Protagonist Therapeutics, Inc Fair Value Disclosure
Note 4. Fair Value Measurements
Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.
The following table presents the fair value of the Company’s financial assets determined using the inputs defined above (in thousands).
December 31, 2020 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Money market funds | $ | 27,481 | $ | — | $ | — |
| $ | 27,481 | |||
Commercial paper |
| — |
| 65,863 |
| — |
|
| 65,863 | |||
Corporate debt securities |
| — |
| 27,590 |
| — |
|
| 27,590 | |||
U.S. Treasury and agency securities |
| — |
| 183,210 |
|
| — |
|
| 183,210 | ||
Total financial assets | $ | 27,481 | $ | 276,663 |
| $ | — |
| $ | 304,144 | ||
December 31, 2019 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Money market funds | $ | 12,964 | $ | — | $ | — |
| $ | 12,964 | |||
Commercial paper |
| — |
| 44,282 |
| — |
|
| 44,282 | |||
Corporate debt securities |
| — |
| 33,662 |
|
| — |
|
| 33,662 | ||
U.S. Treasury and agency securities |
| — |
| 40,810 |
|
| — |
|
| 40,810 | ||
Total financial assets | $ | 12,964 | $ | 118,754 |
| $ | — |
| $ | 131,718 | ||
The Company’s commercial paper, corporate debt securities and U.S. Treasury and agency securities, including U.S. Treasury bills, are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.
Fair Value of Other Financial Instruments
The carrying value of long-term debt as of December 31, 2019 approximated fair value because the Term Loan bore interest at a rate that approximated prevailing market rates for instruments with similar characteristics and there was no significant change in the credit worthiness of the Company. The Company had no long-term debt balance as of December 31, 2020.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2020 | Mar 10, 2021 | Showing above |
| 2019 | Mar 10, 2020 | |
| 2018 | Mar 12, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 7, 2017 | |
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.