Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Measurements

Fair Value Measurements

NOTE 3.  FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, prepaid expenses, other current assets, accounts payable, accrued expenses, and the Term Loan, as defined and discussed in Note 5. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable and accrued expenses approximate the related fair values due to the short maturities of these instruments. Based on prevailing borrowing rates available to the Company for loans with similar terms, the Company believes the fair value of the Term Loan, considering level 2 inputs, approximates this instrument’s carrying value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1   –    Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. treasuries and trading securities with quoted prices on active markets.

Level 2   –    Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Examples of assets and liabilities utilizing Level 2 inputs are corporate bonds, commercial paper, certificates of deposit and over-the-counter derivatives.

Level 3   –    Valuations based on unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.

The following table sets forth the fair value of the Company’s financial assets and liabilities that are measured or disclosed on a recurring basis:

	March 31, 2020
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	100,755	$	100,755	$	—	$	—
Commercial paper		57,710		—		57,710		—
Corporate bonds		49,122		—		49,122		—
Asset-backed securities		10,458		—		10,458		—
U.S. treasury notes		4,021		4,021		—		—
Total	$	222,066	$	104,776	$	117,290	$	—
Liabilities:
Derivative liability for Exit Fee	$	1,051	$	—	$	—	$	1,051
Total	$	1,051	$	—	$	—	$	1,051

	December 31, 2019
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	147,208	$	147,208	$	—	$	—
Commercial paper		56,041		—		56,041		—
Corporate bonds		33,134		—		33,134		—
Asset-backed securities		8,005		—		8,005		—
Total	$	244,388	$	147,208	$	97,180	$	—
Liabilities:
Derivative liability for Exit Fee	$	969	$	—	$	—	$	969
Total	$	969	$	—	$	—	$	969

Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds, U.S. treasury securities and U.S. treasury notes as Level 1. When quoted market prices are not available for the specific security, the Company estimates fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The Company classifies corporate bonds, commercial paper, asset-backed securities and foreign currency derivative contracts as Level 2. In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities such as the Exit Fee, as defined and discussed in Note 4, are classified as Level 3. There were no transfers between Level 1 and Level 2 during the periods presented.