Fair Value Measurements |
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| Fair Value Measurements | 4. Fair Value Measurements The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):
The Company did not have any Level 3 assets or liabilities as of December 31, 2025. There were no Levels during the periods presented. The unrealized gain on the Company’s short-term investments for the year ended December 31, 2025 was not material. Convertible Notes In December 2024, Legacy Tvardi entered into a note purchase agreement to issue and sell convertible notes (the Convertible Notes) in an aggregate principal amount of $28.3 million. The Convertible Notes accrued interest at 8% per annum and had a maturity date of December 31, 2026 (the Maturity Date). As further discussed in Note 3, Merger Agreement, the Company completed its Merger with Cara in April 2025. Upon the closing of the Merger, the Convertible Notes converted into 1,265,757 shares of the Company’s common stock, $0.001 par value per share, in the aggregate. The fair value of the Convertible Notes as of December 31, 2024 was estimated based on significant inputs not observable in the market, which represented Level 3 measurements within the fair value hierarchy. The Convertible Notes were valued using a scenario-based valuation analysis requiring a probability of inputs including the probability of occurrence of events that would trigger conversion of the Convertible Notes and the expected timing of such events. As of December 31, 2024, prior to the closing of the Merger, the events that would trigger the conversion of the Convertible Notes and their respective probabilities were as follows: (i) an automatic conversion of the Convertible Notes into equity securities upon a Qualified or non-Qualified Financing, (ii) an automatic conversion of the Convertible Notes into shares of Legacy Tvardi’s common stock upon an IPO, (iii) an automatic conversion of the Convertible Notes into the combined company’s common stock upon a reverse merger, and (iv) an event of default, dissolution, or liquidation, weighted with 20%, 10%, 60%, and 10%, respectively. Immediately prior to the Merger closing in April 2025, the probability of these events were weighted as 2.5%, 0%, 95%, and 2.5%, respectively. In addition to the estimated probabilities of the occurrence of events that would trigger conversion, the following table presents the other assumptions, estimates, and contractual features incorporated into the valuation of the Convertible Notes as of December 31, 2024:
Since the Company elected the fair value option to account for the Convertible Notes, at the time of conversion, the fair value was measured as the quoted market price of the Company’s common shares into which the Convertible Notes were exchanged. The fair value was determined to be the closing market trading price of the Company’s common stock on April 16, 2025, the first day of trading for the Company’s common stock following the closing of the Merger. Under the fair value option, any change in fair value was recorded to the Company’s consolidated statements of operations and comprehensive loss as a gain or loss from a fair value measurement. At the time of conversion, the fair value of the Convertible Notes was $23.1 million, calculated as 1,265,757 shares of common stock at the closing market trading price on April 16, 2025. The $12.8 million when comparing the $23.1 million at the time of conversion to the $35.9 million recorded value of the Convertible Notes immediately prior to the conversion date was recorded to the Company’s consolidated statements of operations and comprehensive loss as a gain within other income, net during the second quarter of 2025. For the year ended December 31, 2025, the net recorded to the Company’s consolidated statements of operations and comprehensive loss within other income (expense), net was $7.8 million. The following table presents the changes in the fair value of the Level 3 Convertible Notes (in thousands):
The change in the fair value of the Convertible Notes from its issuance of $28.3 million to the fair value of $30.1 million as of December 31, 2024 was $1.8 million, which was recorded within on the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. There was approximately $0.1 million of debt issuance costs incurred in connection with the Convertible Notes that was also recognized within other income (expense), net in the Company’s consolidated statement of operations and comprehensive loss during the year ended December 31, 2024. |
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