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Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

4. Fair Value Measurements

 

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and the level of inputs used in such measurements (in thousands):

 

 

 

September 30, 2024

 

 

 

Balance

 

Quoted Prices
in Active
Markets
(Level 1)

 

 

Significant
Other
Observable
Inputs (Level 2)

 

 

Significant Unobservable Inputs (Level 3)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Oramed Note

 

$

69,946

 

$

—

 

 

$

—

 

 

$

69,946

 

FSF Deposit

 

 

14,690

 

 

—

 

 

 

—

 

 

 

14,690

 

Derivative liabilities

 

 

11,453

 

 

—

 

 

 

—

 

 

 

11,453

 

Other long-term liabilities

 

 

155

 

 

—

 

 

 

—

 

 

 

155

 

Total liabilities measured at fair value

 

$

96,244

 

$

—

 

 

$

—

 

 

$

96,244

 

 

 

 

December 31, 2023

 

 

 

Balance

 

 

Quoted Prices
in Active
Markets
(Level 1)

 

 

Significant
Other
Observable
Inputs (Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Oramed Note

 

$

104,089

 

 

$

—

 

 

$

—

 

 

$

104,089

 

Convertible Debentures

 

 

4,340

 

 

 

—

 

 

 

—

 

 

 

4,340

 

Derivative liabilities

 

 

1,518

 

 

 

—

 

 

 

—

 

 

 

1,518

 

Other long-term liabilities

 

 

179

 

 

 

—

 

 

 

—

 

 

 

179

 

Total liabilities measured at fair value

 

$

110,126

 

 

$

—

 

 

$

—

 

 

$

110,126

 

 

The Oramed Note

 

In September 2023, the Company issued a senior secured promissory note to Oramed Pharmaceuticals Inc. (“Oramed”) in the principal amount of $101.9 million (the “Oramed Note”) (see Note 7). The Company elected the fair value option to account for the Oramed Note with any changes in the fair value of the note recorded in the unaudited condensed consolidated statements of operations, with the exception of changes in fair value due to instrument-specific credit risk, if any, which are recorded as a component of other comprehensive income. The Company uses a discounted cash flow model to determine the fair value of the Oramed Note based on Level 3 inputs. This methodology discounts the interest and principal payments using a risk-adjusted discount rate. The fair value as of September 30, 2024 was determined to be $69.9 million by applying a discount rate of 52.00%. For the three and nine months ended September 30, 2024, the Company recorded a gain of $0.6 million and a loss of $7.6 million in change in fair value of the Oramed Note in the unaudited condensed consolidated statements of operations, respectively. The change in fair value due to instrument-specific credit risk recorded as a component of other comprehensive income was $3.2 million and $5.0 million during the three and nine months ended September 30, 2024, respectively.

 

FSF Deposit

 

In June 2024, the Company received the FSF Deposit in the aggregate principal amount of $10.0 million from FSF Lender (see Note 2 and Note 7). The Company elected the fair value option to account for the FSF Deposit with any changes in the fair value of the deposit recorded in the unaudited condensed consolidated statements of operations. The fair value as of September 30, 2024 was determined to be $14.7 million after consideration of the Satisfaction Agreement (see Note 2 and Note 7). For each of the three and nine months ended September 30, 2024, the Company recorded a loss of $3.0 million and $4.7 million in change in fair value of the FSF Deposit in the unaudited condensed consolidated statements of operations, respectively.

 

Convertible Debentures

 

In March and April 2023, the Company issued the Convertible Debentures in the principal amount of $25.0 million (see Note 7). The Convertible Debentures were measured at fair value on a recurring basis using Level 3 inputs. The Company used the Binomial Lattice Model valuation technique to measure the fair value of the Convertible Debentures with any changes in the fair value of the Convertible Debentures recorded in the unaudited condensed consolidated statements of operations. Interest expense related to the Convertible Debentures is included in the changes in fair value. The Company fully repaid the Convertible Debentures in March 2024.

