Evommune, Inc. Fair Value Disclosure
3. Fair Value Measurements and Fair Value of Financial Instruments
The following table sets forth the Company’s consolidated financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
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Fair Value Measurements at December 31, 2025 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Assets: |
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Cash equivalents |
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Money market funds |
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$ |
44,063 |
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$ |
44,063 |
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$ |
— |
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$ |
— |
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Total fair value of assets |
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$ |
44,063 |
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$ |
44,063 |
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— |
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$ |
— |
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Fair Value Measurements at December 31, 2024 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Assets: |
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Cash equivalents |
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Money market funds |
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$ |
14,227 |
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$ |
14,227 |
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$ |
— |
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$ |
— |
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Total fair value of assets |
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$ |
14,227 |
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$ |
14,227 |
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$ |
— |
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$ |
— |
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Liabilities: |
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Convertible preferred stock forward |
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$ |
(8,928 |
) |
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— |
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— |
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(8,928 |
) |
Total fair value of liabilities |
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$ |
(8,928 |
) |
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$ |
— |
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$ |
— |
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$ |
(8,928 |
) |
Items classified as Level 1 within the valuation hierarchy consist of the Company’s cash equivalents held in money market funds. The Company measures these investments at fair value determined based on Level 1 observable quoted price market inputs. The Company’s money market funds are included in cash and cash equivalents in the consolidated balance sheets.
Items classified as Level 3 within the valuation hierarchy consist of the Company’s convertible preferred stock forward (Note 7). The fair value of the convertible preferred stock forward has been estimated at the date of inception, and re-measured at the end of each reporting period until the forwards expired. The Company used a standard forward pricing valuation model to estimate the fair value of the forward contracts with the following significant assumptions:
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June 26, 2025 |
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December 31, 2024 |
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Fair value per share of Series C Tranche II |
$ |
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1.59 |
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$ |
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0.22 |
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Strike Price |
$ |
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1.59 |
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$ |
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1.59 |
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Expected term |
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0.1 years |
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0.6 years |
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Discount rate |
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4.11 |
% |
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4.32 |
% |
The following table is a roll-forward of Level 3 assets (liabilities) for the periods indicated (in thousands):
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Series C Tranche Two Forward |
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Balance at January 1, 2024 |
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$ |
— |
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Issuance of convertible preferred stock forward |
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(8,928 |
) |
Balance at December 31, 2024 |
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(8,928 |
) |
Change in fair value of convertible preferred stock forward |
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8,928 |
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Balance at December 31, 2025 |
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$ |
— |
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In June 2025, the Company issued 40,941,587 shares of Series C Preferred Stock and settled the convertible preferred stock forward.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.