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Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Authoritative guidance on fair value measurements defines fair value, and provides a consistent framework for measuring fair value and for disclosures of each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis. Fair value is intended to reflect an assumed exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


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.


Level 2:	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly for substantially the full term of the asset or liability.


Level 3:	Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities, which require the reporting entity to develop its own valuation techniques that require input assumptions.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):



			Fair Value Measurements at March 31, 2020
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents⁽¹⁾	$	69,346	$	69,346	$	—	$	—
Commercial paper	17,363		—		17,363		—
U.S. Government-sponsored enterprise	20,318		—		20,318		—
U.S. Treasury securities	12,814		12,814		—		—
Corporate debt securities	35,228		—		35,228		—
Total assets	$	155,069	$	82,160	$	72,909	$	—

Liabilities
Common stock warrants	$	25,290	$	—	$	—	$	25,290
Total liabilities	$	25,290	$	—	$	—	$	25,290



			Fair Value Measurements at December 31, 2019
			(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents⁽¹⁾	$	49,077	$	49,077	$	—	$	—
Commercial paper	24,157		—		24,157		—
U.S. Government-sponsored enterprise	33,099		—		33,099		—
U.S. Treasury securities	17,979		17,979		—		—
Corporate debt securities	50,048		—		50,048		—
Total assets	$	174,360	$	67,056	$	107,304	$	—

Liabilities
Common stock warrants	$	23,509	$	—	$	—	$	23,509
Total liabilities	$	23,509	$	—	$	—	$	23,509


(1)	Generally, cash equivalents include money market funds and investments with a maturity of three months or less from the date of purchase.

The Company’s Level 2 financial instruments are valued using market prices on less active markets with observable valuation inputs such as interest rates and yield curves. The Company obtains the fair value of Level 2 financial instruments from quoted market prices, calculated prices or quotes from third-party pricing services. The Company validates these prices through independent valuation testing and review of portfolio valuations provided by the Company’s investment managers.

The Company’s Level 3 liabilities at March 31, 2020 and December 31, 2019 include the Series A warrants issued by the Company in connection with the public offering of common stock in October 2017. The Series A warrants have a term of five years and initially provided holders the right to purchase 4,630,000 shares of the Company’s common stock at an exercise price of $3.50 per share. The Series A warrants were initially valued in the aggregate amount of $5.2 million on the date of issuance utilizing a Black-Scholes pricing model.

The Company reassesses the fair value of the outstanding Series A warrants at each reporting date utilizing a Black-Scholes pricing model. Variables used in the pricing model include the closing market price of the Company’s common stock at the balance sheet date, and estimates of stock price volatility, dividend yield, expected warrant term and risk-free interest rate. The Company develops its estimates based on publicly available historical data. A significant increase (decrease) in any of these inputs in isolation, particularly the market price of the Company’s common stock, would have resulted in a significantly higher (lower) fair value measurement. The assumptions used to estimate the fair values of the outstanding Series A warrants at March 31, 2020 and December 31, 2019 are presented below:



	March 31, 2020		December 31, 2019
Risk-free interest rate	0.3	%	1.6	%
Expected dividend yield	0.0	%	0.0	%
Expected volatility	74.9	%	77.2	%
Expected term (in years)	2.5		2.8

The following table presents a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020			2019
Balance at beginning of the period	$	23,509		$	17,926
Loss recognized from the change in fair value of common stock warrants	1,922			12,746
Decrease in fair value from warrants exercised during the period	(141		)	(910		)
Balance at end of the period	$	25,290		$	29,762

Of the loss recognized from the change in fair value of common stock warrants for the three months ended March 31, 2020 and 2019, $1.9 million and $12.5 million, respectively, was attributable to the change in the unrealized loss related to warrants outstanding as of March 31, 2020 and 2019.

During the three months ended March 31, 2020 and 2019, the Company issued 2,115 shares and 18,285 shares of common stock, respectively, upon the exercise of Series A warrants issued in October 2017. As of March 31, 2020 and 2019, there were Series A warrants outstanding to purchase 415,200 shares and 492,500 shares, respectively, of the Company’s common stock (see Note 7, “Stockholders’ Equity”).

- 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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