 

Derivative Liabilities

 

The Company recorded a gain of $18.1 million and $2.4 million for the three and nine months ended September 30, 2024, respectively, attributed to warrant liabilities consisting of the Private Warrants, the Firm Warrants and the RDO Common Warrants (each as defined below). The Company recorded a gain of $4.2 million and a loss of $1.1 million for the three and nine months ended September 30, 2023, respectively, attributed to warrant liability consisting of the Private Warrants. The Company assumed the private placement warrants from Vickers in November 2022 in connection with the Business Combination (“Private Warrants”). The Company issued the Firm Warrants in March 2024 as part of the Bought Deal Offering (as defined below) and RDO Common Warrants in April 2024 as part of the Registered Direct Offering (as defined below).

 

As of September 30, 2024, the following warrants to purchase Common Stock that are included in derivative liabilities were outstanding: 1,000,000 Private Warrants, 5,568,153 Firm Warrants and 15,000,000 RDO Common Warrants. As of September 30, 2024, the fair value of derivative warrant liabilities related to these warrants was $11.5 million.

The following table includes a summary of the derivative liabilities measured at fair value during the nine months ended September 30, 2024 (in thousands):

 

 

 

Fair Value

 

Ending Balance as of December 31, 2023

 

$

1,518

 

Change in fair value measurement

 

 

(2,367

)

Issuance of Firm Warrants as part of the Bought Deal Offering, RDO Common Warrants as part of the Registered Direct Offering and Private Warrants as part of Oramed Side Letter

 

 

12,302

 

Ending Balance as of September 30, 2024

 

$

11,453

 

 

Warrant Liability Measurement

 

The derivative warrant liability was valued using the Black-Scholes option pricing model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the warrant is the expected volatility of the Common Stock. The expected volatility assumption is based on historical volatilities of comparable companies whose share prices are publicly available as well as the implied volatility of the Public Warrants (as defined below), described in Note 9 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K. A summary of the inputs used in valuing the derivative warrant liabilities is as follows:

 

 

 

Private Warrants

 

 

Firm Warrants

 

 

RDO Common Warrants

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2024

 

 

2024

 

Equity value

 

$

0.92

 

 

$

0.92

 

 

$

0.92

 

Exercise price

 

$

11.50

 

 

$

1.70

 

 

$

1.10

 

Term, in years

 

 

3.11

 

 

 

4.43

 

 

 

4.57

 

Volatility

 

 

111.0

%

 

 

82.0

%

 

 

81.0

%

Risk-free rate

 

 

3.55

%

 

 

3.55

%

 

 

3.55

%

Dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Call option value

 

$

0.23

 

 

$

0.48

 

 

$

0.57

 

 

 

 

Private Warrants

 

 

 

December 31,

 

 

 

2023

 

Equity value

 

$

2.04

 

Exercise price

 

$

11.50

 

Term, in years

 

 

3.86

 

Volatility

 

 

76.0

%

Risk-free rate

 

 

3.90

%

Dividend yield

 

 

0.0

%

Call option value

 

$

0.42

 

 

Contingent Consideration Related to SP-104 Acquisition

 

The Development Milestone Payment related to the SP-104 Assets represents an obligation to potentially settle a fixed value in a variable number of shares of Common Stock and requires remeasurement at fair value through settlement.

 

Upon the achievement of FDA approval for a new drug application for SP-104, the Company will transfer $3.0 million in cash or shares of Common Stock to Aardvark, at the discretion of the Company. The fair value of the contingent consideration liability associated with the Development Milestone Payment was estimated using a probability-weighted discounted cash flow method. Significant unobservable inputs assumptions included the likelihood of receiving FDA approval for SP-104, expected timing for receipt of FDA approval for SP-104, and a discount rate of 9.3%. As of September 30, 2024 and December 31, 2023, the fair value of contingent consideration related to the Development Milestone Payment was $0.2 million.