Upstream Bio, Inc. Fair Value Disclosure
3. Fair value measurements
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 used to determine such fair values (in thousands):
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Fair Value Measurements at |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
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|
|
|
|
|
|
|
|
|
|
|
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Money market funds |
|
$ |
85,866 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,866 |
|
U.S. treasury securities |
|
|
— |
|
|
|
14,991 |
|
|
|
— |
|
|
|
14,991 |
|
Short-term investments: |
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|
|
|
|
|
|
|
|
|
|
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U.S. treasury securities |
|
|
— |
|
|
|
159,455 |
|
|
|
— |
|
|
|
159,455 |
|
Corporate debt securities |
|
|
— |
|
|
|
75,216 |
|
|
|
— |
|
|
|
75,216 |
|
Government agency bonds |
|
|
— |
|
|
|
5,260 |
|
|
|
— |
|
|
|
5,260 |
|
|
|
$ |
85,866 |
|
|
$ |
254,922 |
|
|
$ |
— |
|
|
$ |
340,788 |
|
|
|
Fair Value Measurements at |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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|
|
|
|
|
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|
||||
Cash equivalents: |
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|
|
|
|
|
|
|
|
|
|
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Money market funds |
|
$ |
321,047 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
321,047 |
|
U.S. treasury bills |
|
|
4,173 |
|
|
|
— |
|
|
|
— |
|
|
|
4,173 |
|
Short-term investments: |
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|
|
|
|
|
|
|
|
|
|
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U.S. treasury bills |
|
|
— |
|
|
|
77,165 |
|
|
|
— |
|
|
|
77,165 |
|
U.S. government agency bonds |
|
|
— |
|
|
|
67,394 |
|
|
|
— |
|
|
|
67,394 |
|
|
|
$ |
325,220 |
|
|
$ |
144,559 |
|
|
$ |
— |
|
|
$ |
469,779 |
|
|
|
|
|
|
|
|
|
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|
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There were no transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2025 and 2024.
The Company classifies its U.S. treasury securities, corporate debt securities and government agency bonds as short-term based on each instrument’s availability for use in current operations. The fair value of the Company’s U.S. treasury securities, corporate debt securities and government agency bonds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency.
Short-term investments consisted of the following (in thousands):
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December 31, 2025 |
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Amortized |
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Gross Unrealized |
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Gross Unrealized |
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Fair |
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Short-term investments: |
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|
|
|
|
|
|
|
|
|
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U.S. treasury securities |
|
$ |
159,033 |
|
|
$ |
422 |
|
|
$ |
— |
|
|
$ |
159,455 |
|
Corporate debt securities |
|
|
75,117 |
|
|
|
102 |
|
|
|
(3 |
) |
|
|
75,216 |
|
Government agency bonds |
|
|
5,253 |
|
|
|
7 |
|
|
|
— |
|
|
|
5,260 |
|
Total short-term investments: |
|
$ |
239,403 |
|
|
$ |
531 |
|
|
$ |
(3 |
) |
|
$ |
239,931 |
|
|
|
December 31, 2024 |
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|
Amortized |
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
Fair |
|
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Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
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U.S. treasury bills |
|
$ |
77,142 |
|
|
$ |
37 |
|
|
$ |
(14 |
) |
|
$ |
77,165 |
|
U.S. government agency bonds |
|
|
67,442 |
|
|
|
34 |
|
|
|
(82 |
) |
|
|
67,394 |
|
Total short-term investments: |
|
$ |
144,584 |
|
|
$ |
71 |
|
|
$ |
(96 |
) |
|
$ |
144,559 |
|
The contractual maturities of the Company’s short-term investments in available-for-sale securities held were as follows (in thousands):
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December 31, |
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December 31, 2024 |
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Due within one year |
|
$ |
221,506 |
|
|
$ |
109,943 |
|
Due after one year through two years |
|
|
18,425 |
|
|
|
34,616 |
|
Total available-for-sale securities |
|
$ |
239,931 |
|
|
$ |
144,559 |
|
Valuation of preferred stock tranche right liabilities
The fair value of the preferred stock tranche right liability in the table below is composed of the fair value of the obligation to issue Series B redeemable convertible preferred stock (“Series B Preferred Stock”) (Note 8). The fair value of the preferred stock tranche right liability was based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy.
The fair value of the Series B Preferred Stock tranche right liability was determined using an option pricing model as it represents an option for the Series B Option Shares (as defined in Note 8). The valuation considered as inputs the estimated fair value of the Series B Preferred Stock as of each valuation date, the risk-free interest rate, volatility, expected dividends, and estimated time to the tranche closing.
The most significant assumption in the valuation model impacting the fair value of the preferred stock tranche right liability is the fair value of the Company’s Series B Preferred Stock as of each measurement date. The Company determined the fair value per share of the underlying Series B Preferred Stock by taking into consideration the most recent sales of its Series B Preferred Stock, results obtained from third-party valuations and additional factors the Company deemed relevant. In April 2024, upon satisfaction of certain conditions, the Company issued and sold 8,823,523 shares of Series B Preferred Stock at a price of $17.00 per share, which resulted in the settlement of the associated Series B preferred stock tranche right liability. The fair value of Series B Preferred Stock was $17.002 per share upon the closing.
The following table presents a roll-forward of the fair value of the Series B preferred stock tranche right liability during the year ended December 31, 2024, for which fair value was determined using Level 3 inputs (in thousands):
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Series B Preferred |
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|
|
|
|
|
|
|
|
|
Fair value at December 31, 2023 |
|
$ |
2,874 |
|
||||
Change in fair value of Series B preferred stock tranche right liability |
|
|
(2,859 |
) |
||||
Final settlement of Series B preferred stock tranche right liability |
|
|
|
|
|
|
(15 |
) |
Fair value at December 31, 2024 |
|
$ |
— |
|
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 26, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
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.