6. Fair Value Measurements

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Fair Value of Aevitas

The Company valued its retained investment in Aevitas in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and estimated the fair value to be $2.6 million based on a per share value of $0.328. The following inputs were utilized to derive the value: risk free rate of return of 3.7%, volatility of 80% and a discount for lack of marketability of 39.7%.

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Common Stock Warrant Liabilities

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Checkpoint

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On December 16, 2022, Checkpoint closed on an offering for the sale of shares of its common stock and pre-funded warrants as part of a registered direct offering (the “December 2022 Registered Direct Offering”). The common stock and the pre-funded warrants were sold together with December 2022 common stock warrants and placement agent warrants. Net proceeds from the December 2022 Registered Direct Offering were $6.7 million after deducting commissions and other transaction costs.

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The Company deemed the December 2022 common stock warrants and placement agent warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The common stock warrants and placement agent warrants were recorded at the time of closing at a fair value of $7.9 million, determined by using the Black-Scholes model. As the total fair value of the common stock warrant liability exceeded the total net proceeds of $6.7 million, the Company recorded a loss of $1.2 million to loss on common stock warrant liabilities in the Condensed Consolidated Statements of Operations for the year ended December 31, 2022. Accordingly, there were no proceeds allocated to the common stock and pre-funded warrants issued as part of this transaction.

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The Company revalued the December 2022 common stock warrants and placement agent warrants at June 30, 2023 using the Black-Scholes model.  This resulted in a decrease in common stock warrant liability of $7.2 million, with an offsetting gain recorded to change in fair value of warrant liabilities in the unaudited condensed consolidated Statements of Operations.

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A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:

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Avenue

On October 11, 2022, Avenue announced the closing of an underwritten public offering of 3,636,365 common and pre-funded units.  Each common unit consists of one share of common stock and one warrant to purchase one share of common stock, and each pre-funded unit consists of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock. Each share of common stock (or pre-funded warrant) was sold together with one warrant at a combined purchase price of $3.30 per common unit (or $3.2999 per pre-funded unit after reducing $0.0001 attributable to the exercise price of the pre-funded warrants).  Avenue also simultaneously closed on the sale of an additional 545,454 warrants to purchase common stock, which were sold pursuant to a partial exercise of the underwriter’s over-allotment option. Avenue received net proceeds of approximately $10.3 million at closing after deducting underwriting discounts and commissions and other expenses of the offering.  

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On January 27, 2023, Avenue entered into an agreement with a single institutional investor for the sale of 448,000 shares of common stock and pre-funded warrants to purchase 1,492,299 shares of common stock The purchase price of each share is $1.55. The purchase price of each pre-funded warrant is $1.5499 with an exercise price of $0.0001. In a concurrent private placement, Avenue also agreed to issue to the same investor a total of 1,940,299 warrants to purchase up to one share of common stock each at an exercise price of $1.55 per share and a purchase price of $0.125. Avenue received $2.8 million in net proceeds and recorded $2.2 million in expense associated with the issuance of the common warrants.

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The October 2022 Warrants originally contained a down-round price protection feature. In connection with the January 2023 registered direct offering and concurrent private placement, the exercise price for the October 2022 Warrants was permanently set to $1.55. The Black-Scholes model was used to value the October 2022 Warrants and January 2023 Warrants as of June 30, 2023.

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The Company deemed the warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The October 2022 Warrants were recorded at the time of closing at a fair value of $8.3 million.

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A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:

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Urica

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The fair value of Urica’s contingently issuable placement agent warrants in connection with Urica’s first close of its preferred offering in December 2022, was measured using a Monte Carlo simulation valuation methodology.  A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Urica’s warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows

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At both June 30, 2023 and December 31, 2022 the value of the Urica’s contingent payment warrant was approximately $0.1 million.