KalVista Pharmaceuticals, Inc. Fair Value Disclosure

Note 3. Fair Value Measurements

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 comprehensive loss, 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 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 April 30, 2025 relates to the PSA and was determined using Level 3 inputs. 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 deferred royalty obligation, as discussed further in Note 11, “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 deferred royalty obligation on the consolidated balance sheet. 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 (expense), net. 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. The initial fair value allocated to the derivative liability was recorded against the deferred royalty obligation as a debt discount, which is being amortized in interest expense on the consolidated statement of operations 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 (expense) on the consolidated statement of operations. During the period from November 4, 2024 through April 30, 2025, the Company recognized $1.7 million as a component of other income (expense), net as the change in fair value for the $6.4 million embedded derivative liability, recorded as a component of the deferred royalty obligation on the consolidated balance sheet, as of April 30, 2025. Refer to Note 11, “Purchase and Sale Agreement” for details regarding the valuation methodology related to the embedded derivative and its related inputs.

Marketable Securities

Management evaluated the unrealized losses in available-for-sale (“AFS”) debt securities as of April 30, 2025 and 2024 to determine the existence of credit losses considering factors including credit ratings and other relevant information, which may indicate that contractual cash flows are not expected to occur. The results of this evaluation indicated that the unrealized losses on AFS debt securities are primarily attributable to market interest rate increases and not a deterioration in credit quality of the issuers. Based on the analysis, management determined that credit losses did not exist for AFS debt securities in an unrealized loss position as of April 30, 2025 and 2024. It is not considered likely that the Company will be required to sell the investments before full recovery of the amortized cost basis of the AFS debt securities, which may be at maturity. As a result, the Company has not recognized any impairment losses in earnings for the years ended April 30, 2025 and 2024.

Realized gains and losses are included in other income 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. For the years ended April 30, 2025 and 2024, respectively, the Company recorded $1.6 million and $1.3 million in realized gains and losses, respectively on available-for-sale securities, which is included in other income (expense), net on the statements of operations and comprehensive loss.