RHYTHM PHARMACEUTICALS, INC.RYTM
RHYTHM PHARMACEUTICALS, INC. Fair Value Disclosure
Fair Value of Financial Assets and Liabilities
The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
| Fair Value Measurements as of December 31, 2025 using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 33,949 | $ | — | $ | — | $ | 33,949 | |||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| US treasury securities | 71,877 | — | — | 71,877 | |||||||||||||||||||
| Corporate debt securities and commercial paper | — | 262,771 | — | 262,771 | |||||||||||||||||||
Derivative asset | — | — | 1,180 | 1,180 | |||||||||||||||||||
| Total | $ | 105,826 | $ | 262,771 | $ | 1,180 | $ | 369,777 | |||||||||||||||
| Fair Value Measurements as of December 31, 2024 using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Commercial Paper | $ | — | $ | 2,984 | $ | — | $ | 2,984 | |||||||||||||||
| Money market funds | 71,334 | — | — | 71,334 | |||||||||||||||||||
| Marketable securities: | — | ||||||||||||||||||||||
| US treasury securities | 65,118 | — | — | 65,118 | |||||||||||||||||||
| Corporate debt securities and commercial paper | — | 166,310 | — | 166,310 | |||||||||||||||||||
| Derivative asset | — | — | 270 | 270 | |||||||||||||||||||
| Total | $ | 136,452 | $ | 169,294 | $ | 270 | $ | 306,016 | |||||||||||||||
As of December 31, 2025 and 2024 the carrying amount of cash and cash equivalents and short-term investments was $388.9 million and $320.6 million, respectively, which approximates fair value. Cash and cash equivalents and short-term investments includes investments in U.S. treasury securities and money market funds that invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1. The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade corporations.
The embedded derivative asset associated with our , as discussed further in Note 11, Long-Term Obligations, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative (asset) or liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other (expense) income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of IMCIVREE, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument.
The forward contract associated with our Series A Convertible Preferred Stock, as discussed further in Note 9, “Series A Preferred Stock”, is measured at fair value. In order to value the forward contract, a binomial lattice model was used to determine the fair value of the Series A Preferred Stock. The fair value of the forward contract was measured as the difference between the consideration payable of $150.0 million and the fair value of the Series A Preferred Stock. The fair value of the forward contract was determined to be $0 at initial issuance and the change in the fair value from initial issuance to settlement of $8.9 million was recognized as other income in the consolidated statements of operation for the year ended December 31, 2024. The significant assumptions used in the binomial lattice model include: (1) the Company’s common stock price on the issuance and settlement dates; (2) the Conversion Price as of $48.00 as per the Agreement; (3) a 20-year term to maturity; (4) risk free rates (4.6% - 5%); and (5) volatility (68% and 67%).
The following tables set forth a summary of the changes in the estimated fair value of our embedded derivative liability (asset) (in thousands):
| Year ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Beginning aggregate estimated fair value of Level 3 liability (asset) | $ | (270) | $ | 1,150 | |||||||
| Change in fair value of embedded derivative | (910) | (1,420) | |||||||||
| Fair value of forward contract - Series A Convertible Preferred Stock | — | 8,900 | |||||||||
| Settlement of forward contract | — | (8,900) | |||||||||
| Ending aggregate estimated fair value of Level 3 liability (asset) | $ | (1,180) | $ | (270) | |||||||
The estimated fair value of the derivative (asset) or liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty was determined using Level 3 inputs. The fair value measurement of the derivative (asset) or 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.
Marketable Securities
The following tables summarize the Company's marketable securities (in thousands):
| December 31, 2025 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Corporate debt securities and commercial paper (due within 1 year) | $ | 262,412 | $ | 370 | $ | (11) | $ | 262,771 | |||||||||||||||
| U.S. Treasury Securities | 71,634 | 243 | — | 71,877 | |||||||||||||||||||
| $ | 334,046 | $ | 613 | $ | (11) | $ | 334,648 | ||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Corporate debt securities and commercial paper (due within 1 year) | $ | 166,255 | $ | 147 | $ | (92) | $ | 166,310 | |||||||||||||||
| U.S. Treasury Securities | 65,074 | 79 | (35) | 65,118 | |||||||||||||||||||
| $ | 231,329 | $ | 226 | $ | (127) | $ | 231,428 | ||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 12, 2018 | |
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.