Fair Value of Financial Assets and Liabilities

12 Months Ended

Dec. 31, 2024

Fair Value of Financial Assets and Liabilities

3. Fair Value of Financial Assets and Liabilities

As of December 31, 2024 and 2023, the Company’s restricted cash which is maintained as collateral in connection with its San Diego facility lease, (See Note 2 – Summary of Significant Accounting Policies for additional information) are valued using Level 1 inputs. The Company’s highly liquid money market funds included within cash equivalents, restricted cash and U.S. treasury securities are valued using Level 1 inputs. The Company classifies its federal agency securities as Level 2. There were no transfers in or out of Level 1 and Level 2 during the periods presented. U.S. treasury securities are bonds issued by the U.S. government and are fully backed by the U.S. government. Given the frequency at which U.S. treasury securities trade and the accessibility of observable, quoted prices for such assets in active markets, they are recognized as Level 1 assets. Federal agency securities are bonds and notes issued by government-sponsored enterprises, including Fannie Mae, Freddie Mac and the Federal Home Loan Bank. Since Federal agency securities typically do not trade as frequently as U.S. government agency securities and no exchange exists to price such investments, they are recognized as Level 2 assets.

The Company had $0.1 million and $0.9 million in contingent consideration liabilities as of December 31, 2024 and 2023, respectively, related to the Myst Merger Agreement. The contingent consideration balances are comprised of one potential milestone payment and is measured at fair value (see Note 7—Asset Acquisition for

additional information). The fair value of the contingent consideration is estimated based on the monetary value of the milestone discounted for the likelihood of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. The value for the contingent consideration balance is based on significant inputs not observable in the market which represents a Level 3 measurement within the fair value hierarchy. There were no transfers in or out of Level 3 during the periods presented.

The following tables represent a summary of the financial assets and liabilities that are measured on a recurring basis at fair value (in thousands):


	December 31, 2024
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	22,159	$	—	$	—	$	22,159
Restricted cash(1)		116		—		—		116
Total financial assets	$	22,275	$	—	$	—	$	22,275
Financial liabilities:
Contingent consideration(3)	$	—	$	—	$	92	$	92
Total financial liabilities	$	—	$	—	$	92	$	92


	December 31, 2023
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	15,635	$	—	$	—	$	15,635
Restricted cash(1)		116		—		—		116
U.S. government securities(2)		76,979		—		—		76,979
Total financial assets	$	92,730	$	—	$	—	$	92,730
Financial liabilities:
Contingent consideration(3)	$	—	$	—	$	916	$	916
Total financial liabilities	$	—	$	—	$	916	$	916

(1)

Restricted cash serves as deposits for the Company’s San Diego office lease as of December 31, 2024 and 2023.

(2)

Included in short-term investments on the consolidated balance sheets and are classified as available-for sale debt securities.

(3)

Contingent consideration related to the Myst Merger Agreement.

The following significant unobservable inputs were used in the valuation of the contingent consideration payable to the sole common stockholder of Myst Therapeutics, Inc. ("Myst") pursuant to the Myst Merger Agreement:


	Fair Value as of
Contingent Consideration Liability	December 31, 2024		Valuation Technique	Unobservable Input	Range
	(in thousands)
Milestone payment for first	$	92	Discounted cash flow	Likelihood of occurrence	1%
registrational study (see Note 7				Discount rate	25%
- Asset Acquisition for additional information)				Expected term (in years)	3.5

	Fair Value as of
Contingent Consideration Liability	December 31, 2023		Valuation Technique	Unobservable Input	Range
	(in thousands)
Milestone payment for first	$	916	Discounted cash flow	Likelihood of occurrence	10%
registrational study (see Note 7				Discount rate	25%


- Asset Acquisition for additional information)				Expected term (in years)		3.5

The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):


Contingent consideration at December 31, 2023	$	916
Changes in the fair value of contingent consideration		(824	)
Contingent consideration at December 31, 2024		92

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category (in thousands):


	December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	22,159	$	—	$	—	$	22,159
Restricted cash		116		—		—		116
Total financial assets	$	22,275	$	—	$	—	$	22,275
Classified as:
Cash and cash equivalents							$	22,159
Restricted cash								116
							$	22,275


	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	15,635	$	—	$	—	$	15,635
Restricted cash		116		—		—		116
U.S. government securities		76,875		104		—		76,979
Total financial assets	$	92,626	$	104	$	—	$	92,730
Classified as:
Cash and cash equivalents							$	15,635
Restricted cash								116
Short-term investments								76,979
							$	92,730

The Company had no available-for-sale securities at December 31, 2024. As of December 31, 2023, none of the Company's available-for-sale debt securities were in a gross unrealized loss position. While short-term investments are available-for-sale, it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. All short-term investments have maturities of less than one year.

The Company reviews short-term investments for impairment during each reporting period. Credit losses are recognized up to the amount equal to the difference between the fair value and the amortized cost basis and recorded as an allowance for credit losses in the consolidated balance sheets with a corresponding adjustment to earnings. Unrealized losses that are not related to credit losses are recognized in accumulated other comprehensive loss. There were no impairment losses or expected credit losses related to its short-term investments during the twelve months ended December 31, 2024 and 2023.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

Turnstone Biologics Corp. 10-K