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Fair Value Measurements
 3 Months Ended
Mar. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements

5. FAIR VALUE MEASUREMENTS

Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of our financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.

ASC 820 “Fair Value Measurements and Disclosures” specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:

•
Level 1 – Quoted prices in active markets for identical securities.
•
Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).
•
Level 3 – Significant unobservable input that reflects management’s best estimate of what market participants would use in pricing the asset or liability.

As quoted prices in active markets are not readily available for certain financial instruments, we obtain estimates for the fair value of financial instruments through third-party pricing service providers.

In determining the appropriate levels, we performed a detailed analysis of the assets and liabilities that are subject to ASC 820.

We invest our excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. These securities are not collateralized and mature within one year.

A description of the valuation techniques applied to our financial instruments measured at fair value on a recurring basis follows.

Financial Instruments

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

March 31, 2025

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market securities (cash equivalents)

 

$

12,401

 

 

$

—

 

 

$

—

 

 

$

12,401

 

Restricted cash

 

 

20

 

 

 

—

 

 

 

—

 

 

 

20

 

US government securities

 

 

—

 

 

 

6,197

 

 

 

—

 

 

 

6,197

 

Corporate bonds

 

 

—

 

 

 

3,642

 

 

 

—

 

 

 

3,642

 

Commercial paper

 

 

—

 

 

 

390

 

 

 

—

 

 

 

390

 

Total assets

 

$

12,421

 

 

$

10,229

 

 

$

—

 

 

$

22,650

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt

 

$

—

 

 

 

9,489

 

 

$

—

 

 

$

9,489

 

Contingent consideration

 

 

—

 

 

 

—

 

 

 

1,240

 

 

 

1,240

 

Total liabilities

 

$

—

 

 

$

9,489

 

 

$

1,240

 

 

$

10,729

 

Money Market Securities

Money market securities are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

Cash equivalents consist of the following (in thousands):

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

March 31, 2025

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market securities

 

$

12,401

 

 

$

—

 

 

$

—

 

 

$

12,401

 

Total cash equivalents

 

$

12,401

 

 

$

—

 

 

$

—

 

 

$

12,401

 

Money market securities (restricted cash)

 

$

20

 

 

$

—

 

 

$

—

 

 

$

20

 

Total restricted cash

 

$

20

 

 

$

—

 

 

$

—

 

 

$

20

 

We only invest in A (or equivalent) rated securities. All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase.

Corporate and Other Debt Corporate Bonds and Commercial Paper

The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

March 31, 2025

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

US government securities

 

$

6,196

 

 

$

—

 

 

$

1

 

 

$

6,197

 

Corporate bonds

 

 

3,641

 

 

 

—

 

 

 

1

 

 

 

3,642

 

Commercial paper

 

 

390

 

 

 

—

 

 

 

—

 

 

 

390

 

Total marketable securities

 

$

10,227

 

 

$

—

 

 

$

2

 

 

$

10,229

 

Concentration of Cash and Cash Equivalents Risk

We place our cash in a custodial account and in commercial checking and sweep accounts with various financial institutions.

As of March 31, 2025, approximately $20.2 million in cash equivalents and marketable securities is held in a custodial account with U.S. Bank, for which SVB Asset Management is the advisor; and approximately $0.3 million of our cash and $1.9 million of our cash equivalents is held in a single financial institution, SVB, as required by the covenants of the Debt Agreement (Note 6 – Convertible Debt).

Our commercial bank balances exceed federal insurance limits. We have not experienced any losses in our cash and cash equivalents for the three months ended March 31, 2025 and 2024.

Concentration of Credit Risk

For certain of our financial instruments, including cash and cash equivalents, accounts payable, accrued liabilities other, accrued clinical liabilities and accrued compensation, carrying values approximate fair value due to their short-term nature. Our cash equivalents are recorded at fair value.

Financial risk is the risk to our results of operations that arises from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates as well as credit risk associated with the financial stability of the issuers of the financial instruments. Foreign exchange rate risk arises as a portion of our expenses are denominated in other than U.S. dollars.

We invest our excess cash in accordance with investment guidelines, which limit our credit exposure for securities to any one financial institution or corporation other than securities issued by the U.S. government. We only invest in A (or equivalent) rated securities with maturities of one year or less. These securities generally mature within one year or less and in some cases are not collateralized. At March 31, 2025, the average days to maturity of our portfolio of cash equivalents and marketable securities was 64 days. We do not use derivative instruments to hedge against any of these financial risks.

Fair Value of Debt

Convertible Debt

The principal amount, carrying value and related estimated fair value of our convertible debt reported in the consolidated balance sheets as of March 31, 2025 and December 31, 2024 was as follows (in thousands). The aggregate fair value of the principal amount of the convertible debt is a Level 2 fair value measurement.

 

 

 

March 31, 2025

 

 

December 31, 2024

 

 

 

Principal

 

 

Carrying

 

 

Fair

 

 

Principal

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Value

 

 

Amount

 

 

Value

 

 

Value

 

2024 SVB Convertible Debt

 

$

10,000

 

 

$

9,851

 

 

$

9,489

 

 

$

10,000

 

 

$

9,837

 

 

$

9,430

 

 

Fair Value of Sopharma Share Purchase Agreement Contingent Consideration

We determine the fair value of the contingent consideration using a probability based discounted cash flow model whereby we forecast the timing of the cash flow of the related future payment based on cytisinicline’s current clinical development phase and the remaining requirements for regulatory approval. We then discount the expected payment amount to calculate the present value and then apply a probability of success in obtaining regulatory approval as of the valuation date. We evaluate the underlying projection used in determining the fair value each period and make updates as necessary.

The significant assumptions we use to value the contingent consideration are the forecasted timing of the future payment, the risk-adjusted discount rate and the probability of success which are all considered significant unobservable inputs, and as such, the liability is classified as a Level 3 measurement. The risk-adjusted discount rate is adjusted for credit risk.

An increase in the discount rate and decrease in the probability of success will result in a decrease in the fair value of the contingent consideration. Conversely, a decrease in the discount rate and increase in the probability of success will result in an increase in the fair value of the contingent consideration. As of March 31, 2025 the risk adjusted discount rate was 30.8% and the probability of success was 90.6%. Adjustments to the fair value of the contingent liabilities, other than payments, are recorded as a gain or loss in the Consolidated Statements of Loss and Comprehensive Loss.

The following table presents the changes in fair value of our total Level 3 financial liabilities for the three months ended March 31, 2025:

 

 

 

Balance at

 

 

Change in

 

 

Balance at

 

(in thousands)

 

December 31, 2024

 

 

Fair Value

 

 

March 31, 2025

 

Contingent consideration

 

$

1,149

 

 

$

91

 

 

$

1,240