Fair Value Measurements

3 Months Ended

Mar. 31, 2026

The following table sets forth by level, within the fair value hierarchy, the financial assets and liabilities carried at fair value on a recurring basis:


	March 31, 2026
	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Assets:
Cash equivalents:
Money market funds	$	28,428	$	28,428	$	—	$	—
Marketable securities:
U.S. Treasury bills and U.S. Treasury notes		140,030		—		140,030		—
Total financial assets	$	168,458	$	28,428	$	140,030	$	—
Financial Liabilities:
Contingent consideration	$	6,241	$	—	$	—	$	6,241
Warrant liability		1		—		—		1
	$	6,242	$	—	$	—	$	6,242


	December 31, 2025
	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Assets:
Cash equivalents:
Money market funds	$	30,032	$	30,032	$	—	$	—
Marketable securities:
U.S. Treasury bills and U.S. Treasury notes		174,869		—		174,869		—
Total financial assets	$	204,901	$	30,032	$	174,869	$	—
Financial Liabilities:
Contingent consideration	$	6,132	$	—	$	—	$	6,132
Warrant liability		1		—		—		1
	$	6,133	$	—	$	—	$	6,133

There were no changes in valuation techniques or transfers between Levels 1, 2 or 3 for the periods presented.

Marketable securities classified as Level 2 within the valuation hierarchy generally consist of U.S. Treasury bills and U.S. Treasury notes. The Company estimates the fair values of marketable securities by taking into consideration valuations obtained from third-party pricing sources.

The carrying values of accounts payable and accrued expenses and other current liabilities approximates their fair values due to the short-term nature of these instruments.

Valuation of Contingent Consideration

The contingent consideration in the below tables relates to the estimated fair value of future payments that may be made by the Company to the members of IFM Discovery, LLC (“IFM”) and Rahko as described below. The fair value of the contingent consideration was determined based on significant inputs not observable in the market, which represent Level 3 measurements.

IFM

In May 2022, the Company acquired all of the membership interests in IFM. The total purchase consideration was $3.1 million, which consisted of the following: (i) 81,240 shares of non-voting common stock at closing with the estimated fair value of $0.2 million, (ii) cash consideration of $0.9 million at closing, (iii) a deferred payment of $0.9 million, which was paid in June 2022 and (iv) contingent consideration in cash of up to $30.0 million, payable once for each of the NLR family pyrin domain containing 1 (“NLRP1”) and melanoma differentiation-associated protein 5 (“MDA5”) programs upon the first achievement of certain development, commercial, regulatory and sales milestones related to each such program. The estimated fair value of the contingent consideration was determined to be $1.1 million on the acquisition date. The contingent consideration is remeasured at each balance sheet date.

The fair value of the contingent consideration related to development, commercial, regulatory and sales milestones was based on the discounted cash flow valuation technique. The technique considered the following assumptions: (i) the probability and timing of achieving the specified milestones as of the valuation date and (ii) the market-based discount rates, with the most significant assumptions being the timing of the projected milestones and the probability of the milestones being achieved. The fair value of the contingent consideration could change in future periods depending on the prospects for the Company’s MDA5 and NLRP1 drug discovery programs acquired as part of the IFM transaction achieving development, commercial, regulatory and sales milestones. The estimated fair value of the contingent consideration as of March 31, 2026 and December 31, 2025, related to the IFM acquisition, was $1.3 million and $1.4 million, respectively.

The following table sets forth the significant inputs to the discounted cash flow technique used to value contingent consideration for IFM as of March 31, 2026 and December 31, 2025:


Significant Unobservable Inputs	March 31, 2026			December 31, 2025
Discount rate		16.4	%		15.6	%
Projected milestone timing	2.50 to 11.51 Years			2.25 to 11.75 Years
Probability of milestone achievement - NLRP1 program	5.0% - 35.0%			5.0% - 35.0%
Probability of milestone achievement - MDA5 program	5.0% - 35.0%			5.0% - 35.0%

Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the contingent consideration liability.

