Fair Value of Financial Assets and Liabilities

6 Months Ended

Jun. 30, 2025

Fair Value of Financial Assets and Liabilities

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. In this note, the Company provides details on the fair value of financial assets and liabilities and how it determines those fair values.

Financial Instruments Measured at Fair Value on the Condensed Consolidated Balance Sheets

Certain of the Company's financial instruments are measured at fair value on the condensed consolidated balance sheets on a recurring basis. The fair values of these instruments are based on valuations that include inputs that can be classified within one of three levels of a hierarchy established by GAAP. See Fair Value Measurements in Note 2, "Summary of Significant Accounting Policies," for a description of the type of valuation information ("valuation inputs") that qualifies a financial asset or liability for each level.

Financial assets and liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at June 30, 2025 and December 31, 2024 were as follows:


		Fair Value Measurement Using:
Balance Sheet Classification	Type of Instrument	Level 1		Level 2		Level 3		Total
June 30, 2025
Assets:
Cash equivalents	Money market funds	$	88,944	$	—	$	—	$	88,944
Cash and cash equivalents	U.S. treasury bills	14,964		54,772		—		69,736

Marketable securities	U.S. treasury bills	29,846		119,204		—		149,050
Marketable securities	U.S. treasury bonds	—		90,133		—		90,133


Other non-current assets	Money market funds	3,200		—		—		3,200
Total assets		$	136,954	$	264,109	$	—	$	401,063

Liabilities:


Derivative liability, current	Written put option, current	$	—	$	—	$	25,970	$	25,970

Notes payable	Notes payable, non-current	—		—		257,070		257,070
Total liabilities		$	—	$	—	$	283,040	$	283,040

December 31, 2024
Assets:
Cash equivalents	Money market funds	$	38,967	$	—	$	—	$	38,967


Marketable securities	U.S. treasury bills	29,707		282,590		—		312,297
Marketable securities	U.S. treasury bonds	—		74,560		—		74,560



Other non-current assets	Money market funds	3,133		—		—		3,133
Total assets		$	71,807	$	357,150	$	—	$	428,957

Liabilities:
Forward contract liability	Forward contract, current	$	—	$	—	$	71,500	$	71,500
Derivative liability, current	Written put option, current	—		—		13,210		13,210
Total liabilities		$	—	$	—	$	84,710	$	84,710

There were no securities transferred between Level 1, 2, and 3 during the three and six months ended June 30, 2025 or 2024.

The following is a description, including valuation methodology, of the financial assets and liabilities measured at fair value on a recurring basis:

Cash Equivalents and Other Non-Current Assets

Cash equivalents at June 30, 2025 consisted of cash invested in U.S. treasury bills with original maturities of three months or less at time of purchase and short-term money market funds that are readily convertible to known amounts of cash and redeemable daily at the election of the Company. The carrying value of cash equivalents approximates fair value because the near term maturities of the U.S. treasury bills and money market fund's underlying security holdings result in an insignificant change in value related to changes in interest rates. When quoted prices are available in an active market, cash equivalents are classified in Level 1 of the fair value hierarchy and consisted of on-the-run U.S. treasury

bills and short-term money market funds. Fair value of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2 and consisted of off-the-run treasury bills.

Marketable Securities

Quoted prices for identical assets in active markets are considered Level 1 and consisted of on-the-run U.S. treasury bills. The fair values of the Company’s Level 2 debt securities are obtained from quoted market prices of debt securities with similar characteristics, quoted prices from identical assets in inactive markets, or discounted cash flows to estimate fair value. The Company's Level 2 marketable securities consisted of off-the-run U.S. treasury bills and U.S. treasury bonds.

Forward Contract and Derivative Liability

In connection with the amendment, dated as of May 1, 2024 (the "Knopp Amendment"), to the Membership Interest Purchase Agreement, dated as of February 24, 2022 (as amended, the "Knopp Agreement"), entered into with Knopp Biosciences, LLC ("Knopp"), Knopp has the option to request a one-time cash true-up payment from the Company in December 2025, as defined in the Knopp Agreement (the "2025 Knopp True-Up"). See Note 11, "License, Acquisitions and Other Agreements," for further details.

The following table provides a roll forward of the fair value of the Company's forward contract and derivative liability related to the 2025 Knopp Additional Consideration and 2025 Knopp True-Up, respectively, for which fair value is determined by Level 3 inputs from December 31, 2024 to June 30, 2025:


	Carrying Value
Fair value at December 31, 2024	$	84,710
Change in fair value of forward contract and derivative liability in other income, net	3,610
Fair value at March, 31 2025	88,320
Change in fair value of forward contract and derivative liability in other income, net	(10,924)
Settlement of 2025 Knopp Additional Consideration at fair value	(51,426)
Fair value at June 30, 2025	$	25,970

The fair value of the remaining derivative liability recognized in connection with the Knopp Amendment was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuation is based on a Monte Carlo simulation of Biohaven's share price, which requires judgment and assumptions regarding the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven-specific subordinate unsecured credit risk since potentially payable in cash. A summary of the unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability related to the 2025 Knopp True-Up as of June 30, 2025 and the 2025 Knopp Additional Consideration and 2025 Knopp True-Up as of December 31, 2024, presented on a weighted-average basis based on relative fair value, are as follows,:


	As of June 30, 2025		As of December 31, 2024

Time to payment and potential payment (years)	0.42		0.50
Volatility (annual)	85.0	%	67.5	%
Discount rate	19.2	%	12.0	%

Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. An increase in the derivative liability related to the 2025 Knopp True-Up between the reporting date and settlement date of the derivative would have a material adverse effect on the Company's financial performance.

Note Purchase Agreement

On April 28, 2025, the Company entered into an NPA as described in further detail in Note 6, "Notes Payable." The Company elected to account for the NPA under the fair value option as permitted by ASC 825, "Financial Instruments."

The Company determined the fair value of the First Notes (as defined below) on April 28, 2025 was $255,880. The difference between the fair value at execution and the contractual principal of $250,000 was due to a purchased loan commitment for the Second Notes (as defined in Note 6). The purchased loan commitment resulted in a $5,880 offsetting asset recorded at its fair value within other current assets on the condensed consolidated balance sheet. The following table provides a roll forward of the fair value of the First Notes for which fair value is determined by Level 3 inputs from April 28, 2025 to June 30, 2025:


	Amount
Fair value at April 28, 2025	$	255,880
Change in fair value reported in other income (loss), net	1,190

Fair value at June 30, 2025	$	257,070

The fair value of the First Notes represents the present value of estimated future payments under the NPA for the First Notes. The fair value of the First Notes is based on the cumulative probability of the various estimated payment scenarios. The fair value measurement is based on significant Level 3 unobservable inputs such as management's assumptions on the probability and timing of regulatory approvals for troriluzole and other product candidates, forecasted future revenue for troriluzole, probability and timing of an early redemption of all obligations under the NPA for the First Notes, and discount rate using a risk-free rate plus Biohaven-specific senior secured credit risk.

Actual probability and timing of regulatory approvals, future revenue for troriluzole, probability and timing of an early redemption event at the reporting date, and Biohaven-specific senior secured credit risk could be materially different than our assumptions, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. An increase in the liability related to the First Notes between the reporting date and settlement date of the liability would have a material adverse effect on the Company's financial performance.

At June 30, 2025, the difference between the aggregate fair value and the aggregate unpaid principal balance of the Notes was $7,070.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

Biohaven Ltd. 10-Q