Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2022

4. Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, operating lease liabilities, warrant liabilities, forward obligation, contingent earnout, and a term loan. Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 – Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities the Company has the ability to access.

Level 2 – Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 – Unobservable inputs that are significant to the fair value measurement and reflect the reporting entity’s use of significant management judgment and assumptions when there is little or no market data. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. These include the Black-Scholes option-pricing model which uses inputs such as expected volatility, risk-free interest rate and expected term to determine fair market valuation.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification at each reporting date. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.

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 June 30, 2022 and December 31, 2021:


	As of
	June 30, 2022
	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:
Cash equivalents:
Money market funds	$	12,299	$	12,299	$	—	$	—
Commercial paper		4,191		—		4,191		—
Total cash equivalents at fair value		16,490		12,299		4,191		—
Short-term investments:
U.S. Treasury securities		4,989		4,989		—		—
U.S. Government agency securities		10,004		10,004		—		—
Commercial paper and corporate bonds		19,220		—		19,220		—
Total short-term investments at fair value		34,213		14,993		19,220		—
Total assets at fair value	$	50,703	$	27,292	$	23,411	$	—


	As of
	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

The following table summarizes the Company's short-term investments, considered available-for-sale, as of June 30, 2022. The Company did not hold any short-term investments as of December 31, 2021.


	June 30, 2022
	Fair Value		Cost Basis		Unrealized Losses Recognized in AOCI
Short-term investments:
U.S. Treasury securities	$	4,989	$	4,993	$	(4	)
U.S. Government agency securities		10,004		10,037		(33	)
Commercial paper and corporate bonds		19,220		19,225		(5	)
Total short-term investments at fair value	$	34,213	$	34,255	$	(42	)

Recurring liabilities included in Level 3 for the periods presented consisted of 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, 2021	$	—	$	—	$	524		$	524
Payment of contingent earnout		—		—		(524	)		(524	)
June 30, 2022	$	—	$	—	$	—		$	—


	Warrant liabilities		Forward obligation		Contingent earnout			Total
	(in thousands)
December 31, 2020	$	1,914	$	2,750	$	930		$	5,594
Payment of contingent earnout		—		—		(681	)		(681	)
Change in fair value		17		150		7			174
June 30, 2021	$	1,931	$	2,900	$	256		$	5,087

There were no transfers in or out of Level 3 during the six months ended June 30, 2022 and 2021.

Warrants

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 Perceptive Credit Holdings III, 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.

In April 2022, the Company amended its term loan and the warrants previously issued to Perceptive Credit Holdings III, LP and certain of its affiliates to purchase an aggregate of 304,105 shares of its common stock. Such warrants were amended solely to reduce the exercise price of the warrants to $12.00 per share. The amendment resulted in revaluation of warrants that was recognized in additional paid-in capital on the unaudited condensed consolidated statement of convertible preferred stock and stockholders’ equity (deficit) as of June 30, 2022.

Warrants issued and outstanding at December 31, 2021 included the following:

As of June 30, 2021, warrants fully vested and outstanding had estimated fair values ranging from $7.35 to $12.62. Fair values were determined using the Black-Scholes option-pricing model with the following input assumptions for the six months ended June 30, 2021:


		Six Months Ended
		June 30, 2021
Expected volatility range (weighted average)		79.10% to 85.51% (80.38%)
Dividend yield		0.00%
Risk-free interest rates range (weighted average)		0.35% to 1.31% (1.12%)
Expected term range (average)		2.50 years to 8.27 years (6.80 years)

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.

- 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.

+ References + Details

Number of warrants

Exercise price per share