Rahko

The Rahko acquisition included additional consideration payable of up to $30.0 million to the previous shareholders of Rahko upon the achievement of certain qualifying events, including (a) following the Company’s completion of an initial public offering (“IPO”) or public listing of the Company’s shares on certain designated exchanges, upon the first occurrence of the total market capitalization of the Company being equal to or in excess of $1.5 billion, or (b) an exit event such as (i) a transaction or transactions by which more than 50% of the combined voting power of then outstanding voting securities of the Company are acquired, (ii) consolidation or merger of the Company into another entity, or (iii) sale or disposition of substantially all of the assets of the Company, in each case for which the potential proceeds are equal to or in excess of $1.5 billion. The fair value of the contingent consideration was determined based on a Monte-Carlo simulation model that utilizes a geometric Brownian motion to estimate the equity value of the Company at expected qualifying event dates. The Company applied risk-free rate, volatility and discount rate assumptions to simulate the expected equity value of the Company as of the expected qualifying event dates. The risk-free rate was based upon the interest rates corresponding to the time period for U.S. Treasury notes published by the U.S. Federal Reserve. The volatility was estimated based on equity volatility indications from the guideline public companies and the capital structure of the Company.

The contingent consideration as of the date when the Company has met the certain market capitalization threshold following a certain qualifying event was discounted to the measurement date using a discount rate that is based on all-in market yields for publicly traded debt securities of comparable credit quality to the contingent consideration payments. The discounted amount of contingent consideration and the equity values are subject to the Monte-Carlo simulations for 100,000 trials to derive the fair value of the contingent consideration. The estimated contingent consideration liability as of March 31, 2026 and December 31, 2025, related to the Rahko acquisition was $4.9 million and $4.7 million, respectively.

The following table sets forth the probability of completing an IPO (measured as a standalone metric separate from the other necessary triggers for the contingent consideration related to the Rahko acquisition), which was a significant input to the Monte-Carlo simulation used to value such contingent consideration:


As of March 31, 2026
Expected IPO Date	Probability of IPO Event	Discount Rates	Risk Free Rate Applied to Equity Value	Equity Volatility
May 31, 2026	15%	15.7% - 17.1%	4.4%	97.8%
December 30, 2026	14%	15.7% - 17.1%	4.4%	97.2%
February 28, 2027	14%	15.7% - 17.1%	4.4%	96.6%
April 30, 2027	14%	15.7% - 17.1%	4.4%	96.0%
*	43%	Varies	4%	Varies

*Reflects the probability weighted expected term of 1.58 years for the remaining scenarios between August 2027 and December 2027 with each scenario weighted 14.2% overall for an aggregate probability weight of 42.6%.


As of December 31, 2025
Expected IPO Date	Probability of IPO Event	Discount Rates	Risk Free Rate Applied to Equity Value	Equity Volatility
May 31, 2026	15%	15.3% - 16.1%	4.2%	96.2%
December 30, 2026	14%	15.3% - 16.0%	4.2%	96.4%
February 28, 2027	14%	15.3% - 16.0%	4.3%	96.5%
April 30, 2027	14%	15.3% - 16.0%	4.3%	96.5%
*	43%	Varies	4.3%	Varies

*Reflects the probability weighted expected term of 1.83 years for the remaining scenarios between August 2027 and December 2027 with each scenario weighted 14.2% overall for an aggregate probability weight of 42.6%.

Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the contingent consideration liability.

Valuation of LSA Warrant Liability

In March 2022, the Company issued a warrant to purchase up to 64,992 shares of Series A-2 convertible preferred stock (the “LSA Warrant”) with an exercise price of $6.15 (see Note 12). As of March 31, 2026 and December 31, 2025, the LSA Warrant to purchase 16,248 shares of Series A-2 convertible preferred stock was issued and outstanding.

The estimated fair value of the LSA Warrant liability was determined using an option pricing model with the following assumptions:


Significant Unobservable Inputs	March 31, 2026			December 31, 2025
Expected term until a liquidity event (in years)		2			2
Volatility		80	%		80	%
Risk-free interest rate		3.8	%		3.5	%
Annual dividend rate		0	%		0	%

The following table presents a roll-forward of the aggregate fair values of the Company’s liabilities for which fair value is determined by Level 3 inputs:


	Warrant Liability		Contingent Consideration
Balance as of January 1, 2026	$	1	$	6,132
Change in fair value		-		109
Balance as of March 31, 2026	$	1	$	6,241


	Warrant Liability		Contingent Consideration
Balance as of January 1, 2025	$	45	$	10,179
Change in fair value		-		(5,648	)
Balance as of March 31, 2025	$	45	$	4,531

- 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

Odyssey Therapeutics, Inc. 10-Q