Kodiak Sciences Inc. Notes to Consolidated Financial Statements 86 Fair Value of Financial Instruments Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Fair value is estimated by applying the following three-level hierarchy, which prioritizes the inputs used to measure fair value based on the lowest level of input that is available and significant to the fair value measurement: Level 1 —Quoted prices in active markets for identical assets or liabilities. Level 2 —Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy because their fair values are derived from quoted market prices. The Company’s financial instruments consisting of prepaid expenses and other current assets, accounts payable and accrued liabilities and other current liabilities, approximate fair value due to their relatively short maturities. Leases The Company determines if an arrangement is or contains a lease at inception, and categorizes each lease as either an operating or finance lease. All lease obligations as of December 31, 2025 were operating leases. The Company combines and accounts for lease and nonlease components as a single lease component. For leases with a term greater than 12 months, right-of-use assets and lease liabilities are recognized based on the present value of fixed lease payments. The Company's leases do not provide an implicit rate, thus the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation, and are depreciated on a straight-line basis over the estimated useful lives of the related assets. Construction in process assets consist primarily of manufacturing and laboratory equipment that have not yet been placed in service. Once the assets are placed into service, they are reclassified to the appropriate asset class and depreciated. Estimated useful lives of each asset category generally follows: Asset Category Useful Lives Furniture and Fixtures 5 years Machinery and Equipment 3 to 10 years Computer Software and Hardware 3 to 5 years Leasehold improvements Lesser of the useful life or lease term Upon sale or retirement of assets, the costs and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. Recoverability is measured by comparing the carrying amount of the assets to the estimated undiscounted net cash flows which the assets are expected to generate. If such assets are deemed not recoverable, an impairment loss is recognized in the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Research and Development Expenses Costs related to research, design and development of products are charged to research and development expense as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, including stock- based compensation, laboratory supplies, outside services and allocated overhead, including rent, depreciation and utilities.