v3.26.1
Fair Value Measurement
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurement

Note 3. Fair Value Measurement

 

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

As of March 31, 2026

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

99,530

 

 

$

—

 

 

$

—

 

 

$

99,530

 

Total financial assets measured at fair value

 

$

99,530

 

 

$

—

 

 

$

—

 

 

$

99,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Tranche liability(2)

 

$

—

 

 

$

—

 

 

$

235,517

 

 

$

235,517

 

2021 Public Warrants(3)

 

 

81

 

 

 

—

 

 

 

—

 

 

 

81

 

2021 PIPE Warrants(3)

 

 

—

 

 

 

10

 

 

 

—

 

 

 

10

 

2024 PIPE Warrants(3)

 

 

—

 

 

 

—

 

 

 

41,974

 

 

 

41,974

 

2025 Pre-Funded Warrants(3)

 

 

—

 

 

 

38,014

 

 

 

—

 

 

 

38,014

 

2025 PIPE Warrants(3)

 

 

—

 

 

 

—

 

 

 

68,844

 

 

 

68,844

 

Total financial liabilities measured at fair value

 

$

81

 

 

$

38,024

 

 

$

346,335

 

 

$

384,440

 

 

 

 

As of December 31, 2025

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

74,782

 

 

$

—

 

 

$

—

 

 

$

74,782

 

Total financial assets measured at fair value

 

$

74,782

 

 

$

—

 

 

$

—

 

 

$

74,782

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Tranche liability(2)

 

$

—

 

 

$

—

 

 

$

158,662

 

 

$

158,662

 

2021 Public Warrants(3)

 

 

101

 

 

 

—

 

 

 

—

 

 

 

101

 

2021 PIPE Warrants(3)

 

 

—

 

 

 

12

 

 

 

—

 

 

 

12

 

2024 PIPE Warrants(3)

 

 

—

 

 

 

—

 

 

 

33,156

 

 

 

33,156

 

2025 Pre-Funded Warrants(3)

 

 

—

 

 

 

29,492

 

 

 

—

 

 

 

29,492

 

2025 PIPE Warrants(3)

 

 

—

 

 

 

—

 

 

 

49,786

 

 

 

49,786

 

Total financial liabilities measured at fair value

 

$

101

 

 

$

29,504

 

 

$

241,604

 

 

$

271,209

 

 

(1)
Included in cash and cash equivalents on the condensed consolidated balance sheets.
(2)
See Note 8.
(3)
See Note 10.

There were no changes to the valuation methods utilized on existing financial instruments, and there were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the three months ended March 31, 2026.

 

The 2021 Public Warrants (as defined in Note 10 below) are classified as Level 1 due to the use of an observable market quote in an active market. The 2021 PIPE Warrants (as defined in Note 10 below) are classified as Level 2 due to the use of observable market data for identical or similar liabilities. The fair value of each 2021 PIPE Warrant is determined to be consistent with that of a 2021 Public

Warrant because the 2021 PIPE Warrants are also subject to the make-whole redemption feature, which allows the Company to redeem both types of warrants on similar terms.

 

The 2025 Pre-Funded Warrants (as defined in Note 10 below) are classified as Level 2 due to the use of observable market data for similar instruments. The fair value of the pre-funded warrants is determined to be consistent with the fair value of the Company’s common stock due to the nominal exercise price.

 

The tranche liability (Note 8), 2024 PIPE Warrants and 2025 PIPE Warrants (as defined in Note 10 below) are classified as Level 3 because the fair value was measured based on significant inputs that are unobservable in the market. The fair value of the tranche liability was determined using both the forward contract model and the contingent option model. The fair value of 2024 PIPE Warrants and 2025 PIPE Warrants were determined using the Black-Scholes option-pricing model. These Level 3 liabilities were initially recorded at fair value and subsequently remeasured at each reporting period with the following assumptions: expected term, expected volatility, risk-free interest rate and dividend yield. The significant unobservable inputs used in the fair value measurement of the tranche liability also included the probabilities of achieving the milestones. The probabilities were determined based on the stage of development of the underlying program at the measurement date. The expected volatility was based on historical volatility of the Company’s stock price with a risk adjustment. The expected term was estimated based on expiration date or the timing of when the milestone is expected to be achieved. The risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected term. The dividend rate is based on the historical rate, which the Company anticipated remaining at zero.

 

The fair value of the Level 3 liabilities may change significantly as additional data is obtained. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

 

The key inputs into the fair value measurement of the Level 3 liabilities were as follows:

 

 

 

Tranche Liability

 

 

2025 PIPE Warrants

 

 

2024 PIPE Warrants

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2026

 

 

2025

 

 

2026

 

 

2025

 

 

2026

 

 

2025

 

Expected term (in years)

 

0.6 - 5.6

 

 

0.8 - 5.8

 

 

4.0 - 4.7

 

 

4.2 - 4.9

 

 

 

3.0

 

 

 

3.3

 

Expected volatility

 

 

55

%

 

 

55

%

 

 

55

%

 

 

55

%

 

 

55

%

 

 

55

%

Risk-free interest rate

 

3.7% - 3.9%

 

 

3.5% - 3.8%

 

 

3.8% - 3.9%

 

 

3.6% - 3.7%

 

 

 

3.8

%

 

 

3.5

%

Dividend yield

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Warrant Amendment and Cancellation

 

As defined in Note 10 below, the 2024 PIPE Warrants include Series A, Series B, Series C and Series D common stock warrants. Due to the discontinuation of clinical development of SZN-043 in the first quarter of 2025, the fair value of the Series C and Series D common stock warrant liabilities became zero as they would not be exercisable. Additionally, in connection with the 2025 PIPE completed in March 2025 as described in Note 8, both the exercise prices of the Company’s outstanding Series A and Series B common stock warrants were reduced to $11.54 per share, except that the exercise prices per warrant for such warrants held by members of management were reduced to $12.45 per share, and the Company’s outstanding Series C and Series D common stock warrants were cancelled. The 2024 PIPE Warrants were revalued using the Black-Scholes option pricing model immediately before and after the modification and cancellation using the following assumptions: (a) fair value of common stock of $12.00 per share, (b) expected volatility of 55%, (c) dividend yield of zero, (d) risk-free interest rate of 4.01%, and (e) expected term of 4.0 years. The increase in the fair value of the 2024 PIPE Warrants resulted from the amendment and cancellation of warrants was recorded as a loss of $2.1 million in the unaudited consolidated statements of operations and comprehensive loss for the three months ended March 31, 2025.

 

Activity of Level 3 liabilities is summarized in the following table (in thousands):

 

 

 

Tranche
Liability

 

 

2025 PIPE
Warrants

 

 

2024 PIPE
Warrants

 

Balance, December 31, 2025

 

$

158,662

 

 

$

49,786

 

 

$

33,156

 

Exercise of warrants

 

 

—

 

 

 

(596

)

 

 

(4,140

)

Change in fair value upon remeasurement (1)

 

 

76,855

 

 

 

19,654

 

 

 

12,958

 

Balance, March 31, 2026

 

$

235,517

 

 

$

68,844

 

 

$

41,974

 

(1) Change in fair value of tranche liability is on the unaudited consolidated statements of operations and comprehensive loss. Change in fair value of warrant liabilities is included in other (expense) income, net on the unaudited consolidated statements of operations and comprehensive loss.