Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

The table and disclosures below (in thousands) present the Company’s assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

	As of September 30, 2021
	Level I		Level II		Level III		Total
Assets:
Money market securities	$	65,368	$	—	$	—	$	65,368
Government securities		—		99,985		—		99,985
Total assets at fair value	$	65,368	$	99,985	$	—	$	165,353

	As of December 31, 2020
	Level I		Level II		Level III			Total
Assets:
Money market securities	$	11,822	$	—	$	—		$	11,822
Government securities		—		54,981		—			54,981
Total assets at fair value	$	11,822	$	54,981	$	—		$	66,803
Liabilities:
Common stock warrant liability	$	—	$	—	$	(5,018	)	$	(5,018	)
Redeemable convertible preferred stock warrant    liability		—		—		(3,828	)		(3,828	)
Total liabilities at fair value	$	—	$	—	$	(8,846	)	$	(8,846	)

The Series W warrant fair value was determined by management, with input and assistance from a third-party valuation specialist, upon issuance and was revalued as of each reporting date until expiration. The valuation specialist utilized a Monte Carlo Simulation ("MCS") under the income method utilizing assumptions and financial data prepared by the Company. This valuation approach uses a discounted cash flow (“DCF”) method to calculate the starting equity value of the Company based upon future cash flow generation. The starting equity value of the Company was determined utilizing significant unobservable inputs, including (1) forecasted financial projections for the next five years developed by management, (2) a terminal value assigned using an exit multiple method, and (3) a discount rate based on the weighted average cost of capital. Then a simulated equity value of the Company as of the expected exercise date was determined using the MCS method. The MCS inputs included: (1) the assumed amount of time until the exercise of the warrant, (2) the risk-free interest rate over the period until the assumed warrant exercise, (3) the assumed volatility in the value of the equity of the company, and (4) the starting equity value of the Company as determined from the discounted cash flow method. In order to determine the overall value of the warrant, the valuation specialists also simulated the payments for sales-based, operating and regulatory milestones based upon similar inputs to determine the expected overall purchase price of the Company. The net difference between the expected purchase price and the average simulated equity value determines the “option payoff”. Finally, management assigned a probability that the warrant will be exercised, which was applied to the present value of the “option payoff” to arrive at the recorded value reflected in the accompanying condensed consolidated financial statements. The Series W warrant expired unexercised on March 31, 2021 and the remaining value was recorded in the Statement of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2021.

The fair value of the preferred stock warrants was determined by management, with input and assistance from a third-party valuation specialist using a probability weighted expected return model/option pricing model (“PWERM/OPM”) hybrid valuation model. This method essentially utilizes a combination of market and income method approaches for each part of the calculation of enterprise value using assumptions and financial data prepared by the Company and combines them in a probabilistic manner. The valuation considered several future scenarios for the Company, each of which assumed a shareholder exit either through initial public offering (“IPO”), sale (“M&A”) or dissolution. Based upon the current IPO market, M&A values for private companies and the historical likelihood of dissolution or no exit, the Company concluded that the probabilities and time frames were reasonable. Implicit in the timing used in the application of the PWERM/OPM Hybrid Method is also the possibility of no exit. The option pricing model's significant unobservable inputs included: (1) the assumed time until a liquidity event, (2)

the risk-free interest rate over the period until the assumed liquidity event, (3) the assumed volatility in the value of the equity of the company (which corresponds to the model's underlying asset volatility), (4) the enterprise value and preferred investment amount and (5) the key price points in the Company's capital structure in terms of exit levels on the assumed liquidation date. A significant increase (decrease) in any of these inputs in isolation, particularly the estimated price of the Company’s preferred stock, would have resulted in a significantly higher (lower) fair value measurement.

The following table sets forth changes in the estimated fair values for the Company’s warrant liabilities measured using significant unobservable inputs (in thousands):

	Nine Months Ended			Year Ended
	September 30, 2021			December 31, 2020
Beginning of period	$	8,846		$	71,881
Exercise of preferred stock warrants		(1,111	)		(24	)
Expiration of common stock warrant		(5,018	)		—
Change in fair value of common stock warrant		—			(64,628	)
Change in fair value of preferred stock warrants		(2,717	)		1,617
End of period	$	—		$	8,846