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Fair Value Measurements

6 Months Ended

Jun. 30, 2023

5. Fair Value Measurements

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds (included in cash equivalents)	$	73,384	$	73,384	$	—	$	—

Total assets	$	73,384	$	73,384	$	—	$	—

Liabilities:
Warrant liabilities	$	16,878	$	—	$	—	$	16,878

Total liabilities	$	16,878	$	—	$	—	$	16,878


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds (included in cash equivalents)	$	53,552	$	53,552	$	—	$	—
Marketable securities:
U.S. government agency securities and treasuries		13,557		—		13,557		—
Corporate bonds		1,951		—		1,951		—
Commercial paper		12,656		—		12,656		—

Total assets	$	81,716	$	53,552	$	28,164	$	—

Liabilities:
Warrant liabilities	$	19,140	$	—	$	—	$	19,140

Total liabilities	$	19,140	$	—	$	—	$	19,140

There were no transfers within the fair value hierarchy during the six months ended June 30, 2023 or year ended December 31, 2022.

Cash, Cash Equivalents, and Restricted Cash

As of June 30, 2023 and December 31, 2022, money market funds were classified as cash and cash equivalents on the accompanying consolidated balance sheets as they mature within 90 days from the date of purchase.

As of June 30, 2023, the Company had restricted cash balances relating to secured letters of credit in connection with its lease for the Company’s headquarters. Short-term restricted cash is included within prepaid expenses and other current assets in the consolidated balance sheets. The Company’s consolidated statements of cash flows include the following as of June 30, 2023 and 2022 (in thousands):


	June 30,
	2023		2022
Cash and cash equivalents	$	112,027	$	138,057
Short-term restricted cash		1,600		—
Long-term restricted cash		1,377		1,379

Total cash, cash equivalents, and restricted cash	$	115,004	$	139,436

Marketable Securities

No marketable securities were held as of June 30, 2023. As of December 31, 2022, marketable securities classified as Level 2 within the valuation hierarchy consist of U.S. government agency securities and treasuries, corporate bonds and commercial paper which are

available-for-sale

securities in accordance with the Company’s investment policy. The Company estimates the fair value of these marketable securities by taking into consideration valuations that include market pricing based on real-time trade data for the same or similar securities, and other observable inputs. The amortized cost of

available-for-sale

debt securities is adjusted for amortization of premiums and accretion of discounts to the earliest call date for premiums or to maturity for discounts.

Loans Payable

At June 30, 2023, in light of the issuance of the first tranche under the Company’s term loan pursuant the Loan and Security Agreement, dated August 31, 2020, as amended, among the Company, Oxford Finance LLC, or Oxford, as Collateral Agent and a Lender, and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)), or SVB, as a Lender, or the Loan and Security Agreement, the Company believes the carrying value approximates the fair value of the loan.

Warrants

In December 2019, the Company issued warrants to purchase common stock in connection with a private placement of shares of common stock, or the 2019 Warrants. Pursuant to the terms of the 2019 Warrants, the Company could be required to settle the 2019 Warrants in cash in the event of certain acquisitions of the Company and, as a result, the 2019 Warrants were required to be measured at fair value and reported as a liability on the balance sheet. On December 20, 2022, the Company amended the terms of the outstanding 2019 Warrants held by certain members of the Board, or the Amended 2019 Warrants, to remove the cash settlement provision. As a result, the Amended 2019 Warrants were remeasured at fair value on December 20, 2022 and reclassified from a liability to equity on the balance sheet. See Note 10 to the consolidated financial statements included in our Annual Report on Form

10-K

for the year ended December 31, 2022 for further discussion on the equity-classified Amended 2019 Warrants.

In April 2022, the Company issued warrants in connection with an underwritten offering of shares of common stock and warrants to purchase shares of common stock, or the 2022 Warrants. Pursuant to the terms of the 2022 Warrants, the Company could be required to settle the 2022 Warrants in cash in the event of an acquisition of the Company under certain circumstances and, as a result, the 2022 Warrants are required to be measured at fair value and reported as a liability on the balance sheet.

The Company recorded the fair value of the 2019 Warrants and the 2022 Warrants upon issuance using the Black-Scholes valuation model and is required to revalue the 2019 Warrants and the 2022 Warrants at each reporting date, with any changes in fair value recorded in the statement of operations and comprehensive income (loss). The valuations of the 2019 Warrants and the 2022 Warrants are classified as Level 3 of the fair value hierarchy due to the need to use assumptions in the valuations that are both significant to the fair value measurement and unobservable, including the stock price volatility and the expected life of the 2019 Warrants and the 2022 Warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

The estimated fair values of the 2019 Warrants and the 2022 Warrants were determined using the following inputs to the Black-Scholes simulation valuation:

Estimated fair value of the underlying stock

The Company estimates the fair value of the common stock based on the closing stock price at the end of each reporting period.

Risk-free interest rate

. The risk-free interest rate is based on the U.S. Treasury at the valuation date commensurate with the expected remaining life assumption.

Dividend rate

. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.

Expected life

. The expected life of the 2019 Warrants and the 2022 Warrants is assumed to be equivalent to their remaining contractual terms which expire on December 23, 2024 and April 11, 2027, respectively.

Volatility

. The Company estimates stock price volatility based on the Company’s historical volatility for a period of time commensurate with the expected remaining life of the warrants.

A summary of the Black-Scholes pricing model assumptions used to record the fair value of the 2019 Warrants liability is as follows:


	June 30,			December 31,
	2023			2022
Risk-free interest rate		5.40	%		4.74	%
Dividend yield		—			—
Expected life (in years)		1.48			1.98
Expected volatility		82.80	%		79.92	%

A summary of the Black-Scholes pricing model assumptions used to record the fair value of the 2022 Warrants liability is as follows:


	June 30,			December 31,
	2023			2022
Risk-free interest rate		4.49	%		4.22	%
Dividend yield		—			—
Expected life (in years)		3.78			4.28
Expected volatility		91.59	%		98.05	%

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table reflects a roll-forward of fair value for the Company’s Level 3 warrant liabilities (see Note 10 to these unaudited consolidated financial statements), for the six months ended June 30, 2023 (in thousands):


	Warrant liabilities
Fair value as of December 31, 2022	$	19,140
Change in fair value		(2,262	)

Fair value as of June 30, 2023	$	16,878

- 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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