Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
We are exposed to various market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our exposure to market risks primarily arises from fluctuations in interest rates and foreign currency exchange rates.
Interest Rate and Market Risk
Our cash and cash equivalents include cash in readily available checking and money market accounts. These securities are not exposed to interest rate fluctuations that could cause the principal amount of these assets to fluctuate and thus do not pose any interest rate risk to us. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market conditions.
We are exposed to interest rate risks related to fluctuations in variable interest rates on our New Pharmakon Term Loans, which bear interest at a rate equal to the 3-month SOFR (subject to a SOFR floor of 3.5%) plus 5.0% per annum. As of December 31, 2025, we had $150.0 million in principal outstanding on the New Pharmakon Term Loans. If the underlying interest rates were to increase or decrease by 1% for the year, the associated impact on our annual interest expense would be approximately $1.5 million.
Foreign Currency Exchange Rate Risk
Our operations are primarily conducted in U.S. dollars; however, we conduct business in foreign countries and are exposed to foreign currency exchange rate fluctuations, primarily related to the British pound, the EU euro and the Australian dollar. Changes in exchange rates may affect the costs incurred in our operations. We are subject to transactional foreign currency exposure when transactions are denominated in currencies other than the U.S. dollar. Such transactions are recorded at the exchange rate in effect on the transaction date; the related, outstanding assets and liabilities are subsequently remeasured in U.S. dollars at exchange rates in effect at the balance sheet date. The resulting foreign currency gains and losses are included in Other income (expense), net in the consolidated statements of operations and comprehensive loss and were insignificant for the years ended December 31, 2025, 2024, and 2023.
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