Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

The following table provides the 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 value at December 31:

	2021
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets:
Money market funds	$	84,102	$	84,102	$	—	$	—
Liabilities:
Contingent earnout	$	524	$	—	$	—	$	524

	2020
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets:
Money market funds	$	50,897	$	50,897	$	—	$	—
Liabilities:
Warrants	$	1,914	$	—	$	—	$	1,914
Forward obligation	$	2,750	$	—	$	—	$	2,750
Contingent earnout	$	930	$	—	$	—	$	930

Recurring liabilities included in Level 3 for the years presented consisted of preferred stock warrants, a forward obligation to transfer shares of Series D preferred stock, and a contingent earnout.

The following tables present the rollforward of the estimated fair values for instruments classified by the Company within Level 3 of the fair value hierarchy defined above, measured using significant unobservable inputs:

	Warrant liabilities			Forward obligation			Contingent earnout			Total
	(in thousands)
December 31, 2020	$	1,914		$	2,750		$	930		$	5,594
Payment of contingent earnout		—			—			(667	)		(667	)
Addition		2,135			—			—			2,135
Change in fair value		(71	)		(52	)		261			138
Reclassification to equity upon initial public offering		(3,978	)		—			—			(3,978	)
Settlement of forward obligation into common stock on initial public offering		—			(2,698	)		—			(2,698	)
December 31, 2021	$	—		$	—		$	524		$	524

	Warrant liabilities			Forward obligation		Contingent earnout			Total
	(in thousands)
December 31, 2019	$	2,260		$	2,500	$	2,390		$	7,150
Payment of contingent earnout		—			—		(987	)		(987	)
Change in fair value		(346	)		250		(473	)		(569	)
December 31, 2020	$	1,914		$	2,750	$	930		$	5,594

There were no transfers in or out of Level 3, other than the reclassification of the warrant liability and settlement of forward obligation on the IPO during the year ended December 31, 2021. There were no transfers in or out of Level 3 during the year ended December 31, 2020.

Warrants

In 2009, the Company executed two convertible note and warrant purchase agreements (the “2009 Notes”) with certain stockholders. The principal and unpaid interest on the 2009 Notes was converted into shares of Series B preferred stock in March 2010. In connection with the 2009 Notes, the Company issued immediately exercisable warrants to the holders to purchase an aggregate of 76,956 shares of the Company’s Series B preferred stock. In 2019, 70,078 of these warrants were exercised in exchange for $0.5 million in cash while the remaining 6,878 warrants expired unexercised.

In December 2013, the Company entered into a $10.0 million term loan facility with Oxford Finance LLC. The term loan was repaid in full in June 2017. In connection with the term loan, the Company issued immediately exercisable warrants to the lender for the purchase of 27,397 shares of the Company’s Series C-1 preferred stock equal to three percent of the aggregate amount funded.

In June 2017, the Company entered into a term loan facility with Perceptive Credit Holdings, LP, which was subsequently amended (see Note 9). Upon funding of the initial loan, and each initial tranche of the amended loans, the Company issued immediately exercisable warrants to the lender for the purchase of 54,793 shares of the Company’s Series D preferred stock, and 249,313 shares of the Company’s Series E preferred stock.

In August 2021, the Company amended its term loan with Perceptive Credit Holdings, LP and issued immediately exercisable warrants to the lender for the purchase of 150,684 shares of the Company’s Series E preferred stock. The fair value at issuance of the Series E preferred stock warrants related to the August 2021 amendment was $2.1 million.

Prior to the Company's IPO in November 2021, the Company recognized warrants to purchase shares of convertible preferred stock as liabilities, reflecting deemed liquidation provisions of the convertible preferred stock considered contingent redemption provisions that were not solely within the Company's control. Upon the closing of the IPO, the contingent redemption provisions were removed with the automatic conversion of the underlying preferred stock to common stock, and the Company revalued the convertible preferred stock warrants and reclassified the liability to stockholders equity. The common stock warrants are no longer subject to remeasurement subsequent to the IPO.

Warrants at December 31 included the following:

					Warrants outstanding				Estimated fair value
Warrants	Number of warrants issued		Exercise price per share		2021		2020		2020
									(in thousands)
Series C-1		27,397	$	10.95		27,397		27,397	$	225
Series D		54,793	$	17.80		54,793		54,793		500
Series E		49,315	$	20.08		49,315		49,315		575
Series E		49,314	$	20.08		49,314		49,314		614
Series E		150,684	$	20.08		150,684		—		—
		331,503				331,503		180,819	$	1,914

As of December 31, 2020, warrants fully vested and outstanding had estimated fair values ranging between $7.78 to $12.45. Fair values were determined using the option-pricing model with the following input assumptions for the year ended December 31:

	2021 (1)	2020
Expected volatility range (weighted average)	78.86% to 87.02% (83.73%)	78.57 to 81.37% (79.91%)
Dividend yield	0.00%	0.00%
Risk-free interest rates range (weighted average)	0.30% to 1.25% (1.07%)	0.17% to 0.81% (0.65%)
Expected term range (average)	2.35 years to 10.00 years (8.02 years)	3.00 years to 8.77 years (7.26 years)
(1) For period from beginning of the year to completion of the IPO, November 2, 2021

Assumptions were weighted by the relative fair value of the instruments. An increase in the expected volatility, risk-free interest rates, and expected term would result in an increase to the estimated value of the warrants while an increase in the dividend yield would result in a decrease to the estimated value of the warrants.

These warrants expire between December 2023 and August 2031.

Forward obligation

In connection with a December 2016 asset acquisition, a portion of the transaction consideration included the issuance of a maximum of 224,842 shares of the Company's Series D Preferred Stock, issued, paid and deliverable upon the earliest to occur of (i) an extraordinary event, as defined in the purchase agreement; (ii) a public offering of any securities of the Company, in which the shares of the Series D preferred stock of the Company are converted in accordance with the then effective certificate of incorporation of the Company, or in connection with which the holders of the Series D preferred stock agree to convert their shares of series D preferred stock into conversion shares, as defined in the purchase agreement; or (iii) the 7th anniversary after the closing of the transaction. The Company measured the estimated value of the shares of Series D Preferred Stock as of the acquisition date based on the estimated fair value of the Series D preferred stock reflecting a discount for marketability. The fair value of the forward obligation was estimated by the Board with input from a third party valuation specialist, based on management estimates and assumptions reflecting the anticipated timing of delivery of the underlying preferred stock and utilizing the probability tree valuation method. This approach calculates estimated fair value by future cash flows attributable to the forward obligation using significant unobservable inputs, including the probabilities of multiple scenarios with individual probabilities ranging from 10% to 40%, and estimates of the timing of the achievement of various liquidity event scenarios.

In connection with the Company’s IPO, the Company settled the forward obligation by issuing 224,842 shares of common stock.

Contingent earnout

In connection with the acquisition of TDO, the Company recorded a liability related to certain contingent earnout provisions, which were based on annual sales of licenses and units, as defined in the stock purchase agreement, for each of the years ending December 31, 2019, 2020, and 2021.

The fair value of the contingent earnout was estimated by management with input from a third party valuation specialist, using a Monte Carlo simulation model consistent with that utilized at the time of acquisition. The valuation utilized certain significant unobservable inputs which included forecast sales projections and discount rate, of 7.6% as of December 31, 2020.

During the year ended December 31, 2021 and 2020, the Company paid $0.7 million and $1.0 million, respectively. As of December 31, 2021, the Company recorded an accrual of $0.5 million for the contingent earnout, which was paid in February 2022. The contingent earnout period ended December 31, 2021, and the Company is not required to make any additional contingent earnout payment.