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Note 4 - Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Disclosure Text Block [Abstract]  
Fair Value Measurements

4. Fair Value Measurements

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, other current receivables, accounts payable, accrued liabilities, insurance financing debt, liability-classified warrants and a contingent consideration obligation. The carrying amounts of financial instruments such restricted cash, other current receivables, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments. The carrying value of the Company’s insurance financing debt as of September 30, 2024 and December 31, 2023 approximates its fair value due to the market rate of interest, which is based on level 2 inputs. The Company’s liability-classified common stock warrants and its contingent consideration obligation are carried at fair value based on level 3 inputs. None of the Company’s non-financial assets or liabilities are recorded at fair value on a nonrecurring basis.

Cash and Cash Equivalents

The Company invests its excess cash in money market funds that are classified as level 1 in the fair value hierarchy, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The fair value of the Company's cash and cash equivalents invested in money market funds was $7.7 million and $12.3 million as of September 30, 2024 and December 31, 2023, respectively.

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions and in money market accounts, and at times balances may exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held nor has the Company experienced any losses in these accounts.

Contingent Consideration Obligation

On September 1, 2023, the Company and Giiant Pharma, Inc. ("Giiant") entered into a research collaboration and license agreement (“Giiant License Agreement”). Pursuant to the Giiant License Agreement, the Company incurred a contingent consideration obligation related to future milestone payments. The Company has an obligation to make contingent consideration payments to Giiant, in either cash or shares of the Company’s common stock solely at the Company’s election, upon the achievement of development milestones (as set forth in the Giiant License Agreement). Because the contingent consideration may be settled in shares of the Company's common stock, the Company has determined it should be accounted for under Accounting Standards Codification ("ASC") 480, and accordingly has recognized it as a liability measured at its estimated fair value. On August 2, 2024, the Company and Giiant entered into an amendment to the Giiant License Agreement, which among other things, reduced the milestone payments due to Giiant upon the achievement certain development milestones (see Note 7, Collaborations and License Agreements, for further details).

At the end of each reporting period, the Company re-measures the contingent consideration obligation to its estimated fair value and any resulting change is recognized in research and development expenses in the condensed consolidated statements of operations. The fair value of the contingent consideration obligation is determined using a probability-based model that estimates the likelihood of success in achieving each of the defined milestones that is then discounted to present value using the Company's incremental borrowing rate. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The significant assumptions used in the calculation of the fair value as of September 30, 2024 included a discount rate of 12.1% and management's updated projections of the likelihood of success in achieving each of the defined milestones based on empirical, published industry data.

The following table summarizes the activity of the Company's Level 3 contingent consideration obligation, which is fair valued on a recurring basis (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Contingent Consideration Obligation

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Fair value at beginning of period

 

$

209

 

 

$

—

 

 

$

204

 

 

$

—

 

Initial fair value at the original issuance date

 

 

—

 

 

 

212

 

 

 

—

 

 

 

212

 

Change in fair value during the period

 

 

(164

)

 

 

—

 

 

 

(159

)

 

 

—

 

Fair value at end of period

 

$

45

 

 

$

212

 

 

$

45

 

 

$

212

 

 

As of December 31, 2023, approximately $143,000 of the contingent consideration obligation was recognized in accrued liabilities in the condensed consolidated balance sheets as it was expected to be settled within one-year of the balance sheet date. None of the contingent consideration obligation is expected to be settled within one-year of the balance sheet date as of September 30, 2024. A contingent consideration obligation of approximately $45,000 and $61,000, respectively, was recognized as a noncurrent liability in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. The change in the fair value of the contingent consideration obligation of approximately $164,000 and $159,000 for the three and nine months ended September 30, 2024, respectively, was primarily due to the reduction in the milestone payments due to Giiant upon the achievement certain development milestones pursuant to the amendment to the Giiant License Agreement, partially offset by a decrease in the discount rate used. The resulting gains on the revaluation of the liability was recognized in research and development expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024. There was no change in the fair value of the contingent consideration obligation for the three and nine months ended September 30, 2023.

Liability-Classified Warrants

The Company has issued warrants that are accounted for as liabilities based upon the guidance of with ASC 480 and ASC 815. Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Changes in fair value of the liability-classified warrants, if any, are recognized as a component of other income, net in the condensed consolidated statement of operations.

As of September 30, 2024, the fair value of the Company's liability-classified warrants outstanding was determined to be insignificant using a Black-Scholes option pricing model valuation model due to the low market price of the Company's stock at the date of valuation relative to the exercise price of the underlying warrants outstanding.

The following table summarizes the activity of the Company’s Level 3 liability-classified warrants during the three and nine months ended September 30, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Warrant Liabilities

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Fair value at beginning of period

 

$

2

 

 

$

2

 

 

$

2

 

 

$

61

 

Change in fair value during the period

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(59

)

Fair value at end of period

 

$

2

 

 

$

2

 

 

$

2

 

 

$

2