PALISADE BIO, INC. Fair Value Disclosure
4. Fair Value Measurements
The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, other current receivables, accounts payable, accrued liabilities, insurance financing debt, liability-classified warrants and a contingent consideration obligation. The carrying amounts of financial instruments such as restricted cash, other current receivables, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments. The carrying value of the Company’s insurance financing debt approximates its fair value as of December 31, 2024 and December 31, 2023 due to the market rate of interest, which is based on level 2 inputs. The Company’s liability-classified warrants and its contingent consideration obligation are carried at fair value based on level 3 inputs. None of the Company’s non-financial assets or liabilities are recorded at fair value on a nonrecurring basis.
Cash and Cash Equivalents
The Company invests its excess cash in money market funds that are classified as level 1 in the fair value hierarchy due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The fair value of the Company's cash and cash equivalents invested in money market funds was $9.8 million and $12.3 million as of December 31, 2024 and December 31, 2023, respectively.
Contingent Consideration Obligation
Pursuant to the Giiant License Agreement, the Company incurred a contingent consideration obligation related to future milestone payments. The Company has an obligation to make contingent consideration payments to Giiant, in either cash or shares of the Company’s common stock solely at the Company’s election, upon the achievement of development milestones. On August 2, 2024, the Company and Giiant entered into an amendment to the Giiant License Agreement, which among other things, reduced the milestone payments due to Giiant upon the achievement of certain development milestones (see Note 7, Collaborations and License Agreements, for further details).
The fair value of the contingent consideration obligation is determined using a probability-based model that estimates the likelihood of success in achieving each of the defined milestones that is then discounted to present value using the Company's incremental borrowing rate. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The significant assumptions used in the calculation of the fair value as of December 31, 2024 included a discount rate of 9.29% and management's updated projections of the likelihood of success in achieving each of the defined milestones based on empirical, published industry data.
The following table summarizes the activity of the Company’s Level 3 contingent consideration obligations, which are fair valued on a recurring basis (in thousands):
|
|
Year Ended December 31, |
|
|||||
Contingent Consideration Obligation |
|
2024 |
|
|
2023 |
|
||
Fair value at beginning of year |
|
$ |
204 |
|
|
$ |
— |
|
Initial fair value at the original issuance date |
|
|
— |
|
|
|
212 |
|
Change in fair value during the year |
|
|
(54 |
) |
|
|
(8 |
) |
Fair value at end of year |
|
$ |
150 |
|
|
$ |
204 |
|
As of December 31, 2024, the entire amount of contingent consideration obligation of $150,000 was classified as a noncurrent liability in the consolidated balance sheet as none of it is expected to be settled within one-year of the balance sheet date. As of December 31, 2023, approximately $143,000 of the contingent consideration obligation was classified in accrued liabilities in the consolidated balance sheets as it was expected to be settled within one-year of the balance sheet date and the remaining obligation of approximately $61,000 was classified as a noncurrent liability in the consolidated balance sheet.
The change in the fair value of the contingent consideration obligation of approximately $54,000 for the year ended December 31, 2024 was primarily due to the reduction in the milestone payments that would be due to Giiant upon the achievement of certain development milestones pursuant to the amendment to the Giiant License Agreement, partially offset by an increase in management's projected likelihood of success in achieving each of the defined milestones as a result of the Company's commencement of a Phase 1 trial in November of 2024. The change in the revaluation of the liability in the years ended December 31, 2024 and December 31, 2023 is recognized in research and development expenses in the consolidated statements of operations. In addition, the initial fair value of the contingent consideration obligation of $0.2 million and transaction-related costs of approximately $0.1 million for the year ended December 31, 2023 is recognized in research and development expenses in the consolidated statements of operations.
Liability-Classified Warrants
The Company has issued warrants that are accounted for as liabilities based upon the guidance of with ASC 480 and ASC 815. Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market
factors. Changes in fair value of the liability-classified warrants are recognized as a component of other income, net in the consolidated statement of operations.
As of December 31, 2024, the fair value of the Company's liability-classified warrants outstanding was determined using a Black-Scholes option pricing model valuation model to be insignificant due to the low market price of the Company's stock at the date of valuation relative to the exercise price of the underlying warrants outstanding.
The following table summarizes the activity of the Company’s Level 3 liability-classified warrants during the years ended December 31, 2024 and December 31, 2023 (in thousands):
|
|
Year Ended December 31, |
|
|||||
Warrant Liabilities |
|
2024 |
|
|
2023 |
|
||
Fair value at beginning of year |
|
$ |
2 |
|
|
$ |
61 |
|
Change in fair value during the period |
|
|
— |
|
|
|
(59 |
) |
Fair value at end of year |
|
$ |
2 |
|
|
$ |
2 |
|
Want the next PALISADE BIO, INC. fair value disclosure the moment it drops?
Set a Sentinel and we'll alert you the moment PALISADE BIO, INC.'s next filing hits EDGAR. No credit card, your email never gets sold.
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.