	66,805	$	187,281	$	—
Liabilities
Contingent value right liability	$	—	$	—	$	1,500
Total	$	—	$	—	$	1,500


	December 31, 2022
	Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market funds	$	40,783	$	—	$	—
Total	$	40,783	$	—	$	—

The fair value of the Company’s Level 1 cash equivalents, consisting of money market funds, is based on quoted market prices in active markets with no valuation adjustment. The fair value of the Company’s Level 2 cash equivalents, consisting of U.S. Treasury notes with original maturities of three months or less, is determined through third-party pricing services. The amortized cost of the U.S. treasury notes approximates the fair value. There have been no impairments of the Company’s assets measured and carried at fair value during the three and nine months ended September 30, 2023 and 2022. In addition, there were

no changes in valuation techniques or transfers between Level 1, Level 2 and Level 3 financial assets during the three and nine months ended September 30, 2023 and 2022. The Company did not have any non-recurring fair value measurements on any assets or liabilities during the three and nine months ended September 30, 2023 and 2022.

In May 2021, the Company entered into a license agreement (the “Roche Agreement”) with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (together, “Roche”) pursuant to which Roche granted the Company an exclusive and sublicensable worldwide license under certain patent rights and know-how to develop, manufacture and commercialize certain compounds (the “Compounds”) as further described in Note 8. The Company recognized a liability in connection with the Roche Agreement which included an obligation to issue a variable number of shares of the Company’s common stock to Roche for no additional consideration upon the Company’s completion of an initial public offering or certain merger transactions (a “Roche Qualified Transaction”). Prior to settlement in Q4 2022, the fair value measurement of the derivative liability was classified as Level 3 under the fair value hierarchy as it was valued using certain unobservable inputs. These inputs included: (1) the Company’s estimated shares outstanding and fair value per share upon completion of a Roche Qualified Transaction and (2) the probability of the Company completing a Roche Qualified Transaction. The number of shares of common stock to be issued to Roche was estimated to be approximately 2.85% of the outstanding shares of common stock of the combined company as of immediately after the completion of a Roche Qualified Transaction, including the exercise by the underwriters thereof of any overallotment option, if applicable. The Company remeasured the derivative liability based on the stock price of its publicly-traded common stock on December 29, 2022. The change in the fair value for the period was recorded in the condensed consolidated statements of operations and comprehensive loss in the change in fair value of derivative liability. Upon completion of the merger, the Company issued 482,313 shares of common stock to Roche, thereby settling the derivative liability, with the fair value of the common stock at the time of issuance recorded as additional paid-in capital.

As described in Note 1, in connection with the merger, the stockholders of Gemini at the Effective Time received a CVR to receive consideration from the Company upon its receipt of certain proceeds, resulting from a disposition of Gemini’s pre-merger assets within one year after the closing of the merger, calculated in accordance with the CVR Agreement. The fair value of the CVR liability was $1.5 million as of September 30, 2023 and de minimis as of December 31, 2022. The fair value of the CVR liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a discounted cash flow approach to value the CVR liability. As inputs into the valuation, the Company considered the probabilities of success of certain potential payments, the amount of the payments, and a discount rate of 13.2% determined using an implied credit spread adjusted based on companies with similar credit risk.

The following table provides a summary of changes in fair value of the Level 3 liabilities for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three and Nine Months Ended September 30, 2023		Three and Nine Months Ended September 30, 2022
	Contingent value right liability		Derivative liability
Balance at December 31	$	—	$	6,450
Change in fair value		—		(100	)
Balance at March 31		—		6,350
Change in fair value		1,500		(2,390	)
Balance at June 30		1,500		3,960
Change in fair value		—		5,940
Balance at September 30	$	1,500	$	9,900

- 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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