Fair Value Measurement

6 Months Ended

Jun. 30, 2020

15. Fair Value Measurement

The Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2020 consisted of the following:

	Fair Value Measurement at June 30, 2020
	Total		Level 1		Level 2		Level 3
Recurring fair value measurements
Cash equivalents - money market funds	$	38,011,208	$	38,011,208	$	—	$	—
Short-term investments		15,484,402		—		15,484,402		—
Contingent consideration		16,390,000		—		—		16,390,000
Warrant liability		10,000		—		—		10,000

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:

	Fair Value Measurement at December 31, 2019
	Total		Level 1		Level 2		Level 3
Recurring fair value measurements
Cash equivalents - money market funds	$	8,034,640	$	8,034,640	$	—	$	—
Short-term investments		28,277,386		—		28,277,386		—
Contingent consideration		2,750,000		—		—		2,750,000
Warrant liability		10,000		—		—		10,000

Assets recorded at fair value on a nonrecurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired.

Cash equivalents and short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. Short-term investments had quoted prices at June 30, 2020 as shown below:

	June 30, 2020
	Amortized Cost		Unrealized Gain (Loss)		Market Value

Certificate of deposit	$	5,000,000	$	—	$	5,000,000
Financial and corporate debt securities		10,475,942		8,460		10,484,402
Total	$	15,475,942	$	8,460	$	15,484,402

The fair value of contingent payments classified as a liability was based on the regulatory milestones described in Note 3 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs. The following table is a reconciliation of the beginning and ending balance of contingent consideration liability:

Balance at December 31, 2019	$	2,750,000
Change in fair value		13,640,000
Balance at June 30, 2020	$	16,390,000

The assumptions used to estimate the fair value of contingent payments that are classified as a liability at June 30, 2020 include the following significant unobservable inputs:

Unobservable input	Value or Range	Weighted Average

Expected volatility	112.9%	112.9%
Risk-free interest rate	0.16%	0.16%
Cost of capital	30.0%	30.0%
Discount for lack of marketability	14%-22%	18.0%
Probability of payment	52%-83%	76%
Projected year of payment	2020-2022	2020

The Company’s warrant liability is valued using the Monte Carlo simulation valuation model. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs.

There were no transfers into and out of any of the levels of the fair value hierarchy as of June 30, 2020 and December 31, 2019.

- 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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