Sagimet Biosciences Inc. Fair Value Disclosure
3. | Fair Value Measurements and Fair Value of Financial Instruments |
The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2024 and 2023, financial assets measured at fair value on a recurring basis consist of cash equivalents and marketable securities. Cash equivalents consist primarily of money market funds and other investments that are readily convertible into cash and have maturities of three months or less at the time of acquisition. The fair value of cash equivalents was $75.3 million and $74.1 million as of December 31, 2024 and, 2023, respectively. The Company considers marketable securities with maturities greater than three months at the time of acquisition to be available for sale securities. The fair value of available for sale maturities was $82.8 million and $19.8 million as of December 31, 2024, and 2023, respectively. These available for sale securities have expected maturities ranging from 0.2 to 13.7 months, and securities with an expected maturity greater than 12 months as of the balance sheet date, are classified in long-term. The fair value of marketable securities, which are Level 2 financial instruments, is based upon market prices quoted on the last day of the fiscal period or other observable market inputs. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker-dealer quotes, bids and/or offers.
The Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from credit loss or other factors, including various qualitative factors. As of December 31, 2024, the Company has not recognized any impairment or credit losses on the Company’s available for sale securities. While the Company classifies these securities as available for sale, the Company does not intend to sell its investments and based on its current plans, the Company currently believes it has the ability to hold these investments until maturity.
The carrying values of the Company’s accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these liabilities.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
The Company’s Level 3 liabilities that are measured at fair value on a recurring basis consist of the Series A common stock warrant liability related to the warrant to purchase 1,000 shares of Series A common stock with an exercise price of $69.94 per share and an expiration date of July 18, 2026, the third anniversary date of the closing of the Company’s IPO. The fair value of Series A common stock warrant liability was immaterial as of December 31, 2024 and 2023, as well as the change in fair value during the years ended December 31, 2024 and 2023. There were no transfers within the hierarchy during the periods presented.
The following tables set forth the Company’s financial assets that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
| December 31, 2024 | ||||||||||||||
Valuation |
| Amortized |
| Unrealized |
| Unrealized |
| ||||||||
Hierarchy | cost | Gains | Losses | Fair Value | |||||||||||
Assets | |||||||||||||||
Cash equivalents: | |||||||||||||||
Money market funds | Level 1 | $ | 72,800 | $ | — | $ | — | $ | 72,800 | ||||||
U.S. Treasury securities | Level 2 | 2,477 | — | — | 2,477 | ||||||||||
Total cash equivalents | 75,277 | — | — | 75,277 | |||||||||||
Short-term marketable securities: | |||||||||||||||
Commercial paper |
| Level 2 | 14,447 |
| 25 |
| (1) |
| 14,471 | ||||||
Corporate debt securities | Level 2 | 6,909 | 7 | — | 6,916 | ||||||||||
U.S. Treasury securities | Level 2 | 27,493 | 123 | — | 27,616 | ||||||||||
Agency securities | Level 2 | 21,345 | 12 | (2) | 21,355 | ||||||||||
Asset-backed securities | Level 2 | 5,030 | 22 | — | 5,052 | ||||||||||
Total short-term marketable securities | 75,224 | 189 | (3) | 75,410 | |||||||||||
Long-term marketable securities: | |||||||||||||||
U.S. Treasury securities | Level 2 | 4,884 | 36 | — | 4,920 | ||||||||||
Asset-backed securities | Level 2 | 2,480 | 8 | — | 2,488 | ||||||||||
Total long-term marketable securities | 7,364 | 44 | — | 7,408 | |||||||||||
Total cash equivalents and marketable securities | $ | 157,865 | $ | 233 | $ | (3) | $ | 158,095 | |||||||
December 31, 2023 | |||||||||||||||
Valuation |
| Amortized |
| Unrealized |
| Unrealized |
| ||||||||
Hierarchy | cost | Gains | Losses | Fair Value | |||||||||||
Assets | |||||||||||||||
Cash equivalents: | |||||||||||||||
Money market funds | Level 1 | $ | 69,516 | $ | — | $ | — | $ | 69,516 | ||||||
Corporate debt securities | Level 2 | 4,622 | — | — | 4,622 | ||||||||||
Total cash equivalents | 74,138 | — | — | 74,138 | |||||||||||
Short-term marketable securities: | |||||||||||||||
Commercial paper |
| Level 2 | 9,879 |
| 19 |
| — |
| 9,898 | ||||||
Corporate debt securities | Level 2 | 2,945 | 4 | — | 2,949 | ||||||||||
U.S. Treasury securities | Level 2 | 6,904 | 7 | — | 6,911 | ||||||||||
Total short-term marketable securities | 19,728 | 30 | — | 19,758 | |||||||||||
Total cash equivalents and marketable securities | $ | 93,866 | $ | 30 | $ | — | $ | 93,896 | |||||||
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.