Fair value of financial instruments |
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| Fair value of financial instruments | 4. Fair value of financial instruments The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the financial assets or liabilities and is not a measure of the credit quality. The hierarchy defines three levels of valuation inputs:
Items Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis (in thousands):
The Company’s financial assets consist of cash equivalents, including U.S. Government money market funds and short-term investments comprised of commercial paper. The financial assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of June 30, 2026, or December 31, 2025. Warrant Liability A warrant liability was recorded as a result of the July 2024 Offering (as defined herein) (see Note 15. Capital Stock). The fair value measurement of the warrant liability is classified as Level 3 under the fair value hierarchy. The fair value of the warrant liability at inception was determined using the Black-Scholes valuation model. The inputs to the Black-Scholes valuation model include the risk-free rate, stock price volatility, expected dividends and remaining term. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement. During the first quarter of 2026, all outstanding Warrants were either exercised or expired. As a result, no Warrants remained outstanding as of June 30, 2026. The Company marked the warrant liability to fair value at the exercise date using the Black-Scholes model and reclassified the warrant liability to equity upon exercise. No further fair value measurements using the Black-Scholes model were required. Below are the inputs used to value the warrant liability at December 31, 2025:
The following table represents a reconciliation of the warrant liability (in thousands):
Note Purchase Agreement The fair value of the Notes pursuant to the Note Purchase Agreement represents the present value of estimated future payments, including interest, principal, Repayment Amount, and Revenue Participation Payments (each as defined in the Note Purchase Agreement) (see Note 10. Debt). The fair value measurement is based on significant Level 3 unobservable inputs such as the probability and timing of Revenue Participation Payments, Repayment Amount, and the discount rate. The Company determined the fair value of the Notes utilizing a discounted cash flow model of estimated future payments including interest, principal, Repayment Amount and Revenue Participation Payments utilizing a discount rate calculated as the term matched risk-free rate plus credit spread. At December 31, 2025, the Company utilized a discount rate between 12.6% - 13.0% and at June 30, 2026, the Company utilized a discount rate between 13.9% - 14.2%. The fair value of the Notes at June 30, 2026 and December 31, 2025 was $73.8 million and $76.3 million, respectively. The fair value of the Notes as of June 30, 2026 and December 31, 2025 differed from the contractual principal amount of $75.0 million by ($1.2) million and $1.3 million, respectively. Significant increases or decreases in any of these inputs in isolation could result in a significantly lower or higher fair value measurement. |
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