SOLENO THERAPEUTICS INC Fair Value Disclosure
Note 4. Fair Value of Financial Instruments
The carrying value of the Company’s cash, cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these items.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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. Marketable securities, all of which are classified as available-for-sale securities, consisted of the following at December 31, 2025 (in thousands):
|
|
December 31, 2025 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
U.S. treasury securities |
|
$ |
274,524 |
|
|
$ |
388 |
|
|
$ |
(80 |
) |
|
$ |
274,832 |
|
Other government agency securities |
|
|
23,202 |
|
|
|
14 |
|
|
|
- |
|
|
|
23,216 |
|
Corporate debt securities and commercial paper |
|
|
137,859 |
|
|
|
133 |
|
|
|
(58 |
) |
|
|
137,934 |
|
Total |
|
$ |
435,585 |
|
|
$ |
535 |
|
|
$ |
(138 |
) |
|
$ |
435,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
|
|
Fair Value Measurements at December 31, 2025 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
63,613 |
|
|
$ |
63,613 |
|
|
$ |
- |
|
|
$ |
- |
|
Total cash equivalents |
|
$ |
63,613 |
|
|
$ |
63,613 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
274,832 |
|
|
$ |
- |
|
|
$ |
274,832 |
|
|
$ |
- |
|
Other government agency securities |
|
|
23,216 |
|
|
|
- |
|
|
|
23,216 |
|
|
|
- |
|
Corporate debt securities and commercial paper |
|
|
137,934 |
|
|
|
- |
|
|
|
137,934 |
|
|
|
- |
|
Total marketable securities |
|
|
435,982 |
|
|
|
- |
|
|
|
435,982 |
|
|
|
- |
|
Total assets |
|
$ |
499,595 |
|
|
$ |
63,613 |
|
|
$ |
435,982 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Essentialis purchase price contingency liability |
|
$ |
20,327 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
20,327 |
|
Total liabilities |
|
$ |
20,327 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
20,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value Measurements at December 31, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
59,885 |
|
|
$ |
59,885 |
|
|
$ |
- |
|
|
$ |
- |
|
Total cash equivalents |
|
$ |
59,885 |
|
|
$ |
59,885 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
198,065 |
|
|
$ |
- |
|
|
$ |
198,065 |
|
|
$ |
- |
|
Corporate debt securities and commercial paper |
|
|
32,655 |
|
|
|
- |
|
|
|
32,655 |
|
|
|
- |
|
Total marketable securities |
|
|
230,720 |
|
|
|
- |
|
|
|
230,720 |
|
|
|
- |
|
Total assets |
|
$ |
290,605 |
|
|
$ |
59,885 |
|
|
$ |
230,720 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Essentialis purchase price contingency liability |
|
$ |
14,791 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,791 |
|
Total liabilities |
|
$ |
14,791 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Based on the terms of the completed merger with Essentialis on March 7, 2017, the Company is obligated to make cash earnout payments of up to a maximum of $21.2 million to the former Essentialis stockholders. The fair value of the Essentialis purchase price contingent liability is estimated using scenario-based methods based upon the Company’s analysis of the likelihood of obtaining specified approvals from the U.S. Food and Drug Administration (FDA) as well as achieving two commercial sales milestones of $100 million and $200 million in cumulative revenue. The Level 3 estimates are based, in part, on subjective assumptions. As of December 31, 2025, following the receipt of FDA approval for VYKAT XR, the Company no longer considers FDA approval as a variable and determined a 100% probability of achieving the remaining two milestones. Prior to receiving FDA approval, management relied on published research relating to clinical development success rates to determine the likelihood of FDA approval occurring. Based on this assessment, an 88% probability of achieving all three milestones was determined to be reasonable as of both December 31, 2024 and December 31, 2023. During the periods presented, other than as discussed above regarding the
receipt of FDA approval for VYKAT XR, the Company has not changed the manner in which it values its Essentialis purchase price contingent liability.
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the periods presented.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 assets and liabilities for the years ended December 31, 2025 and 2024 (in thousands):
|
|
Purchase Price |
|
|
|
|
Contingent |
|
|
|
|
Liability |
|
|
Balance at January 1, 2025 |
|
$ |
14,791 |
|
Change in value of contingent liability |
|
|
5,536 |
|
Balance at December 31, 2025 |
|
$ |
20,327 |
|
|
|
|
|
|
|
|
Purchase Price |
|
|
|
|
Contingent |
|
|
|
|
Liability |
|
|
Balance at January 1, 2024 |
|
$ |
11,549 |
|
Change in value of contingent liability |
|
|
3,242 |
|
Balance at December 31, 2024 |
|
$ |
14,791 |
|
|
|
|
|
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2017 | Apr 2, 2018 | |
| 2016 | Mar 15, 2017 | |
| 2015 | Mar 25, 2016 | |
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.