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Fair Value Measurements

12 Months Ended

Dec. 31, 2021

4.	Fair Value Measurements

The Company measures and reports its cash equivalents at fair value. The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis by level within the fair value hierarchy:

	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Money market funds	$	102,526	$	—	$	—	$	102,526

	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Money market funds	$	101,919	$	—	$	—	$	101,919

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as a Level 1 input.

Prior to reclassification into equity in January 2020, the Company’s warrant liabilities and securities issuance obligation contained unobservable inputs that reflected the Company’s own assumptions in which there was little, if any, market activity at the measurement date. Accordingly, the Company’s warrant liabilities and

securities issuance obligation were measured at fair value on a recurring basis using unobservable inputs and were classified as Level 3 inputs.

The fair values of the Series A and Series B warrants (see Note 8) were estimated using the Black-Scholes option-pricing model. The expected terms represented the periods that the warrants are expected to be outstanding. The risk-free interest rates were based on the U.S. Constant Maturity treasury curve commensurate with the time to expiry. The expected dividend was zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future. The expected volatilities were estimated by backsolving to volatility implied in the transaction price. Discount for lack of marketability was dependent on the restriction period and the estimated volatility during the period.

The fair value of the warrant issuance obligation (see Note 7) was estimated using the Black-Scholes option-pricing model. The expected term represented the period that the underlying warrant is expected to be outstanding from the time the issuance obligation arose. The risk-free interest rate was based on the U.S. Constant Maturity treasury curve commensurate with the time to expiry. The expected dividend was zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future. The expected volatility was estimated by backsolving to volatility implied in the transaction price. The fair value of the common stock issuance obligation was estimated based on the fair value of the underlying common stock. Discount for lack of marketability was dependent on the restriction period and the estimated volatility during the period.

The assumptions used in calculating the estimated fair values at the end of the reporting period represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.

At November 13, 2019, upon the issuance of Series A and Series B warrants and when the securities issuance obligation arose, the Company estimated the fair values of the financial liabilities using the following assumptions:

	Series A Warrant			Series B Warrant			Warrant Issuance Obligation			Common Stock Issuance Obligation
Expected term (in years)		5.2			2.3			5.2		N/A
Expected volatility		43	%		88	%		43	%	N/A
Risk-free interest rate		1.70	%		1.64	%		1.70	%	N/A
Expected dividend yield	— %			— %			— %			N/A
Discount for lack of marketability		30	%		30	%		32	%		32	%

At December 31, 2019, the Company remeasured these liabilities to their fair values using the following assumptions:

	Series A Warrant			Series B Warrant			Warrant Issuance Obligation			Common Stock Issuance Obligation
Expected term (in years)		5.1			2.2			5.1		N/A
Expected volatility		43	%		88	%		43	%	N/A
Risk-free interest rate		1.69	%		1.59	%		1.70	%	N/A
Expected dividend yield	— %			— %			— %			N/A
Discount for lack of marketability		25	%		25	%		25	%		25	%

At January 22, 2020, Series A and Series B warrants were no longer considered to be derivative instruments. The Company remeasured the fair value of the warrant liabilities at the time of reclassification to equity using the following assumptions:

	Series A Warrant			Series B Warrant
Expected term (in years)		5.0			2.1
Expected volatility		43	%		88	%
Risk-free interest rate		1.57	%		1.53	%
Expected dividend yield		—	%		—	%

The fair value of the Series A and Series B warrants at the time of issuance in November 2019, at December 31, 2019 and at the time they ceased to be derivative instruments in January 2020 were estimated to be $25.0 million, $45.9 million and $62.1 million, respectively. The Company recorded a $16.2 million and $20.9 million non-cash expense relating to the change in fair value of warrant liabilities in other expense (income), net in the accompanying consolidated statement of operations for the years ended December 31, 2020 and 2019, respectively.

On September 8, 2021, the Company amended certain terms of Series A warrants and Series B warrants (see Note 8). The amendments did not result in changes to the fair value of these warrants.

At January 31, 2020, the securities issuance obligation was settled by the issuance of common stock and a common stock warrant. The fair value of its common stock issuance obligation was remeasured based on the value of the common stock at the time of issuance. The fair value of the warrant issuance obligation was remeasured using the following assumptions:

	Warrant Issuance Obligation
Expected term (in years)		5.0
Expected volatility		43	%
Risk-free interest rate		1.57	%
Expected dividend yield	— %

The fair value of the securities issuance obligation when the obligation arose in November 2019, at December 31, 2019 and at the time the obligation was settled in January 2020 were estimated to be $6.4 million, $10.5 million and $12.0 million, respectively. The Company recognized a $10.5 million and $1.5 million non-cash research and development expense for the years ended December 31, 2020 and 2019, respectively, based on the fair value of the securities to be issued, in the consolidated statement of operations.

The following table provides a summary of changes in the estimated fair values of the Company’s Level 3 financial liabilities, which were measured at fair value on a recurring basis using unobservable inputs:

	Series A Warrant Liability			Series B Warrant Liability			Warrant Issuance Obligation			Common Stock Issuance Obligation			Total
	(in thousands)
Balance, December 31, 2019	$	32,616		$	13,319		$	3,036		$	7,449		$	56,420
Changes in fair value		11,597			4,643			152			1,333			17,725
Settlement of financial liabilities by securities issuance		—			—			(3,188	)		(8,782	)		(11,970	)
Reclassification to equity		(44,213	)		(17,962	)		—			—			(62,175	)
Balance, December 31, 2020 and 2021	$	—		$	—		$	—		$	—		$	—

Fluctuations in fair values of the financial liabilities were attributable to changes in the fair value of the underlying stock and non-marketable discount.

There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2021 and 2020.

- 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.

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