Fair Value Measurements

9 Months Ended

Sep. 30, 2025

Fair Value Measurements

The following tables present information about financial assets and liability that have been measured at fair value and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value as of September 30, 2025 and December 31, 2024 (in thousands):


	As of September 30, 2025
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents	$	74,035	$	74,035	$	—	$	—
Corporate debt securities		49,289		—		49,289		—
U.S. government agency securities		16,372		—		16,372		—
Total assets	$	139,696	$	74,035	$	65,661	$	—
Liabilities
Derivative liability	$	8,020	$	—	$	—	$	8,020
Total liabilities	$	8,020	$	—	$	—	$	8,020


	As of December 31, 2024
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents	$	29,488	$	29,488	$	—	$	—
Corporate debt securities		76,199		—		76,199		—
U.S. government agency securities		9,820		—		9,820		—
Total assets	$	115,507	$	29,488	$	86,019	$	—
Liabilities
Derivative liability	$	4,430	$	—	$	—	$	4,430
Total liabilities	$	4,430	$	—	$	—	$	4,430

The objectives of the Company’s investment policy are to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. The Company invests its excess cash in securities issued by financial institutions, commercial companies, and government agencies that management believes to be of high credit quality in order to limit the amount of its credit exposure. The Company has not realized any material losses from its investments.

The Company classifies all of its debt securities as available-for-sale. Unrealized gains and losses on investments are recognized in accumulated other comprehensive loss in the consolidated balance sheets, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are included in other income, net in the consolidated statements of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a trade date basis.

The estimated fair value of the derivative liability as of September 30, 2025 relates to the Purchase and Sale Agreement that the Company, as guarantor, and KalVista Pharmaceuticals Limited, a wholly owned subsidiary of the Company (the “Subsidiary”), entered into with DRI Healthcare Acquisitions LP, an affiliate of DRI Healthcare Trust (“DRI”) in November 2024 (the “PSA”) and was determined using Level 3 inputs. Refer to Note 7, Purchase and Sale Agreement, for a description of the PSA. The fair value

measurement of the derivative liability is sensitive to changes in the unobservable inputs used to value the financial instrument. Changes in the inputs could result in changes to the fair value of each financial instrument.

The embedded derivative liability associated with the royalty obligation contained in the PSA, as discussed further in Note 7, Purchase and Sale Agreement, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the royalty obligation in the consolidated balance sheets. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other income, net in the consolidated statements of operations and comprehensive loss. The assumptions used in the option pricing Monte Carlo simulation model incorporates certain Level 3 inputs including: (1) the risk-adjusted discount rate and (2) the probability of a change in control occurring during the term of the instrument.

The Company recorded $4.4 million for the initial fair value of the derivative liability upon the closing of the PSA and subsequently recorded an incremental $2.0 million when the $22.0 million drawdown was recorded by Company. The initial fair value allocated to the derivative liability was recorded against the royalty obligation as a debt discount, which is being amortized in interest expense in the consolidated statements of operations and comprehensive loss over the expected term using the effective interest method. The embedded derivative is subsequently remeasured at fair value each reporting period, with the change in fair value being recorded as a component of other income, net in the consolidated statements of operations and comprehensive loss. For the three and nine months ended September 30, 2025, the Company recognized $0.5 million and $1.3 million, respectively as a component of other income, net as the change in fair value for the embedded derivative liability, recorded as a component of the royalty obligation in the consolidated balance sheets as of September 30, 2025. Refer to Note 7, Purchase and Sale Agreement, for details regarding the valuation methodology related to the embedded derivative and its related inputs.

Marketable Securities

The following tables summarize the fair values of the Company’s marketable securities by type as of September 30, 2025 and December 31, 2024 (in thousands):


	As of September 30, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Corporate debt securities	$	49,101	$	189	$	(1)	$	49,289
U.S. government agency securities		16,320		52		—		16,372
Total	$	65,421	$	241	$	(1)	$	65,661


	As of December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Corporate debt securities	$	75,085	$	1,116	$	(2)	$	76,199
U.S. government agency securities		9,734		86		—		9,820
Total	$	84,819	$	1,202	$	(2)	$	86,019

The following table summarizes the scheduled maturity for the Company’s marketable securities at September 30, 2025 (in thousands):


	As of September 30, 2025
Maturing in one year or less	$	20,302
Maturing after one year through two years		39,012
Maturing after two years through four years		6,347
Total	$	65,661

- 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

KalVista Pharmaceuticals, Inc. 10-Q