Fair Value Measurements
Financial Assets
The following tables present the financial instruments carried at fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2025 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 106,934 | | | $ | — | | | $ | — | | | $ | 106,934 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 60,819 | | | $ | — | | | $ | — | | | $ | 60,819 | |
Derivative Tranche Liability
The following table presents the derivative tranche liability (see Note 9) carried at fair value on a recurring basis as of December 31, 2025 (in thousands) in accordance with the ASC 820 hierarchy and was based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. There was no derivative tranche liability as of December 31, 2024.
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| Fair Value Measurements as of December 31, 2025 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | | | | | | | |
| Derivative tranche liability | $ | — | | | $ | — | | | $ | 44,760 | | | $ | 44,760 | |
The derivative tranche liability is valued using a Monte Carlo simulation model, which uses certain assumptions, including annual volatility. The range of volatilities of comparable public companies utilized was 49.0% - 131.3% as of December 31, 2025. The volatility utilized in the Monte Carlo option-pricing model was determined by using the 75th percentile. The following table presents the assumptions used to determine the fair value of the derivative tranche liability for the issuance date, September 11, 2025, and as of December 31, 2025:
| | | | | | | | | | | |
| September 11,
2025 | | December 31, 2025 |
| Expected volatility | 73.0 | % | | 96.0 | % |
| Risk-free interest rate | 3.53 | % | | 3.42 | % |
| Expected term (in years) | 1.33 | | 1.03 |
| Probability of achieving specified conditions | 25.0 | % | | 25.0 | % |
| | | |
| Share price | $ | 2.78 | | | $ | 6.13 | |
The following table provides a roll-forward of the aggregate fair value of the derivative tranche liability categorized with Level 3 inputs (in thousands):
| | | | | |
| Balance as of December 31, 2024 | $ | — | |
| Issuance | 14,930 | |
| Change in fair value | 29,830 | |
| Balance as of December 31, 2025 | $ | 44,760 | |
The non-cash change in fair value of the derivative tranche liability was primarily due to the increase in the price per share of the Company’s common stock from the issuance date to December 31, 2025.
The carrying amounts reflected in the consolidated balance sheet for prepaid expenses and other current assets, accounts payable and accrued expenses and other liabilities are shown at their historical values which approximate their fair values.